Jan VanDenBerg_

Financial Stability and the Fed

These bubbles are best prevented using regulation of the banking/broker/insuran... system, not with changes in monetary policy, such as interest rates.

Isn't that what the Fed is supposed to do -- regulation of the financial system?

We need a more centralized bureaucracy for financial market regulation gathering together all the regulating agencies and it needs to be charged with promoting financial stability, exactly as Mark Thoma suggests.

If leverage throughout the financial system had been adequately regulated, much of the explosion in the broad money supply -- totally ignored by the Fed, who focusses quite incorrectly on narrow money aggregates -- could have been avoided.

Global leverage should be held to reasonable levels.

All financial institutions making loans (so, including brokerages offering sales on margin and not including hedge funds, which receive loans) should be required to maintain reserves of at least 5%. That implies leverage of no more than 20 throughout the entire system. That is quite unlike the 40s and 50s we have been dealing with.

Overleverage must be targetted.

Raising interest rates or tightening monetary policy is not the tool to use. Just regulate leverage.

We also need central registry of the ownership of all derivative products.

Jan VanDenBerg