"It does not make sense to give a bigger shovel to the very people who helped dig us into this hole." Sen. Chris Dodd, Banking Committee Chairman
In case you are wondering, the people with the shovel are the regulators at the Federal Reserve. The Treasury wants the Fed to oversee "Market Stability." Under the blueprint released today, the Fed would have the authority to gather information across markets and "take actions when necessary" in the interests of overall financial stability.
Does the Fed want this authority? Considering Chris Dodd's remarks, I doubt it. Making the Fed a kind of uber-regulator means the fingers will all be pointed at the central bank when anything goes wrong. It's also unclear whether the Fed would have the authority it needs, let alone the resources to carry out its new charter.
One could argue that the Fed, by acting as a crisis manager, is also acting as the "market stabilizer." It makes sense to define some of the parameters of the Fed's responsibilities in this regard, but that's different than giving the entire job to the Fed.
