Obama says the Federal Reserve has done a ‘fine job.’ Has it?

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The prez said today that the Federal Reserve’s response to the financial crisis has been A-OK:

Obama, speaking at a midday press conference, defended the performance of Fed Chairman Ben Bernanke after the financial crisis.

Bernanke has done a “fine job” and “performed well,” the president said.

I don’t think Obama’s praise is entirely unwarranted—coping with a financial crisis is hard, and things probably could have been much worse. But the Fed did a horrible job in anticipating this crisis, or in even seeing that a crisis might at some point be possible. So did all the other financial regulatory agencies, of course, but this still raises questions about how much the Fed will actually be able to accomplish in proposed new its role as systemic risk regulator.

My column for this week is going to be about the attractions of a cruder approach to financial regulation that doesn’t rely so much on regulators being able to anticipate crises—simpler capital rules, maybe a partial return to the Glass-Steagall concept of separating the risky from the essential, and the like. In normal times I think this rules-based approach makes lots of sense. But once a crisis has begun, I’m not so sure. I spent Friday at a day-long meeting of the Financial Regulation Reform Collaborative, which counts among its members regulators, academics, industry types and consumer advocates. I was moderating a panel on which several members were extremely dubious of letting the Fed take on more power as systemic risk regulator. But when I tried to pin down a simple definition of systemic risk—which you’d need if you wanted to adopt simple rules on the subject rather than giving the Fed lots of leeway—I got nowhere. “I know it when I see it,” joked one economist (I’m not naming names because the discussion was supposed to be under the Chatham House Rule), doing his best Potter Stewart imitation. Exactly.