Politicizing regulation

We have previously noted the open and shameless intimidation of businesses by politicians in the barmy attempt by the administration to regulate CO2. And of course Obama now owns and calls the shots at the auto companies. Now we see a similar scenario in the case of Citigroup. The FDIC (Citigroup’s third regulator behind the Fed and the OCC) is trying to muscle its way in to become the most influential regulator. WSJ:

The Federal Deposit Insurance Corp. is pushing for a shake-up of Citigroup Inc.’s top management, imperiling Chief Executive Vikram Pandit, people familiar with the matter said. The FDIC, under Chairman Sheila Bair, also recently pressed a fellow regulator to lower the government’s confidential ranking of Citi’s health…

The FDIC’s willingness to take an increasingly tough position toward one of the nation’s largest and most troubled financial institutions is setting up a bitter clash between regulators — some of whom disagree with the FDIC’s position — and between the FDIC and Citigroup, whose officials have argued that Ms. Bair is overstepping her authority…

The FDIC’s aggressive stance comes just ahead of the Obama administration’s big revamp of financial oversight, which is expected in mid-June. Several regulators, including the FDIC, are hoping to win additional powers, and some may end up losing authority…

Citigroup officials believe that the FDIC will push them onto the “problem” list if they don’t remove Mr. Pandit and his team. They fear being on the list could limit Citigroup’s access to federal programs and prompt trading partners and clients to yank business.

Citigroup is one thing; US monetary policy from an independent central bank quite another. Larry Kudlow: “when you talk to traders and economists, the whisper story is that Bernanke and the Fed are no longer truly independent of the Obama White House and Treasury. As a result, Bernanke will not be able to slow down the printing presses and gradually lift the near-zero target rate in a timely and effective manner. Already the Fed has created more than $1 trillion in new cash, and the M2 money supply is growing at its fastest pace in 25 years.”

Ben Bernanke’s term expires in January. Given all we’ve seen thus far from this administration, we expect Obama to attempt to curtail the critically important independence of the Fed if it interferes (which an independent Fed would have to) with the administration’s policy objectives.

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