So, Why Can the Fed Catch Whoever's Ridin' Dirty?

President Obama has spent much of his time this week telling the major banks that they've been very naughty, and pushing for his new regulations that would supposedly end such naughtiness by allowing the Fed to slap "bad" banks with a ruler:

The administration's overhaul plan would make the Fed a systemic risk regulator to oversee large institutions whose failure could threaten the stability of the entire system.

That all sounds lovely, as most government policies do. But, just to refresh my memory, exactly who was it that allowed the housing bubble to explode back in 2001? Oh, that's right - it was the Fed:

1997: Federal Reserve Chairman Alan Greenspan's famous "irrational exuberance" speech in 1996 was somehow ignored by, um, Fed Chairman Greenspan. The Fed missed the opportunity to change margin requirements. Had the Fed acted, the bubble would not have inflated as much, and the subsequent crash would not have been as severe.

2001-'03: Alan Greenspan's Fed dropped federal-fund rates to 1%. Lulled into a false belief that inflation was not a problem, the Fed then kept rates at 1% for more than a year. This set off an inflationary spiral in housing, and a desperate hunt for yield by fixed-income managers.

So, the Fed is rewarded for failing by getting more power, big banks were rewarded for failing by getting hundreds of billions of dollars, and AIG was rewarded for failing by handing all of its losses to the federal government. Gosh, I can't wait until I come up with a good way to fail; I wonder what I'll get as my reward.