The NYT told readers about a deal between the Senate and the Obama administration to establish a council of regulators that would have the responsibility of identifying systemic risk. It then adds that the council:
"addresses one of the primary lessons of the near debacle: that no one had been assigned to ensure the stability of the system as a whole and detect the kinds of excessive risk-taking and imbalances that could rock an entire economy."
This is not true. The Federal Reserve Board had the responsibility to prevent systemic risk and acted upon this authority when it considered it appropriate. The two most obvious examples were in 1987 when the Fed intervened to support the stock market and halt the crash and in 1998 when it intervened to arrange an orderly unraveling of the Long-Term Capital Hedge Fund.
The Fed clearly understood that it had the responsibility to contain systemic risk. It just failed disastrously in carrying through with this responsibility during the years of the housing bubble. It is not the media's job to cover up this failure for the Fed.
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