Parsing Paulson’s proposal

Treasury Secretary Henry Paulson will formally unveil his blueprint for financial reform Monday. The new plan would vest vast new powers with the Federal Reserve, though at The Wall Street Journal, Greg Ip warns that the Fed is “being asked to do a job that may be beyond anyone’s ability: Identify and avoid a crisis in advance.” At Time, Justin Fox warms to the idea of a business-conduct regulator, arguing that “financial products, in particular loans, are useful but potentially dangerous things,” and that a well-run, agressive agency could limit damage from “financial markets’ inevitable episodes of insanity.”

One commentator who unsurprisingly opposes the whole proposal is investment adviser Michael Shedlock of Sitka Pacific. Shedlock, a longtime proponent of returning to the gold standard, says the Fed has created a series of financial crises through its easy money policies. “In the long run, the only solution is to abolish the Fed, end government sponsorship of the ratings agencies, and return to sound monetary policies in Congress with a currency backed by hard assets instead of promises,” he writes. “Instead, the proposal is to give Fed increased authority to watch over additional henhouses. And if there’s one thing worse than the fox watching the henhouse, it’s the Fed watching the henhouse. A quick look at history should be enough to convince anyone of that.”