Fed and Regulation

In trying to get ahold of the faulty regulatory structure in our government, one big question is what should be the Federal Reserve's role in all this. This from the Washington Post today:

The Federal Reserve is best known as an economic shepherd, responsible for
adjusting interest rates to keep prices steady and unemployment low. But since
its creation, the Fed has held a second job as a banking regulator, one of four
federal agencies responsible for keeping banks healthy and protecting their
customers. Congress also authorized the Fed to write consumer protection rules
enforced by all the agencies.

During the boom, however, the Fed left those powers largely unused. It
imposed few new constraints on mortgage lending and pulled back from enforcing
rules that did exist.

The Fed's performance was undercut by several factors, according to
documents and more than two dozen interviews with current and former Fed
governors and employees, government officials, industry executives and consumer
advocates. It was crippled by the doubts of senior officials about the value of
regulation, by a tendency to discount anecdotal evidence of problems and by its
affinity for the financial industry.

My vote is, relieve the Fed of the responsibility.