Kroszner takes point as Fed shifts
WASHINGTON -- When Randall Kroszner came to the Federal Reserve Board of Governors from the University of Chicago in 2006, a watchdog group warned of his "contempt" for government regulation, and some academics termed his muscular free-market theories out of the mainstream.
So much for economic forecasting.
In the past year, Fed Gov. Kroszner has been the point man as the central bank, in response to the housing and financial market meltdown, has crafted the most sweeping consumer-protection regulations in its modern history: It has proposed wide-ranging national standards for tens of thousands of mortgage lenders and targeted unfair and deceptive credit card practices.
Kroszner has also worked with lenders, loan servicers and non-profit counseling groups as part of wider federal efforts to help millions of troubled borrowers refinance into affordable mortgages.
The Harvard-trained economist's unexpected role illustrates a major shift now underway at the Fed.
Best known to consumers for its power to set interest rates, the central bank also has broad authority to regulate lenders nationwide. Under the chairmanship of Alan Greenspan earlier in the decade, the Fed was reluctant to use its full powers, even as mortgage lenders made risky loans that contributed to the acceleration of the U.S. housing market boom. As housing crashed and financial markets began to founder, the central bank still hesitated, prompting House Financial Services Committee Chairman Barney Frank, D-Mass., to warn the Fed to use its power, or lose it.
In recent months, Fed Chairman Ben Bernanke has pushed an activist agenda of rate cuts, innovative lending and stepped-up oversight. Kroszner, chairman of the Fed's internal committee on consumer affairs, has had a major role in implementing and shaping the central bank's rulemaking.
"Randy knows a free-market failure when he sees one," says Robert Litan at the non-profit Brookings Institution, who served with Kroszner on the Shadow Financial Regulatory Committee, a group of experts who analyze government policy. "There has to be widespread recognition at the Fed that they have to get control of the horses before they bolt from the barn again."
