This article first appeared in the St. Louis Beacon.

The presidential administration is bent on centralizing power. The most obvious example is its proposed plan to extend significantly the role of government in making your health-related decisions. Although overshadowed by the health care debate, another significant proposal to coalesce control is the Treasury’s plan to elevate the Fed to uber-regulator. Let me focus on the proposed change in Fed oversight.

The current system, though seemingly dysfunctional, is based on regulatory specialization. The SEC regulates the securities industry; the comptroller oversees national banks; the FDIC manages deposit insurance and closes troubled banks, etc. Instead of more regulation, we probably could use better management of the regulations we have — hence, the idea to centralize many of those disparate functions under the Fed’s roof.

Would the Fed have done a better job of managing financial market disturbances if it had been in charge prior to 2008? Alan Blinder, a former vice chairman of the Fed, thinks so. As he suggested recently in a New York Times editorial, “Because the market for residential mortgages and the mountain of securities built on them constituted the largest financial market in the world, that regulator [the Fed] probably would have kept a watchful eye on it. If so, it would have seen what the banking agencies apparently missed: lots of dodgy mortgages being granted by nonbank lenders with no federal supervision.”

Even though the Fed is not the regulator of all lenders, it was and is the banking industry watchdog. Those at the Fed were well aware of the implications for bank balance sheets of changes in financial markets related to mortgage lending. Fed Governor Mark Olson noted in a cautionary speech that “banks have accumulated mortgage-related assets both in their loan-portfolios and in the form of mortgage-related securities.” That was 2003. So, the Fed does watch what affects bank balance sheets, and it should have seen what was happening.

Even if the Fed is reluctant to step directly into the workings of financial markets, it should have made clear through speeches and public pronouncements that these assets that banks (and others) were rapidly accumulating carried significant potential risks.

The Fed knew that the rapidly growing mortgage market was being transformed in significant ways. The Fed knew that mortgage-backed securities were becoming a major part of the financial market. Knowing all this, the Fed said little and did even less.

In retrospect, the difficulty stemmed largely from the market’s inability to price these securities. With property values skyrocketing, the question was how to price the asset — say, your house in Las Vegas —underlying the security that banks purchased. Long-time student of Fed policy Anna Schwartz wrote, also in the New York Times, that “the Fed at no point clearly warned investors that these new instruments were difficult to price.” If the Fed failed to “jawbone” markets in the past, how will it react to uncertain events in the future?

When it did act, the Fed made a serious blunder. Allying itself with the Treasury in the bailout of financial firms in late 2008, it joined the game of picking winners and losers. This time, however, its actions had serious ramifications: Its decision to prop up Bear Stearns but let Lehman Brothers go under led to a freeze of confused financial markets. As Schwartz puts it, “participants were at a loss to understand the functioning of the Fed” following this fiasco.

Markets hate uncertainty. The Fed’s recent actions raise the specter of regulatory activity without clearly stated and understood objectives. Would such policy uncertainty continue if the Fed were overseeing the entire financial structure? Can we trust the Fed to competently juggle even more regulatory balls? I do not think so.

Rik W. Hafer is distinguished research professor and chair of the Department of Economics and Finance at Southern Illinois University Edwardsville and a scholar at the Show-Me Institute.