THE SCANDAL OF THE DOLLAR

Just when it looked like the financial crisis couldn't get worse, Congressman Henry Waxman, among others, is threatening to mount an investigation into the collapse of Bear Stearns. He is alarmed over the Fed's role in facilitating the liquidation of the investment banking house and delivering its remains to J.P. Morgan Chase. To which we can only say that if Congress wants to find a scandal, the one to look at is the collapse not of Bear Stearns but of the dollar, which in the past seven years has plummeted to less than a 900th of an ounce of gold from the 265th of an ounce it was worth at the start of President Bush's first term.

To discover who needs to be held accountable for this collapse, Congress need only look in the mirror. America's founders were perfectly clear, as they set forth in one of the Constitution's most unambiguous clauses, that it is Congress that has the power "to coin money, regulate the value thereof, and of foreign coin." Maybe Mr. Waxman can subpoena Spiderman to remind him that with great power comes great responsibility. Congress had responsibility to take care of the instrument that is relied on by banks, their customers, foreign governments, merchants, laborers and everyone else to transmit price signals.

So where was Congress during the long collapse? No doubt it will try to blame the Treasury and the Federal Reserve. But it was the House of Representatives that took the powers delegated to it by the Founders and — after a long string of banking crises— delegated the powers to the Federal Reserve in 1913. But the founders of the Fed, as James Grant puts it in Grant's Interest Rate Observer this week, are likely "waiting in hell to get their hands around the necks of the people who have abused each and every one of their most deeply cherished precepts."

Those people include the Congress, which, among other sins, loaded onto the Fed the task of maintaining responsibility not just for the dollar but also for employment. After Bretton Woods came under stress in 1971, it was Congress that bowed to President Nixon and de-linked the dollar from gold, seemingly for good. Drunken sailors, to whom the Congress, in fiscal matters, is sometimes loosely compared, may spend, but they can't tax. Congress does both, and with the accession of the Democrats to the leadership, it has begun to talk about raising taxes on the most productive parts of society and protecting what remains of domestic industry. Brother, can you spare a dime?

The Fed has been accommodating all this for years, with the result that we are in a credit crisis superimposed on a dollar crisis. The Fed has responded by taking on new risks. As of Wednesday, the New York branch of the central bank showed $10.2 billion of capital, on which was balanced no less than $90.9 billion of loans backed by undisclosed, possibly dubious, collateral. The task before congressional investigators goes way beyond Bear Stearns to the value of the dollar in which all of this is measured and which is the Congress's unavoidable responsibility.