The Kansas City Federal Reserve President, Thomas Hoenig, spoke truth to power in a speech to the U.S. Chamber of Commerce, titled The Financial Foundation for Main Street. This is how it starts out:
If we stray from our core principles of fairness or ignore the rule of law, we distort the playing field and inevitably cultivate a crisis. When the markets are no longer competitive, firms become a monopoly or an oligopoly and it matters more who you know than what you know.
Then, the economy loses its ability to innovate and succeed. When the market perceives an unfair advantage of some over others, the very foundation of the economic system is compromised.
"[I]t remains tempting to pour additional funds into large firms in hopes of a turnaround,” {Kansas City Fed Chief Thomas] Hoenig said today in remarks prepared for a hearing of Congress’s Joint Economic Committee in Washington. Yet efforts “to protect our largest institutions from failure risk prolonging the crisis and increasing its cost.”
....
Hoenig said “we must maintain limits on financial leverage through strict rules setting minimum capital-to-asset ratios” to avoid risks of excessive leverage at financial companies.
Hoenig reiterated his view that the government, rather than prop up failing financial institutions, should temporarily take them over and wind them down. Speaking April 9 in Tulsa, Oklahoma, he said calling an institution “too big to fail” is a “misstatement.”
Recent comments