Thomas Hoenig: SIFI's put capitalism at risk

[Winehole23]

http://www.kansascityfed.org/publicat/speeches/Hoenig-NYUPewConference-06-27-11.pdf

[Marcus Bryant]

Here. Here.

[boutons_deux]

Ain't ever gonna happen, Wall St owns, dictates to the govt, both parties.

The last time Wall St got kicked seriously into reform was 1929-1932 and FDR, Pecora, Glass-Steagall. ALL of that is undone now. Dodd-Frank financial reform has been totally gutted, defunded.

But you have to admire the correctness of the guy's extremely radical thinking.

[ElNono]

He's been preaching that tune for a while. See:
http://www.kc.frb.org/speechbio/hoenigPDF/Omaha.03.06.09.pdf

Sounds more like a post-mortem though. He's retiring on Oct 1st.

[boutons_deux]

capitalism is a risk in any case, TBTF banks or not.

Every time capitalism has a free reign, unfettered by enforced govt regulations, it fucks up.

[Winehole23]

In addition to materially increasing the size of the largest financial institutions, the government's response to the crisis through TARP and other efforts made explicit what many had long suspected -- that certain institutions had amassed so much economic power, both individually and collectively, that the government simply could not allow them to fail. Further, the manner in which the bailouts were conducted served to exacerbate market distortions by protecting against loss other market participants who, in a normally-functioning market without government guarantees, would have imposed the necessary market discipline to compel the largest institutions to contain their excessive accumulation of risk. For example, the bailed-out institutions' creditors and counterparties largely suffered no losses, reinforcing their belief that they too would be protected in a crisis. Similarly, the executives who were responsible for leading their firms into the crisis retained their outsized pre-crisis risk-enhanced payouts (and often their jobs); and shareholders were largely spared the total loss that they would have suffered absent government intervention. In other words, the bailouts largely rewarded stakeholders who relied on the implicit guarantee of a government bailout, and punished only those who had to pay for it -- the taxpayers.http://www.huffingtonpost.com/neil-barofsky/wall-street-finance-crisis-_b_892312.html

[coyotes_geek]

Yay bailouts! :rolleyes

[Winehole23]

Barofsky isn't cheering.

[coyotes_geek]

Just expressing my general frustration. Comment wasn't intended for Barofsky.

[Winehole23]

I share the frustration.

[Winehole23]

Federal Reserve Bank of Dallas President Richard Fisher (http://topics.bloomberg.com/richard-fisher/) said regulators should break up so- called too-big-to-fail financial institutions to curtail the risk they pose to financial stability.



“I believe that too-big-to-fail banks are too-dangerous- to-permit,” Fisher said in the text of remarks given in New York today. “Downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response. Then, creative destruction can work its wonders in the financial sector, just as it does elsewhere in our economy.”
http://www.bloomberg.com/news/2011-11-15/fed-s-fisher-regulators-should-break-up-behemoth-banks.html

[coyotes_geek]

^^^ Amen to that. Break up the banks!

[boutons_deux]

the banks need to go back to Glass-Steagall

FDIC-insured commercial/retail banks cannot have or be related to insurance companies nor investment banks, nor be allowed to trade on their own account.

All lenders of govt-insured mortgages MUST service the mortgage to maturity (no MBSs).

The above would have a huge reduction in financial system risk, increase stability to a boring level, but the above has no chance in hell because the financial sector owns Congressa and the Exec, having purchased the current financial deregulation and instability.

[Winehole23]

Two Fed presidents speaking out in favor of a strong resolution authority puts the idea much closer to mainstream status. May take the prospect of another multi-trillion dollar bailout to ignite broader interest, but the seeds are there.

[boutons_deux]

The Fed doesn't doesn't write financial legislation, nor does it make the rules.

I'll put the $100Ms the financial sector spends to buy Congress to maintain the status quo AND kill any attempts at regulation against any fucking murmuring from Fed guys.

[Winehole23]

Don't you ever get tired of saying the same thing over and over again?

[Winehole23]

You should go play with a poisonous snake or something. End your misery and ours.

[Winehole23]

in before gfy

[boutons_deux]

Don't you ever get tired of saying the same thing over and over again?

the same shit applies over and over again.

You guys love sterile debates, trivial "enculer la mouche" one-upmanship, while missing the big picture, which not one of you has any idea of how to fix in practice.

[MannyIsGod]

Don't you ever get tired of saying the same thing over and over again?

Shouldn't that apply to everyone in here?

[Winehole23]

Some more than others, but sure.

[Winehole23]

You guys love sterile debates, trivial "enculer la mouche" one-upmanship, while missing the big picture, which not one of you has any idea of how to fix in practice.How would you fix it, o great croutons?

[boutons_deux]

One of the items I keep repeating is that there is no fix (within reach), o great CornHole.

Any fix would come only from the Dems, but the Dems can't ever get 60 in the Senate to overcome Repug filibuster of (financial regulation) bills. GAMEFUCKINGOVER.

(but of course the Dems are also owned by the financial sector, so GAMEFUCKINGCANCELLED. )

[Winehole23]

Oh, so all we have to do is elect Dems. Problem solved.

[coyotes_geek]

blue team had the opportunity to do something with the banks in 09-10, but decided to fritter it away wasting time on their POS healthcare bill..........

[boutons_deux]

"blue team had the opportunity to do something with the banks in 09-10"

no, what blue team really had has blue dog senators that precluded 60 votes.

[coyotes_geek]

A lame excuse designed to cover blue team's complete disinterest in breaking up the TBTF's.

[boutons_deux]

I didn't say the Dems would have broken up the TBTFs, you did.

I said if TBTF breaking up were to come, it would come from the Dems and never the Repugs, but even if the Dems wanted to, they couldn't get 60 in the Senate due to DINO blue dogs.

[coyotes_geek]

Yet the majority of the political opposition to bailing out the TBTF's came from republicans and I can think of at least two republican presidential candidates who are at least talking about breaking up the TBTF's.....

Volcker is for it, there seemed to be a pretty decent chance of getting some republican support for it. The situation seemed right for Obama to at least make an attempt at breaking up the TBTF's, but no.............

[Winehole23]

Politico just did a bit on Hoenig

Looks like he was more or less right about asset bubbles, inequality and the unremovable punch bowl of QE.


While Hoenig was concerned about inflation, that isn’t what solely what drove him to lodge his string of dissents. The historical record shows that Hoenig was worried primarily that the Fed was taking a risky path that would deepen income inequality, stoke dangerous asset bubbles and enrich the biggest banks over everyone else. He also warned that it would suck the Fed into a money-printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system.

[Winehole23]

For Hoenig, the most dispiriting part seems to be that zero-percent rates and quantitative easing have had exactly the kind of “allocative effects” that he warned about. Quantitative easing stoked asset prices, which primarily benefited the very rich. By making money so cheap and available, it also encouraged riskier lending and financial engineering tactics like debt-fueled stock buybacks and mergers, which did virtually nothing to improve the lot of millions of people who earned a living through their paychecks.

In May of 2020, Hoenig published a paper that spelled out his grim verdict on the age of easy money, from 2010 until now. He compared two periods of economic growth: The period between 1992 and 2000 and the one between 2010 and 2018. These periods were comparable because they were both long periods of economic stability after a recession, he argued. The biggest difference was the Federal Reserve’s extraordinary experiments in money printing during the latter period, during which time productivity, earnings and growth were weak. During the 1990s, labor productivity increased at an annual average rate of 2.3 percent, about twice as much as during the age of easy money. Real median weekly earnings for wage and salary employees rose by 0.7 percent on average annually during the 1990s, compared to only 0.26 percent during the 2010s. Average real gross domestic product growth — a measure of the overall economy — rose an average of 3.8 percent annually during the 1990s, but by only 2.3 percent during the recent decade.

The only part of the economy that seemed to benefit under quantitative easing and zero-percent interest rates was the market for assets. The stock market more than doubled in value during the 2010s. Even after the crash of 2020, the markets continued their stellar growth and returns. Corporate debt was another super-hot market, stoked by the Fed, rising from about $6 trillion in 2010 to a record $10 trillion at the end of 2019.

And now, for the first time since the Great Inflation of the 1970s, consumer prices are rising quickly along with asset prices. Strained supply chains are to blame for that, but so is the very strong demand created by central banks, Hoenig said. The Fed has been encouraging government spending by purchasing billions of Treasury bonds each month while pumping new money into the banks. Just like the 1970s, there are now a whole lot of dollars chasing a limited amount of goods. “That’s a big demand pull on the economy,” Hoenig said. “The Fed is facilitating that.”
https://www.politico.com/news/magazine/2021/12/28/inflation-interest-rates-thomas-hoenig-federal-reserve-526177

[Winehole23]

This is what we did in the 1980s and 1990s. Sent insolvent banks into receivership.

In the Great Recession, Obama "saved" the banks and sent homeowners into receivership.

Board conservatives here mostly blamed the borrowers instead of lenders or monetary policy, and were horrified by suggestions to break up banks that lent money irresponsibly, because that would be socialism, even though government receivership has been the fix for failed banks in the US for 85 years.


After his retirement from the Fed, he served as stint as vice chairman of the FDIC, where he pushed an unsuccessful proposal to break up the big banks