The jig is up. Those that know better than any talking head or political appointee are finally starting to talk - it's not pretty. Tom Hoenig, President of the Federal Reserve Bank of Kansas City and voting member of the Federal Open Market Committee, in a public address:
some of us are certain that in spite of all that’s been done and debated, the soundness of the largest financial institutions and the systemic risks they continue to pose is no better. In my view, it is even worse than before the crisis.
What? The bill written by Chris "I was bribed by countrywide" Dodd and Barney "please please let me stay finance committee chairman" Frank didn't actually do anything? Hard to believe.
Hoenig gives a recommended reading list for understanding the financial crisis:
If you want to know how it happened, read “Thirteen Bankers” and “All the Devils Are Here.” If you want to know how to fix the problem, I highly recommend “Regulating Wall Street,” from New York University’s Stern School of Business. If you want to understand why the American public refuses to ignore the injustices associated with executive compensation in bailed out companies versus budget cuts borne by the middle class, read Rolling Stone’s article “Why isn’t Wall Street in Jail?” If you wonder why “no one saw it coming” then I suggest you read up on Brooksley Born or, a decade later, Meredith Whitney.
And what is the biggest threat to our economy now? Government spending? Unions? Nope.
Today, I am convinced that the existence of too big to fail financial institutions poses the greatest risk to the U.S. economy. The incentives for risk-taking have not changed post-crisis and the regulatory factors that helped create the crisis remain in place.
Yeah...that's right...a high-ranking executive in America's Central Bank said that. And then he said this:
We must break up the largest banks, and could do so by expanding the Volcker Rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis.
An ardent capitalist and central banker says Break Up the Banks.
Hoenig then presents a thorough theory on why the Big Banks act the way they do known as "Banking on the State.":
we have become trapped in a repeating game in which participants continue to seek ever higher and more risky returns while “banking” on the State to fund any losses in a crisis. Large organizations, moreover, are the key players in this process as States become more immersed in the perception during a crisis that they must protect any bank regarded as systemically important. We must stop this game if we are to create a more stable financial system and not condemn ourselves to an escalating series of crises with rapidly rising costs.
If the bankers KNOW they will get a bailout if they lose and get to keep the money if they win - they'll take greater risks. Makes sense no?
Hoenig points out since Clinton's deregulation of the banking system, concentration has increased. Hoenig also leaves a chilling warning:
Market participants and large financial institutions have little reason to doubt that they will be bailed out again...It is ironic that in the name of preserving free market capitalism in this country, we have undermined it so deeply.
Hoenig then goes on to dismantle the effectiveness of every weakass reform in Dodd-Frank ultimately concluding:
If too big to fail organizations cannot be effectively supervised, capitalized, or resolved – which is exactly where I contend things stand right now – what option remains? For me, the answer is firm: they must be broken up. We must not allow organizations operating under the safety net to pursue high-risk activities and we cannot let large organizations put our financial system at risk.
In America, a land now dominated by the FIRE economy and wealth inequality, one rarely sees Truth being spoken to Power. Rarer still, is Power speaking Truth!
Despite the apparent breakthrough don't expect changes, FIRE still owns the government. Burn baby burn!