Two excellent new stories on Kansas City Fed Chief Thomas Hoenig. Both are short and worth reading in full. As Fed watchers know, Hoenig and Dallas Fed Head Richard Fisher are the lone voices of sanity among the 12 Fed governors. We have covered him extensively in the past.
Scan the headlines in the Thomas Hoenig archives
Now onto the stories.
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KANSAS CITY, Mo. — Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, one of the most outspoken members of the Federal Open Market Committee, has never been shy when it comes to his opinion.
As his 20-year tenure comes to a close on Oct. 1, Hoenig sat down with American Banker to talk about a range of topics, including the missed opportunity to eliminate 'too big to fail' in Dodd-Frank, his duty to be forthright as the longest serving policy maker, and what his future plans might be — including the prospect of moving to Washington. This is an abridged edited version of the interview with Hoenig.
Q: You've been a strong critic of Dodd-Frank, how do you think the law has fallen short and how do we correct it?
HOENIG: The Dodd-Frank bill now defines what a systemically important financial institution is, which makes it now a kind of broad notice that these are the institutions that are 'too big to fail.' That means we will further concentrate our financial system to these powerful few companies, and therefore make it even more fragile in the sense of financial vulnerability to the taxpayer. I don't think that's healthy.
Q: Banks seem very concerned about how much capital they are going to have to raise as a result of Dodd-Frank and Basel III.
HOENIG: They're concerned about their return on equity, and I'm concerned about the safety of the banking system and the American depositor and taxpayer. All the safety net has done is allowed them to leverage up to their advantage on the backs of the American taxpayer. I have a hard time as a person, who is more concerned about the safety of the system and the taxpayer, to worry about their position.
Q: You've said the only solution is to break up the banks and strengthen the 'Volcker Rule.' Would that undo the codification of 'too big to fail'?
HOENIG: You can mitigate. You can make it less likely that they are 'too big to fail' because you separate out these horribly, complex instruments from the institution, therefore you can address the risk in those institutions more directly.
Q: Did Dodd-Frank make the financial system any safer?
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Fed’s Hoenig has no interest in zero interest - Commentary: Lonesome populist won’t leave the scene quietly
NEW YORK (MarketWatch) — I have a feeling I may live long enough to write a column acknowledging that Thomas Hoenig was right.
By then, people may say, “Who the heck is Thomas Hoenig?”
And I’ll write: “Hoenig is that former Federal Reserve guy from Kansas City who warned that the Fed was blowing dangerous bubbles. He repeatedly cried that all that free money for all those too-big-to-fail banks could end badly if it went on for too long. He dissented, when he could vote, and he put up arguments, when he could speak, only to be called a burr in Fed Chairman Ben Bernanke’s saddle. So the free money kept flowing, and ka-boom, here we are, another unprecedented economic crisis.”
Earlier this week, I followed Hoenig around a small manufacturing company in Steamboat Springs, Colo., called Moots. It makes high-end bicycles from titanium. A decent Moots bike can cost more than $10,000. But even in these difficult economic times, people buy them, and the company is thriving.
A titanium bicycle frame isn’t for everyone, but it lasts forever, Mike Sanders, operations manager for Moots, explained. Somehow, Moots has found a way to build titanium bikes in America and sell them in Asia.
Imagine a nation made from titanium as opposed to paper.
“Countries that make things ... are ... prosperous,” Hoenig observed while reflecting on his visit to Moots. “Those that outsource too much are less prosperous over time.”
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