CNBC Video: Kansas City Fed President Thomas Hoenig speaks on the future of the U.S. housing market, and the state of the deleveraging process -- Aug. 23, 2010
Nothing groundbreaking, but it's always good to hear from Hoenig. Interesting comments on leverage and housing. Runs 5 minutes.
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Tip to Greg White for time-stamped comments:
0:30 -- If you run much higher leverage, your margin for error slims out, as you have less capital. The debt will remain, and, like in the crisis we're in, your capital remains low. In the future their needs to be more capital on hand at banks to deal with asset devaluations.
1:40 -- The claim that a credit crisis will be caused by new rules increasing capital is what is standing in the way. We need to give the banks time. The deleveraging of the country has to take place.
3:00 -- "If the American people are looking for the housing market to be their investment opportunity, I think they're making a mistake." The economics of the industry, and the excess supply is standing in the way of growth, and this was caused by leverage.
3:45 -- Would like everyone to have a home, but if it's not possible, and we try to make it possible, we create the next problem.
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OVERLAND PARK, Kansas (Dow Jones)--The troubled U.S. housing market is not a place where Americans should speculate or look to invest, the chief of the Kansas City Federal Reserve said Monday.
"If the American people are looking at the housing market to be their investment opportunity, I think they are making a mistake," said Thomas Hoenig, president of Federal Reserve Bank of Kansas City.
The housing market remains burdened by excess supply, a condition that was created by providing financing leverage at levels that were considered "nonsense," Hoenig said during testimony at a field hearing by the U.S. House Financial Services Committee's oversight and investigations subcommittee in Overland Park, Kan.
Future financing in the housing market, currently in the hands of Congress and the Obama Administration, will require regulatory oversight, he said.
"It's more than just what do you do with Fannie [Mae] and Freddie [Mac], that's hard enough, but it's how you're going to decide to finance housing in America in the future and what impact it will have on regional community banks," said Hoenig.
He sees continued improvement in the U.S. economy, though there are issues that need to be addressed.
"I think the economy will continue to improve, I think we will have new opportunities and we will prosper. However, we have some things to get through," he said.
There is a great deal of uncertainty about regulatory issues related to the U.S. health-care and financial reform laws, he said. Once those issues are resolved, it will be easier to move the economy forward.
The U.S. also must systematically deal with its burgeoning national debt "to give the American people confidence that we won't try and solve it all in one year, but we'll get on a path and we'll solve it and therefore consumers and businesses can make decisions that are long term...and then we can think of very optimistic outcomes for the U.S. economy," said Hoenig.
The Kansas City Fed chief made his remarks during the hearing titled "End of Excess," chaired by Rep. Dennis Moore (D., Kan.).
Hoenig testified that the too-big-to-fail policies that have propped up the nation's largest banks have given them greater leverage and consistently lower cost of capital and debt, putting smaller community banks at a disadvantage.
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