But there's a great writeup in BusinessWeek about the approach of Thomas Hoenig, the President of the Federal Reserve Bank of Kansas City. Well worth the read. The observations are really pretty straightforward when you boil them down. And they're getting into the mainstream corporate media.
1. There's a difference between rescuing the banking system and rescuing big banks. Community banks are who have good business plans that add value to the economy.
2. The Fed isn't equipped to handle the present situation; monetary policy simply doesn't do much when the problem is too much credit. In fact, Greenspan and Bernanke are responsible for precisely some of the conditions that have created booms and busts over the past couple decades.
3. We should break up any entity deemed 'too big to fail'.
Or as the article writes
The hard truth, in his view, is that there just isn't much more the Fed can do to help, and we all ought to admit that.
We've had a Treasury Secretary from Goldman Sachs (GS) under a Democratic President and a Treasury Secretary from Goldman Sachs under a Republican President. The outcomes were not good,"
"What I took from that," says Hoenig, "was that it followed a period of very easy credit. It followed a period when people felt prices could only go up." Feel-good rates, in other words, led to excessive leverage and crisis. "I find it very interesting today," Hoenig continues, "how many people don't remember the late 1970s-early 1980s."
When community banks stumble, he adds, they are allowed to fail. When Wall Street collapsed, it got a heroic rescue. "I would break them up," Hoenig says of Citigroup (C), JPMorgan Chase (JPM), and Bank of America (BAC). "They're too big. They have too much political influence. When they get in trouble again, the temptation to rescue them because they are 'too big to fail' will be very strong."
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