"Fed''s Hoenig: "Too Big Has Failed"
This is important dissension in the reserve system ranks. Here is Kansas City Fed President Thomas Hoenig explaining why current bank policy has failed, and why we're already nationalizing banks, but doing it wrongly.
We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions. ... We have been quick to provide liquidity and public capital, but we have not defined a consistent plan and not addressed the basic shortcomings and, in some cases, the insolvent position of these institutions.
We understandably would prefer not to "nationalize" these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis.
Read the whole thing. It is highly recommended.
Don the libertDem
Based on the actions in September, with Wachovia, Merrill, etc, the plan must have been to have an insolvent large bank merge with another large bank, at whatever subsidized cost to the government that was necessary. This in effect made Too Big To Fail a government policy. Now that we know large banks are the problem, this makes the current crisis a puzzle without a solution. Plus, since we have encouraged these behemoths, like the B of A and Merrill, to merge, we're sort of stuck propping them up come what may. In other words, to get out of this behemoth created mess, we have to create behemoths in the short term.
Also, in saying that the US taxpayer must fund these behemoth's debts to stop a Calling Run, we've announced that, even as the taxpayers have to spend more money, the investors are actually more important than the taxpayers. At the very least, we need to acknowledge that we need to go back to the drawing board. I'm pushing narrow banking, but anything is better than this. When you need to keep proven buffoons in management because you can't find anybody else, you know that you're in bad shape.