*HOENIG SAYS RISKIER ACTIVITIES SHOULD BE OUTSIDE `SAFETY NET’
*HOENIG: SPLITTING BANKS WILL ‘REINVIGORATE’ INVESTMENT FIRMS
*FDIC’S HOENIG SAYS GLASS-STEAGALL II `IS ABSOLUTELY NECESSARY’
Federal Deposit Insurance Corp board member Thomas Hoenig said today in a Bloomberg Radio that a revival of the Glass-Steagall Act is “absolutely necessary” to protect the U.S. financial system.
Hoenig added that we must take that steps to remove government safety nets from the banks’ riskiest investment behavior and “reinvigorate” the U.S. investment banking industry.
“If we don’t make these changes, I think we’re destined to repeat the mistakes of the past “.
Source:
Glass-Steagall Revival Would Bolster Banks, FDIC’s Hoenig Says
Jesse Hamilton and Kathleen Hays
Bloomberg, June 26 20102
http://www.bloomberg.com/news/2012-06-26/glass-steagall-revival-would-bolster-banks-fdic-s-hoenig-says.html
Category: Bailouts, Regulation
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
You might like his paper here
http://www.kansascityfed.org/publicat/speeches/Restructuring-the-Banking-System-05-24-11.pdf
so your saying basically, those taking risky investments under this regulation would have no backstop any longer, and therefore will be eligible for losses, and potentially their job?
u think the street is ready for this?
Isn’t this a bit of an hyperbole? Lehman was never a deposit taking institution, yet when it went under, it precipitated a crisis that required the government to backstop everything. Isn’t the problem really too-big-to-fail and not a universal banking model?
HAL will not permit this change. (2001: A Space Odyssey)
Another great QOTD!
“Paper money eventually returns to its intrinsic value — zero.” (Voltaire, 1729)
The Bigger Picture!
do I smell an elephant here?
Your average Joe is driven to work harder by the threat of starvation.
Your average company is driven to enhance productivity by the threat of competition.
The big banks are now mainlining and have no time for work – why should they work harder? We keep bailing them out.
They continue to escape because they are the final enablers. Asking a policy maker to punish his own bank is akin to asking him to emasculate himself.
Glass Steagall is better than nothing but its still not good enough.
@ersatzjulian – Before you reinstate Glass-Steagall, you need to define shadow banking (money market funds + financial commercial paper + tripartite repo) as ” commercial banking” for the purposes of the regulation.
“If we don’t make these changes, I think we’re destined to repeat the mistakes of the past ”
And if we want to have that “repeating” option we’d better be right quick about it too!
Glass-Steagall would be nice, but it really is not necessary, if there was an iota of desire to deal with the TBTF banks, there are still the RICO laws, and the Sherman Antitrust Act.
All the necessary evidence is present to launch these instruments of remediation into play. The problem is that no one in the executive branch, the legislative branch, or the judicial branch has the slightest desire to address the problem. Our government is a wholly-owned subsidiary of the Corporatocracy, representative democracy has been dead and buried for several decades now.
Glass Steagall is inconsistent with capitalism for the poor, socialism for the rich. It’s an overused phrase, but that doesn’t make it any less true of current conditions.
Of all the people, 60% are to stupid to undertand the iissue, 39% agree that this is an OBVIOUS need. Ant the remaining 1% are TPTB, and the Bankers, Lobbyists and Politicians who serve them for payoffs. Let’s just hope for the sake of our children that something can somehow get done.
Hoenig is correct on the need to bring back Glass Stegall and the need to only guarantee the payment system and financial intermediation role of banks, but he’s probably not being honest when he says Congress will act here in the next several years (it’s highly doubtful). There’s also a 2nd point he hasn’t addressed, and that the investment banking model that funds itself with lines of credit, commercial paper and repos (e.g. primarily short term money). One of the reasons Goldman and Morgan Stanley applied to have bank units was to fund off the Federal Reserve, the FDIC and the tax payer.
Prevent bailouts; reinstall Glass-Steagall today!
Anytime a former Heisman trophy winner speaks, we should listen….huh….you mean he’s not from Notre Dame….oh, well, never mind.
100% agree!!!
It is an outrage that we have FDIC backing up the Wall Street gambling of these people. Investment activities must in no way shape or form be backed by insurance by FDIC and should be constrained such that it does not put our economy or financial system as a whole in any risk.
As some others have said, the people who could fix the problem don’t want to fix it. For them, its a blessing.
We can expect bigger, ‘better’ collapses as time goes on.
Eventually the people who could have fixed this problem will be seen, by one and all, as evil, stupid, selfish, dangerous, etc. – and given a good tar and feathering trip out of power. Most of them know this is coming and have set up their doomsday protection accommodations already. So, we won’t have the satisfaction of seeing them truly squashed.
Unfortunately, a lot of innocents will suffer, in the meantime, as this unfolds.
The return of Glass-Steagall would be a good start as I wrote about in 2008 (http://ashworthpartners.com/those-who-fail-to-learn-from-history/) but I now further believe that investment banks should only owned by their managers, employees and ‘Accredited Investors’ as defined in Rule 501(a) of Regulation D, and those owners must be personally liable for any losses or misdeeds of the company.
@Giovanni
Yes, I strongly agree. The casino Banks should not be able to gamle with shareholders funds. They should become either an LLP OR a Hedge Fund (Which is essentially what they already are but without telling anyone). If they want to gamle with their own money and that of “Sophisticted” investots, that’s fine because there is no longer ANY expectation of a bailout by the taxpayer and so no Moral Hazard.
Cut the Bullshit, we all know the repeal of Glass-Steagall precipitated the financial meltdown. And we all know it’s reinstatement is not just needed, but necessary. Let’s do the right thing, for a real “change”.
I smell a change of title in his future. Perhaps ‘Regulaotory Compliance Field Auditor’ . Someplace nice, like North Dakota.