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Conventional Fed Wisdom, Defied
NY Times ^ | August 13, 2011 | GRETCHEN MORGENSON

Posted on 08/14/2011 3:49:08 PM PDT by neverdem

NEWS last week that the Federal Reserve would keep interest rates near zero until mid-2013 was welcomed by many investors, but the bleak message about the economy still came through loud and clear.

The Fed has spent several years trying to kick-start the economy with low rates and other policies, with little success. Which raises this question: Will more of the same help now?

Among the doubters is Thomas M. Hoenig, the soon-to-be former president of the Federal Reserve Bank of Kansas City. Mr. Hoenig, at the helm of the Kansas City Fed for the last 20 years, has thought long and seriously about the problems facing the central bank, and he spoke with me about them last week after attending his final meeting of the policy-making Federal Open Market Committee. He will turn 65 next month, the mandatory retirement age for a Fed bank president.

Mr. Hoenig has been pretty much alone among Fed presidents in publicly calling to break up large banks that are too big to succeed.

“Extremely powerful institutions, both financially and politically, undermine the long-term strength of our system and make us look like a financial oligarchy,” he told me. This view, of course, receives little applause in Washington and on Wall Street.

Mr. Hoenig has espoused this view for more than a decade, and he has grown accustomed to being...

--snip--

More recently, in the aftermath of the 2008 crisis, Mr. Hoenig has continued to counter the conventional wisdom in Washington. “The Dodd-Frank legislation, for all its 2,300 pages, does not fix the fundamental problem of too-big-to-fail banks,” Mr. Hoenig said last week. “I think the post-Depression response was the answer — you break them up. If you are going to have access to the safety net, you are going to limit your activities.”...

(Excerpt) Read more at nytimes.com ...


TOPICS: Business/Economy; Crime/Corruption; Front Page News; Politics/Elections
KEYWORDS: doddfrank; fanniegate; fed; federalreserve; hoenig; thefed; thomashoenig; thomasmhoenig; toobigtofail
Fanniegate: Gamechanger For The GOP?

That's a review of Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon, by Gretchen Morgenson and Joshua Rosner. Morgenson is one of the few reasons to read the NY Times.

The Japanese stock market collapsed two decades ago. They had an overpriced real estate market and zombie banks with unresolved bad loans. They had yet to recover before the earthquake and tsunami.

Don't expect our economy to recover before the subprime loan mess is resolved, IMHO.

1 posted on 08/14/2011 3:49:10 PM PDT by neverdem
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To: neverdem

Wouldn’t it be great if the Executive and Legislative branch actually did their job and addressed the problems of jobs and economic growth directly?

Crushing regulations, onerous taxes, litigation, and not the least of which - OBAMACARE. Who can do business?


2 posted on 08/14/2011 4:12:19 PM PDT by MichaelCorleone (Those who love liberty love Sarah)
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To: neverdem

I read Reckless Endangerment. It’s a great book, I’d recommend it to everyone.


3 posted on 08/14/2011 4:18:23 PM PDT by Brilliant
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To: MichaelCorleone

Federal Reserve would keep interest rates near zero until mid-2013 - (Translation QE3 by any other name)


4 posted on 08/14/2011 4:19:09 PM PDT by stocksthatgoup (Common sense although common knowledge is seldom common practice.)
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To: neverdem
The problem with our banking system, which if one of its strengths during times of prosperity and sensible business practices, is the fractional reserve system.

If we allow the banks to fail, then either savers lose their deposits or they get payed out of the general fund, i.e. increased taxes or increased government debt.

The only way to have the "banks" pay for their mistakes, rather than the customers/taxpayers, is to significantly increase the taxes/fees they pay over decades in order to replenish the funds payed out by the FDIC to recoup the losses of the customers.

But if we do that then they might just pass the added taxes onto their customers through higher fees and penalties. Or they would just go into a lower taxed business or a lower taxed country.

There really is no solution shy of declaring such reckless behavior as tantamount to treason and trying/sentencing the corporate officers accordingly.

5 posted on 08/14/2011 4:25:17 PM PDT by who_would_fardels_bear
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To: neverdem

Ron Paul must scare the hell out of the federal reserve minions..
Not ONLY is he for pulling their charter... hes for pulling other charters..
Like Presidents declaring WARS!!!..
Presidents sending troops to all manner of non violent and violent places..


6 posted on 08/14/2011 4:39:31 PM PDT by hosepipe (This propaganda has been edited to include some fully orbed hyperbole...)
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To: neverdem
Don't expect our economy to recover before the subprime loan mess is resolved, IMHO.

There is also a demographic problem. Many baby boomers are going to spend less while they rebuild their retirement funds. The latest stock market hit isn't encouraging..

7 posted on 08/14/2011 5:16:00 PM PDT by EVO X
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To: who_would_fardels_bear
What savers? What's the point of being a saver these days. The Fed has destroyed the backbone of our economic engine: Savers.

The economic model is geared to markets these days. The commons is pushed into that, having more risk. Interest rates are pathetic, and being prudent is punished.

8 posted on 08/14/2011 5:20:24 PM PDT by Palter (Celebrate diversity .22, .223, .25, 9mm, .32 .357, 10mm, .44, .45, .500)
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To: neverdem

Do some Math, Romer Math;

Christina D. Romer and David H. Romer
http://emlab.berkeley.edu/users/dromer/papers/RomerandRomerAERJune2010.pdf

“tax increase of 1% of GDP lowers real GDP by almost 3%”

_____
Let’s say a 4% increase on the ‘rich’ is a tax increase of 3% of GDP, here’s the equation

(A tax increase 3% of GDP) X (lowers real GDP by almost 3%)

Answer = lower real GDP by almost 9%

This is the Democrat plan, or why the Fed must compensate for 2 years


9 posted on 08/14/2011 5:34:34 PM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: AdmSmith; AnonymousConservative; Berosus; bigheadfred; Bockscar; ColdOne; Convert from ECUSA; ...

Thanks neverdem.
The Fed has spent several years trying to kick-start the economy with low rates and other policies, with little success. Which raises this question: Will more of the same help now? ...Thomas M. Hoenig, the soon-to-be former president of the Federal Reserve Bank of Kansas City... has been pretty much alone among Fed presidents in publicly calling to break up large banks that are too big to succeed. "Extremely powerful institutions, both financially and politically, undermine the long-term strength of our system and make us look like a financial oligarchy," he told me. This view, of course, receives little applause in Washington and on Wall Street.
Yeah, let's get out the Trust Buster! Class warfare / totalitarian gov't alert.


10 posted on 08/14/2011 5:47:52 PM PDT by SunkenCiv (Yes, as a matter of fact, it is that time again -- https://secure.freerepublic.com/donate/)
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To: who_would_fardels_bear
But if we do that then they might just pass the added taxes onto their customers through higher fees and penalties.

Might?

11 posted on 08/14/2011 6:04:23 PM PDT by Graybeard58 (The only problem some people have with tyranny is that they’re not the tyrant.)
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To: neverdem; reaganaut

“When it is not necessary to change, it is necessary not to change.” - Lord Falkland


12 posted on 08/14/2011 7:07:54 PM PDT by mrreaganaut (Often, what the Left calls hate speech is simply unwelcome honesty.)
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To: neverdem

HOORAY Thomas M. Hoenig!


13 posted on 08/14/2011 7:41:41 PM PDT by PGalt
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To: Palter

You are right about savings. It’s useless. You don’t make anything on a market rate savings account. Treasury & the Fed’s policies make your dollars weaker by the day and buying power falls as inflation on consumables creeps up. And on top of that savings are taxed!


14 posted on 08/14/2011 9:06:51 PM PDT by newzjunkey
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To: All
I think we should be suggesting GOP candidates and congressmen listen to this guy. He was prophetic and as that often goes was not appreciated in his time before the meltdown.

It's in the NYT so some eyeballs will see this piece but will they take it seriously and followup on his ideas?

Congressional testimony shows Dodd-Frank is a boat anchor around the necks of small regional and local banks.

15 posted on 08/14/2011 9:13:41 PM PDT by newzjunkey
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