THOMAS HOENIG, “Mr. Chairman, I have thought about this considerably because I think we have come to a time in our history when we have institutions that clearly ought to be and may in fact be too big to fail. I think we tend to react ad hoc during the crisis, and we have no choice at this point. But as you look at the situation, we ought, instead of having a decade of denying too big to fail, to acknowledge it and have a receivership and intervention program that extends some of the concepts of the FDIC but goes beyond that.” [emphasis added]
Who’s to blame for too big to fail, according at least to Governor Hoenig?
MR. HOENIG, “The problem has been very lax lending and, obviously now, weaknesses in some of the oversight. Also a history of our reacting from a monetary policy point of view to ease quickly to try to take care of the problem and, therefore, to create a sense in the market of our support has raised some real moral hazard issues that we now need to begin to remedy as we look forward in dealing with future receiverships. We are in a world of too big to fail, and as things have become more concentrated in this episode, it will become even more so.” [emphasis added]
I’m a little shocked that this remains in the transcript. What is not shocking is that the highlighted portion was never answered or discussed, even mentioned, by anyone else at the meeting. Nothing further on it; not a word, as if it were nothing but static.
I guess that rates President Hoenig as half a hero; bringing it up during the week of Lehman, but never returning to it or forcing the FOMC to come to grips with it either as a concept or matter of policy.
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