Thomas Hoenig of the Federal Reserve speaks his mind

It’s perverse, unfortunate and yet understandable: how some business and political leaders feel best able to speak their minds only when they’re on their way out.

Witness last June’s “unusually stinging speech” from retired U.S. Secretary of Defense Robert Gates in which he criticized Europe for not pulling its military weight. Or outgoing ECB president Jean-Claude Trichet’s feisty come-back to his German Bundesbank detractors during a speech in Frankfurt last month. Since those with little time left on the job seem more willing to rock the boat, let’s have a look at recent statements by one influential figure who’s heading back to civilian life this week: the head of the Federal Reserve Bank in Kansas City, Thomas Hoenig. Yesterday Hoenig appeared on Bloomberg Radio’s The Hays Advantage and was interviewed by Kathleen Hays. We’ve transcribed a bit of what he had to say. (Listen to all of it here.)

He was especially scathing on the new Dodd-Frank regulations (around the 27-minute mark):

“It’s well-intentioned. I understand. But the question you have to ask is, have you changed the incentives, really? [Systemically Important Financial Institutions aka SiFis] still have a safety net. Everyone knows you’re going to lend to them in a crisis. Creditors know they’re going to be able to bail…I just think it is inherently flawed, because you still have the same incentives around the safety net, you haven’t spun out the high-risk activities, so you are bound to repeat the same events. I don’t know when. Two years from now? Twenty years from now? But you are bound to repeat them.”

Tags: Dodd-Frank, Federal Reserve, inflation, Monetary policy, SiFi, TBTF, Thomas Hoenig, Too Big Too Fail

Category: Monetary policy