KC Fed Chief: Let insolvent banks fail

Bloomberg reports that:

"[I]t remains tempting to pour additional funds into large firms in hopes of a turnaround,” {Kansas City Fed Chief Thomas] Hoenig said today in remarks prepared for a hearing of Congress’s Joint Economic Committee in Washington. Yet efforts “to protect our largest institutions from failure risk prolonging the crisis and increasing its cost.”
Hoenig said “we must maintain limits on financial leverage through strict rules setting minimum capital-to-asset ratios” to avoid risks of excessive leverage at financial companies.

Hoenig reiterated his view that the government, rather than prop up failing financial institutions, should temporarily take them over and wind them down. Speaking April 9 in Tulsa, Oklahoma, he said calling an institution “too big to fail” is a “misstatement.”

“I believe that failure is an option,” he said.

The Kansas City Fed chief said today that “viable” financial firms should raise private capital or seek government assistance, “with the taxpayer put in the senior position and the government determining the circumstances of the senior managers and directors.”

Hoenig also said that

"The United States currently faces economic turmoil related directly to a loss of confidence in our largest financial institutions because policymakers accepted the idea that some firms are just 'too big to fail.'"
"These 'too big to fail' institutions are not only too big, they are too complex and too politically influential to supervise on a sustained basis without a clear set of rules constraining their actions. When the recession ends, old habits will reemerge."

As opposed to those who have been rewarded for getting it wrong, Hoenig got it right, and deserves a promotion to Federal Reserve Board President, Secretary of the Treasury, or Chief Economic Adviser to the President.

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We have to face the fear.

The fear of "too big to fail". I have been saying that the survival of the zombie banks is in direct conflict with our interest and the long-term health of our economy.

The last paragraph of the blockquote reminds me of Simon Johnson's discussion of the financial oligarchy.

there is movement for Fed transparency, oversight, limitation

You are right and seemingly those speaking truth were shut out of power for the most part.

Are you tracking on the movement, effort to make the Federal Reserve more transparent, with more oversight, limit it's powers?

I always blew off Ron Paul because to me his positions are completely inconsistent but it seems he may have a serious point on the Federal Reserve.

We are almost to the point

Where we are going to have to choose between what we want: stable markets or privacy.

There is no way to prevent fraud in any business contract if I can't see ALL of your business dealings in the public record. Same with government.
Executive compensation is inversely proportional to morality and ethics.

Maximum jobs, not maximum profits.