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At Federal Reserve chairman Ben Bernanke's reconfirmation hearing last week he offered this stirring defense of his tenure: "We did not - certainly not do a perfect job by any means. But I don't think we stand out as having done a worse job than other regulators." Personally, I'd like the individual responsible for America's monetary policy to aspire to more than not being the worst regulator alive, but maybe I am too demanding.
He was grilled in the Senate, where several Senators placed a hold on his nomination. Holds are one of those inscrutable parliamentary maneuvers that are nearly impossible to game from the outside. Harry Reid has ignored Democratic holds while being positively reverential of GOP ones; who knows what he will do with this one. The sponsors might just be posturing, too. It could be nothing more than the kind of institutional harrumphing the Senate seems to adore indulging in.
Still, the nomination could derail. He has presided over a disastrous economic period, does not know what the purpose of his job is, and has few defenders. But it would only cheer those who think he has done a terrible job until the next nominee was announced. Bernanke's solicitousness of Wall Street is a feature, not a bug; the invisible hand of the financial industry would direct the process to another compliant nominee in short order. Reformers would need (among other things) an alternate candidate.
It would almost by definition have to be from outside the political and financial centers. While that would be no guarantee of independence it would be a hedge against it. Moreover, an outsider would more likely have been a dismayed observer of the meltdown instead of a participant in or enabler of it. S/he would need an unassailable rÃ©sumÃ©, though, because such a stranger would be eyed suspiciously as a potential cause of intolerable friction with the ruling class.
With that in mind I think Thomas Hoenig, President and CEO of the Federal Reserve Bank of Kansas City, would be a fine choice. He joined the Fed in 1973 and has been president at Kansas City since 1991. It is a plumb job: There are only twelve such banks in the country. Just like being a judge in a Court of Appeals is often a stepping stone to a Supreme Court nomination, the regional Federal Reserve banks seem a reasonable place to look for a new Fed chairman.
He might have broader political appeal than Bernanke. Right now the Senate seems at best resigned to the latter; no one seems to be coming out with full throated endorsements of him (including the man himself). A new face would have more credibility than someone associated with economic crisis. There is also a small chance Hoenig would attract at least some Republican support. If the nomination was sold as a breath of solid, responsible heartland values being transplanted to the polluted air of Washington it might not be easy for the GOP to rev up the opposition. If nothing else, Chuck Grassley might pause before trashing a native Iowan or Kit Bond a prominent Missourian. Stranger things have happened.
Much more importantly, Hoenig appears to be less than impressed with officials' response to the meltdown. Back in March he gave a speech titled "Too Big Has Failed" sharply criticizing the bailouts (more speeches are published here). While some details have changed since then, the overall picture has not. And while much of it seems unexceptional, it would sound downright revolutionary in the capitol, e.g.:
This might be academic since the odds favor Bernanke's reconfirmation. Still, activists have targeted him and there is always a chance that they will succeed. If so it would be helpful to have a nominee in mind immediately. It does not have to be Hoenig, but it would be nice to see some names start bouncing around right now. If an opportunity presents itself it will probably only do so for a short time.
- Shareholders would be forced to bear the full risk of the positions they have taken and suffer the resulting losses.
- financial crises continue to occur for the same reasons as always - overoptimism, excessive debt and leverage ratios, and misguided incentives and perspectives - and our solutions must continue to address these basic problems.
- One other point in resolving "too big to fail" institutions is that public authorities should take care not to worsen our exposure to such institutions going forward. In fact, for failed institutions that have proven to be too big or too complex to manage well, steps must be taken to break up their operations and sell them off in more manageable pieces.