Federal Reserve … “Too Little Has Changed on Wall Street – ‘Too Big to Fail’ Is Still Too Big A Threat.”

But I do think about the Federal Reserve periodically, beyond the fact that my nephew works computers in their downtown Kansas City offices. For some years this weekly newspaper has received a rather large manila envelope from the Federal Reserve, conspicuous in the stack of junk mail that eventually gets tossed. The "Economic Review" arrives quarterly. Occasionally, I try to read it. But really it just reminds me how little of the finance world I know, and how the theories and the "big picture" is in such stark contrast to my more intimate and pressing worries about meeting next week’s payroll and paying the bills. I know I don’t understand much of the big world out there and, frankly, I don’t always welcome the Federal Reserve’s reminders.

The report comes as a booklet, published on gloss enamel stock – a fine print job (I’d like to pocket the profit on that printing but would settle for what they spend on postage!). Perhaps such expense helps them to comply with some public notice requirement. I feel guilty just throwing it away, but like I said, the booklet is merely physical evidence of how oddly different the world of a national economist is from mine.

So, imagine my surprise when reading an article published last week in the Kansas City Star written by Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. The headline attracted my attention: "Too Little Has Changed on Wall Street – ‘Too Big to Fail’ Is Still Too Big A Threat." In just a few paragraphs, Mr. Hoenig precisely described worries I’ve felt but found hard to articulate. I was as impressed with the direct questions he posed as much as with his insightful answers. Consider these excerpts:

The Treasury and the Federal Reserve took actions that saved businesses and jobs and may very well have saved the economy itself from ruin. Still, the public seems ungrateful, expressing anger at these institutions that saved the day. Why?

Americans are angry in part because they sense that the government was as much a cause of the crisis as its cure. They understand that more must be done to address a threat that remains increasingly a part of our economy: financial institutions that are "too big to fail."

How is it possible that post-crisis legislation leaves large financial institutions still in control of our country’s economic destiny?

One answer is that they have even greater political influence than they had before the crisis.

What can be done to remedy the situation?

After the Great Depression and the passage of Glass-Steagall (a law that barred commercial banks from undertaking the riskier activities of investment banks), the largest banks had to spin off certain risky activities and this created smaller, safer banks. Taking similar actions today to reduce the scope and size of banks, combined with legislatively mandated debt-to-equity requirements would restore the integrity of the financial system and enhance equity of access to credit for consumers and businesses.

Mr. Hoenig writes that after the last round of Congressional bailouts, the five largest financial institutions in this country are 20% larger than they were before the crisis! He suggests that things aren’t likely to change as long as the largest financial firms spend tens of millions of dollars on lobbying Congress – to the extent that "a member of Congress from the Midwest reluctantly confirmed for me that any candidate who runs for national office must go to New York City, home of the big banks, to raise money."

Mr. Hoenig also says: "Crises will always be a part of our capitalist system. But an absence of accountability and blatant inequities in treatment are why Americans remain angry."

He gets it. Working class people, those of us who must pay our bills or suffer the consequences, will never embrace the concept of "Too Big To Fail" as the long-term substitute for accountability and sacrifice. The leaders in our land surely know this, too. We see them dancing to that tune, though, hoping the music doesn’t stop during their time in office, hoping the next jerk will have to reintroduce work and sacrifice to those unaccustomed to account ability.

I’m encouraged that at least one person in a position to be heard can so plainly state what Americans must heed. Thank you, Mr. Hoenig. No offense to you, sir, but I wish such words of wisdom were being voiced instead by our elected leaders. That would be the voices of statesmen, not politicians.

The full text of the article is posted on this newspaper’s website: GallatinNorthMissourian.com