Hoenig's Very Good Questions

Ritholtz points to this speech by Hoenig, the FRB/Kansas City President.

“How can one firm of relatively small global significance merit a government bailout? How can a single investment bank on Wall Street bring the world to the brink of financial collapse? How can a single insurance company require billions of dollars of public funds to stay solvent and yet continue to operate as a private institution? How can a relatively small country such as Greece hold Europe financially hostage? These are the questions for which I have found no satisfactory answers. That’s because there are none. It is not acceptable to say that these events occurred because they involved systemically important financial institutions.

OK, so?

...I suggest that the problem with SIFIs [Systemically Important Financial Institutions--AKA "Too Big to Fail"] is they are fundamentally inconsistent with capitalism. They are inherently destabilizing to global markets and detrimental to world growth. So long as the concept of a SIFI exists, and there are institutions so powerful and considered so important that they require special support and different rules, the future of capitalism is at risk and our market economy is in peril.”

Hoenig is convinced that if TBTF banks continue to exist, they MUST be subject to Glass-Steagall again.

He's right.