Interesting times we live in. And we need to ask whether the recent unprecedented comments by Neel Kashkari, the newly appointed President of the Minneapolis Federal Reserve, to break up the big banks is genuine or too good to be true and a political smokescreen.
Former Goldman Sacks vice president Kashkari is a Republican and a former senior Treasury official under George W. Bush and President Barack Obama, who led the first TARP program. He recently declared that the present rules which are supposed to protect tax payers and the economy from bank failures fall short and the U.S. is very much at risk for another financial crisis.
His unprecedented statements are calling forth potshots and questions from all sides of the political aisle. He’s dismissed the concerns over his call to rein in “too big to fail” banks as a partisan move and said “it highlighted the U.S. central bank’s independence from politics.” While he says his call to action is not a political statement but an economic one, some media are claiming Kashkari as a Goldman Sachs employee gone rogue. His warnings seem to give Senator Bernie Sanders an unexpected endorsement for vocalizing loudly and often about Hillary Clinton’s hefty speaking fees for addressing Goldman Sachs clients in 2013.
I questioned Kashkari’s appointment in a December post as that appointment meant four of the five Fed Presidents’ voting seats on the very powerful Federal Open Markets Committee, which sets monetary policy, would now be held by former Goldman Sach’s employees. Goldman Sach’s has led Wall Street’s campaign to dominate political donations which some critics refer to as trying to create, “The Best Government Money Can Buy.”
I asked how we in good conscience could hire their former executives to run the most powerful structure in the country, considering Goldman was at the center of the last financial debacle. However, Kashkari’s statements seem hopeful for a sounder economic future. In an interview with FOX Business Network’s Maria Bartiromo, he said as much: “the biggest banks are still too big to fail. We do need to take transformational actions and we in Minneapolis are going to bring experts together from around the country, put all the options on the table and give Congress a chance and weigh in, and hopefully go further.”
It sure does appear as if he is calling for some of the same outcomes as Senator Bernie Sanders and taking it one step further. In a recent speech to the Brookings Institution, Kashkari said that a bold range of options should include:
- Breaking up large banks into smaller, less connected, less important entities;
- Turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail (with regulation akin to that of a nuclear power plant);
- Taxing leverage throughout the financial system to reduce systemic risks wherever they lie.
Note, he’s not calling Goldman out, he’s not vilifying Clinton, and his option number two, turning mega Wall Street banks into public utilities is considered by some, nothing short of heresy for a former Goldman executive!
Kashkari goes on to say the Minneapolis Fed is “launching a major initiative” to consider these “transformational options.” Further, “that they intend to invite leaders from policy and regulatory institutions and the financial service industry to offer their views and test one another’s assumptions,” is huge. They also intend to invite media and, get this, livestream these symposiums,”so that the public can follow along and learn with us.”
His promise, that ”the Minneapolis Fed will have an actionable plan by the end of this year,” has me speechless. My colleagues and I are hopeful but skeptical. This may all be a smokescreen. Still, what a declaration he has made.
To quote Dickens in a Tale of Two Cities, “It was the best of times. It was the worst of times… it was the age of foolishness, it was the epoch of belief.”
Well it was a revolutionary time. As it is now. I really want to believe this will happen. Don’t you?
[tweetthis url=”http://bit.ly/1VHtCgK”]Are Kashkari’s statements real or merely a smokescreen? #tbtf #wallstreet #thefed [/tweetthis]