The Bankwatch

Tracking the consumer evolution of financial services

“Too big has failed” | FRBKC

This extract from the introduction in this speech summarises the situation well, both in US and UK.  It is such a clear example of taking the wrong actions (injecting cash into banks) over and over, yet not succeeding in the objective of restoring confidence.  Bank stocks have now reached the point that they have no impact on the Dow Jones index.  This means confidence is not just down but eliminated.

Time to address the root problems:

  1. asset values and resulting insolvency
  2. management change

Too big has failed | [pdf] Federal Reserve of Kansas City – Thomas Hoenig

Over the past year, the Federal government and financial policy makers have enacted numerous programs and committed trillions of dollars of  public funds to address the crisis. And still the problems remain. We have yet to restore confidence and transparency to the financial markets, leaving lenders and investors wary of making new commitments.
The outcome so far, while disappointing, is perhaps not surprising.
We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions. We are slowly beginning to deal with the overhang of problem assets and management weaknesses in some of our largest firms that this crisis is revealing. We have been quick to provide liquidity and public capital, but we have not defined a consistent plan and not addressed basic shortcomings and, in some cases, the insolvent position of these institutions.
We understandably would prefer not to “nationalize” these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis.

Written by Colin Henderson

March 7, 2009 at 04:50

Posted in Uncategorized

Tagged with , ,

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