Friday, October 21, 2011

Pre-Occupying the FDIC


The mainstream media took forever to discover the Occupy Wall Street movement; now it’s in the honor roll of the top half-dozen stories on the news every night. The OWS phenomenon has achieved that critical-mass level of informational saturation: it’s on the verge of becoming part of the background noise, some of the fiber of the current media diet.

But almost in spite of itself and its stubbornness about articulating an agenda — at least the bullet-point boilerplate beloved by newspaper reporters and TV news graphics editors — the OWS movement may have gained one of its informal objectives, one with serious implications for the Big Entities the movement opposes.

They can thank President Obama and Sen. Mitch McConnell for that. Go figure.

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Late on Thursday, Obama submitted to the Senate the name of Thomas Hoenig, a former president of the Kansas City Federal Reserve Bank, to be the next vice chairman of the Federal Deposit Insurance Corporation, the agency most responsible for the integrity and soundness of the nation’s banking industry.

Hoenig resigned from the K.C. Fed on Oct. 1 after 20 years at the top, after reaching the mandatory retirement age of 65. He’s previously come out in support of the dismantling of the nation’s biggest banks, and has expressed his opposition to the Dodd-Frank Act, the law that has essentially, if unwittingly, enshrined in the culture the meme of some banks and lending institutions being “too big to fail.”

If confirmed by the Senate, the Occupy movement will have set the groundwork for change at one of the highest levels of the financial arm of the government, at least partially reaching one of its deeply-held populist goals: finding an advocate for breaking up the banks, someone in a position to do exactly that.

President Obama stands to pick up a win, too: With Hoenig’s nomination, Obama both sends a message of tacit support for the Occupy movement, and all but dares his Republican opposition in Washington to oppose that nomination. Since Hoenig’s disdain for Dodd-Frank is the same shared by the GOP (Mitt Romney, Michele Bachmann and Newt Gingrich have made its repeal a big part of their campaign platforms), Republican opposition to Hoenig’s appointment will be problematic.

What’s even more problematic for the Republicans? The fact, according to Bloomberg Business News, that Hoenig’s name was submitted to Obama by Sen. Mitch McConnell, Republican of Kentucky.

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Hoenig has spoken out on the big-banks issue loudly and often. On June 26, at a conference sponsored by the Pew Financial Reform Project and New York University Stern School of Business, Hoeing took dead aim at Big Banking when he said that “[W]e have to end the artificial complexities that come with these very large, systemically important institutions if we are … to restore a more stable financial system.”

These institutions, he said, were “fundamentally inconsistent with capitalism. They are inherently destabilizing to global markets and detrimental to world growth. So long as the concept of a [bank too big to fail] 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 further articulated where he’s coming from in a December 2010 op-ed in The New York Times:

“Last summer, Congress passed [Dodd-Frank] to reform our financial system. It offers the promise that in the future there will be no taxpayer-financed bailouts of investors or creditors. However, after this round of bailouts, the five largest financial institutions are 20 percent larger than they were before the crisis. They control $8.6 trillion in financial assets — the equivalent of nearly 60 percent of gross domestic product. Like it or not, these firms remain too big to fail.

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“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. During the past decade, the four largest financial firms spent tens of millions of dollars on lobbying. ...

“What can be done to remedy the situation? After the Great Depression and the passage of Glass-Steagall, 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. ...

“These firms reached their present size through the subsidies they received because they were too big to fail. Therefore, diminishing their size and scope, thereby reducing or removing this subsidy and the competitive advantage it provides, would restore competitive balance to our economic system. ...

“Those who control the largest banks will argue that such action would undermine financial firms’ ability to compete globally.

I am not persuaded by this argument.”

With such full-throated and consistent opposition to the too-big-to-fail argument, he made it clear: on this point, at least, Thomas Hoenig is a father of the Occupy movement, his call to break up the banks starting well before the movement ever coalesced 30-odd days ago in Zuccotti Park.

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Early reaction from the Republicans suggest that there’s some chin-pulling going on — a willingness to consider Hoenig coupled with an attempt to buy time while conjuring a way to keep Hoenig’s likely nomination from being characterized as a victory for Obama.

The Wall Street Journal reported that Jonathan Graffeo, a spokesman for Alabama GOP Sen. Richard Shelby, the top Republican on the Senate Banking Committee, termed Hoenig “highly qualified” and said the senator “looks forward to fully vetting his record.”

But given Hoenig’s 20-year track record at the K.C. Fed, that shouldn’t be hard to do, or take very long. That’s no doubt one reason why Democrats hope to fast-track the nomination through the committee and into the full Senate, according to The Journal.

However long it takes Republicans to fully vet his record, the outcome from their perspective wouldn’t seem to be in doubt. The political optics of Republicans rejecting Hoenig wouldn’t look good at all. Put simply, they can’t diss Hoenig’s nomination by the president without dissing McConnell, the Senate Minority Leader, who submitted his name in the first place.

We’ll see how this plays out over the next days or weeks, but for now, Obama’s appointment of Hoenig to the second-highest position at the FDIC elevates the visibility of one of Occupy’s central tenets, and complicates the GOP’s stop-Obama-at-all-costs mission.

The Senate is a busy place, its members constantly preoccupied with the people’s business. Let’s see how fast they get pre-Occupied with this.

Image credits: Hoenig: Tami Chappell/Reuters. McConnell: Senate photograph (public domain). Sen. Carter Glass and Rep. Henry B. Steagall: Public domain (Wikipedia) Shelby: via commercialspacegateway.com.

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