By Simon Johnson
To fix a broken financial system – and to oversee its proper functioning in the future – you need experts. Finance is complex and the people in charge need to know what they are doing. One common problem, which is also manifest in the United States today, is that many of the leading experts still believe in some version of business-as-usual.
At the height of the Great Depression, Marriner S. Eccles was summoned to Washington from Utah – where he was a regional banker. He helped remodel the Federal Reserve through the Banking Act of 1935 and then became its first independent chairman – the Fed board had previously been chaired by the Treasury Secretary. Eccles was not a fan of big Wall Street firms and their speculative stock market operations; rather he understood and identified with smaller banks that lent to real businesses. Eccles was the right kind of expert for the moment. Who has the expertise to play this kind of role in our immediate future?
Tom Hoenig, formerly president of the Kansas City Fed, has long been a strong voice for financial sector reform along sensible lines. Within the official sector, he has spoken loudest and clearest on the most important defining issue: Too Big To Fail is simply too big. And last week he took a major step towards a more prominent role, when he was announced as the administration’s nominee to become vice-chair at the Federal Deposit Insurance Corporation (FDIC). Continue reading