What does one make of it when someone whose career has been based on having powerful friends and contacts at the top levels of the financial services industry appears to be acting as a traitor to his class? In this case, the apparent turncoat is one Neel Kashkari, ex Goldman, ex Treasury, ex Pimco employee, now the new President of the Minneapolis Fed, who in his first speech in his new job, said all sorts of unpleasant truths: the financial crisis imposed huge costs on society as a whole, Dodd Frank didn’t go far enough, the authorities won’t be willing to risk using untested new powers in a financial meltdown and will bail out banks again. He also argued that the financial system was now stable enough to make (by implication overdue) transformative changes to end the “too big to fail” problem, such as breaking up banks and regulating them like utilities. Kashkari plans to come up with a comprehensive plan by year end and is seeking public input, including having expert discussions that will be webcast.
Now readers might think I’ve gone soft in the head by virtue of having an insider advocate some of our pet ideas, such as treating banks like utilities, when I tell you there are reasonable odds that Kashakri is serious.
As much as there was a great deal to like in his speech, I feel compelled to comment on a couple of issues before turning to the big question of “What to make of this?”
Kashkari Calls for a “Bold Approach”
This is the guts of Kashkari’s speech:
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