Courtesy of Pam Martens.
Neel Kashkari, President of the Minneapolis Fed
At 10 a.m. this morning, Federal Reserve Chair Janet Yellen will take her seat before the U.S. Senate Banking Committee to deliver her semi-annual testimony on monetary policy. She’ll perform the same task tomorrow before what is likely to be a far more hostile House Financial Services Committee, based on the fireworks that were flying in her last testimony there in February.
There will be a shadow wafting over Yellen at both hearings. The shadow is being cast by Neel Kashkari, who took the reins as President of the Federal Reserve Bank of Minneapolis this past January and has effectively transferred the debate on too-big-to-fail banks from the hands of Yellen to his own regional institution. Kashkari has been conducting symposiums and delivering speeches on the issue and has promised a formalized plan to deal with the problem by the end of this year.
Just yesterday, Kashkari spoke at the Peterson Institute in Washington, D.C. and shot full of holes Yellen’s plan to shore up big bank capital with convertible debt (the so-called Total Loss-Absorbing Capacity or TLAC plan). Kashkari, who worked at the U.S. Treasury during the 2008 financial crisis and oversaw the Troubled Asset Relief Program (TARP), offered this critique yesterday on why the convertible debt plan will not prevent more taxpayer bailouts of the mega banks:
“Do we really believe that in the middle of economic distress when the public is looking for safety that the government will start imposing losses on debt holders, potentially increasing fear and panic among investors? Policymakers didn’t do that in 2008. There is no evidence that their response in a future crisis will be any different….
“A policy analyst recently asked me if we really could resolve a large bank during a crisis. I responded by asking him if he thought we could dismantle an aircraft carrier in the middle of a hurricane. It’s not a perfect analogy, but he got my point…
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