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Fed's Hoenig slams government's bank-rescue effortsFont size: A | A | A3:59 PM ET 3/6/09 | Marketwatch
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4:00 PM ET 3/6/09
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C 1.03 0.98%
AIG 0.35 0.00%
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WASHINGTON (MarketWatch) -- The president of the Kansas City Federal Reserve Bank slammed the government's approach to weak banks as counterproductive Friday and called for the government to move in, take over and clean house at insolvent institutions.
"We ... are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis," Thomas Hoenig remarked in a speech in Omaha, Neb.
The architects of the government response -- primarily Fed Chairman Ben Bernanke, former Treasury Secretary Henry Paulson and Paulson successor Timothy Geithner -- have argued that, because there were no rules to take over big but weak bank-holding companies, they have been forced to play a bad hand and keep the institutions operating and pushing in government money to strengthen them.
But as the cost of this approach keeps expanding beyond the initial $700 billion price tag, there is a growing sense that good money may be being thrown after bad. The fact that the government deals with Citigroup Inc. (C) and American International Group Inc. (AIG) have been rewritten has added to uneasiness that the rescue plan in on the wrong track.
The takeovers of Washington Mutual, Wachovia, Countrywide and Merrill Lynch were "hasty," according to Hoenig.
