Team Fed is truly out in force today. In addition to Elizabeth Duke's warning to TARP banks, and Fed Vice Chairman Donald Kohn's caution on reduced Fed independence, Minneapolis Fed president Gary Stern gave the least ambiguous message that the White House is on the wrong path as he addressed the administration's plans to handle the too-big-to-fail issue.
"While regulatory reform is appropriate at this juncture, the Treasury proposal fails to come to grips with" the danger posed by the failure of a large firm, Stern, 64, said today in the text of what may be his final speech as a policy maker. The plan "will leave the financial system susceptible to future bouts of resource misallocation and serious instability,"
To eliminate any confusion arising from what he meant by Treasury's proposal failing, Stern added
"There is little reason to think that these steps will, individually or collectively, succeed in reining in" the too- big-to-fail problem,
One can only hope that this is the beginning of the 'Save the Beard' campaign from Team Fed as they ratchet up their efforts to keep the White House's chief narcoleptic right where he is.
Stern Says Financial Plan Opens Way for 'Instability' [Bloomberg]