Wednesday, December 09, 2009
In the London Times
One of the most senior figures in the financial world surprised a conference of high-level bankers yesterday when he criticised them for failing to grasp the magnitude of the financial crisis and belittled their suggested reforms.
Paul Volcker, a former chairman of the US Federal Reserve, berated the bankers for their failure to acknowledge a problem with personal rewards and questioned their claims for financial innovation.
On the subject of pay, he said: “Has there been one financial leader to say this is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate.”
As bankers demanded that new regulation should not stifle innovation, a clearly irritated Mr Volcker said that the biggest innovation in the industry over the past 20 years had been the cash machine. He went on to attack the rise of complex products such as credit default swaps (CDS).
“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence,” said Mr Volcker, who ran the Fed from 1979 to 1987 and is now chairman of President Obama’s Economic Recovery Advisory Board.
He said that financial services in the United States had increased its share of value added from 2 per cent to 6.5 per cent, but he asked: “Is that a reflection of your financial innovation, or just a reflection of what you’re paid?”
Why has this guy been sidelined by Obama?
"Why has this guy been sidelined by Obama?" Because he pisses-off Goldman Sachs, the guys who are running the show.
I'm curious as to how long everyone (or at least a critical mass) will put up with this.
When Volker was is charge of the Fed, he made the tough choices that stopped inflation, and there was pain in many sectors of the country. It may have taken away Carter's margin of error which was further eroded by the Iran situation, in which the national media began their turn to the dark side. So there may be some residual fear that his policies will be short-term losers for the WH.