[viagbloggerz]

Volcker was actually too kind in referring to them as 'gentlemen'....

Nevertheless, he offers valid warnings and has warned the current administration as well to the perils of what is continuing...it has fallen on deaf ears of course. Funny how on PB there were some individuals talking out their butts and saying how "financial innovation" was a great thing...they will remain nameless but they have also remained silent since...same people who were denying we were in a recession when we were a year into one! They then said it would be shallow and mild....

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?”
Another chilling contribution came from Sir Deryck Maughan, a partner in Kohlberg Kravis Roberts, the private equity firm, who in the 1990s was head of Salomon Brothers, the investment bank.

He warned delegates that many of the flawed mathematical techniques that underpinned banks’ risk management approaches were still being used, saying that the industry had not “faced up to the intellectual failure of risk management systems, which are still hardwired into many banks and many trading floors”.

Sir Deryck also questioned whether it was right that taxpayers should continue to underwrite many of those risks: “There’s something wrong about large proprietary risks being taken at the risk of taxpayers. The asymmetry will not hold. I’m not sure we’ve thought about that.” Source: ‘Wake up, gentlemen’, world’s top bankers warned by former Fed chairman Volcker - Times Online

[M_Marked]

glad to see how recognized the fed's role. still, I woudl agree that washington has relied on financial innovation to help americans feel richer.

[viagbloggerz]

Cash machine = Fed

Not sure everybody makes that correlation however...

[M_Marked]

Cash machine = Fed

Not sure everybody makes that correlation however...

though that's true, it would appear he's referring to the ATM. yes, the federal government has become addicted to inflation, as most do. perhaps he should have just told the story of icarus

[Dndjzirw]

though that's true, it would appear he's referring to the ATM.

Yeah, that's how I read it. Basically stating the last real innovation in finance was the ATM, all the other "innovations" are just bunk.

[viagbloggerz]

Making my own correlation with the cash machine...private interests were addicted to complex financial products enabled by the Fed counterfeiting outfit.

[M_Marked]

Making my own correlation with the cash machine...private interests were addicted to complex financial products enabled by the Fed counterfeiting outfit.

public interests too, it was a two way street. nothing gets you voted out faster than an economic crash. it'll be decades before people wake up and notice (maybe they never will) that you supported eroding their purchasing power to make them feel rich at the time (increased debt use). this economic model at the federal level dates at least to FDR, who actually tried to move thanksgiving to extend the christmas shopping season. financial innovation allowed the US "economic model" to continue without any painful reform to allow businesses to compete better internationally. I'm not an astute political observer but politics seems to be al about momentum. once on a course, you stay on it until you smash on the rocks. then people point fingers at each other blaming each other for the wreck, whoever markets their story the best, sets the new course for the next wreck. in the meantime, they keep the same crew, maybe add more on top of that, and make sure the commoners in the galley don't get out of line.

[viagbloggerz]

public interests too, it was a two way street.

Right..have always said as much. Collusionary relationship...power and money....money and power. Financialization of the economy away from the real economy of goods and services and productive capacities served both interests well until it came crashing down. Focus on the top tiers of the structure continue however while the foundation rots...

[viagbloggerz]

Summers, Geithner and Bernanke disagree and so do Citi, BoFa, Goldman, JpMorgan, Wells Fargo etc. It's indeed business as usual as they continue to have access to the Fed discount window despite the sideshow "repayment" of the TARP money. Indeed, almost all of the CEO's of the so called "Fat Cat" banks blew off Obama once again. Only Dimon showed up because he wants Geithner's job! Obama was going to tell them they are being naughty during their "time out" session with him. Totally owned!

Dec. 15 (Bloomberg) -- Paul A. Volcker visited nine cities in five countries in the past eight weeks to warn that bankers and regulators “have not come anywhere close to responding with necessary vigor” to the worst economic crisis in 70 years.

“There is a lot of evidence that financial weaknesses brought us to the brink of a great depression,” Volcker, 82, said Dec. 8. at a conference in West Sussex, England. He told executives there that the changes they’ve proposed are “like a dimple.”

Two years after the start of the deepest recession since the 1930s, no U.S. or European authority has put in force a single measure that would transform the financial system, based on data compiled by Bloomberg. No rule- or law-making body is actively considering the automatic dismantling of banks that Volcker told Congress are sheltered by access to an implicit safety net.

There’s little evidence that policy makers are heeding Volcker, the former chairman of the U.S. Federal Reserve. More than 50 regulatory overhaul proposals have been submitted in the U.S. and Europe, the data compiled by Bloomberg show. Lawmakers and regulators have debated new rules for capitalization and leverage, central clearing for derivatives trading, oversight of hedge funds and ways to monitor systemic risk.

While the U.S. House of Representatives has approved a financial regulation bill, authorities in the U.S. and Europe have sidelined measures that would automatically force changes in the structure of financial companies that Bank of England Governor Mervyn King called “too important to fail.” Volcker is leading a chorus arguing for restricting the size or primary functions of financial institutions.

Volcker’s Travels

“He is spot on,” Joseph Stiglitz, a Columbia University professor who won the Nobel Prize in economics in 2001, said in an e-mail.

Volcker, who heads President Barack Obama’s Economic Recovery Advisory Board, told Kentucky’s Georgetown College students “we need to produce more, finance less,” according to the school’s Web site, and said in Bonn that some banks have “pervasive conflicts of interest.” In Berlin, he told Bloomberg television that “this isn’t any time to go back to business as usual.” Additional Excerpts:

-A new debt crisis may threaten the economy before regulatory changes are enacted, according to Simon Johnson, an entrepreneurship professor at Massachusetts Institute of Technology in Cambridge and a former International Monetary Fund chief economist. Most of the world’s large international banks continued to expand as stock markets plunged and credit froze last year, data compiled by Bloomberg show.

-To be sure, restructuring in the U.S. during the Great Depression came together years after the 1929 stock market crash. Congress took until 1933 to create the Federal Deposit Insurance Corp. and 1934 to establish the Securities and Exchange Commission. Now lawmakers are attempting to reverse three decades of deregulation.

“This is one time when you hope they move slowly,” said Bert Ely, the head of Ely & Co., a bank consulting firm in Alexandria, Virginia, in an interview.

Protecting the economy from another catastrophe is important enough for lawmakers to take their time, said Ely, an adjunct scholar at the Cato Institute, a Washington research group, who has testified before Congress.

“You’ve got to get it right the first time,” he said.


-Four U.S. institutions -- Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup -- held 35 percent of the country’s deposits on June 30, compared with 28 percent by the four biggest two years before, according to the FDIC and the Fed. The world’s 10 largest banks at the end of 2008 had 26 percent of the assets of the top 1,500 banks, up from 18 percent in 1999, Bloomberg data show.

“It’s insanity that the too-big-to-fail institutions are even bigger today than they were,” said U.S. Senator Bernie Sanders, a Vermont independent, in an interview. “God forbid we have another financial crisis.”

Governments should separate deposit-taking banks from those that use their own money to trade and issue securities, said Irving Kahn, 103, who has worked on Wall Street since 1928.

Reed’s Apology

“I wouldn’t lend you a dime if I knew you loved to gamble at a casino,” said Kahn, the chairman of investment advisers Kahn Brothers Group Inc., in an interview.

John S. Reed, the former co-chief executive officer of Citigroup Inc., regrets helping to engineer the merger that created the bank, he said. Citigroup, which took $45 billion in U.S. aid under the Troubled Asset Relief Program, said yesterday that it will repay $20 billion.

“I’m sorry,” Reed, 70, said in an interview. U.S. lawmakers were wrong in 1999 to repeal the Depression-era Glass- Steagall Act, he said. The act required the separation of institutions involved in capital markets from those engaged primarily in traditional customer services, such as taking deposits and making loans.

-The nascent economic recovery represents a serious threat to the overhaul of financial regulation, according to Representative Brad Miller, a North Carolina Democrat on the House Financial Services Committee.

“My greatest fear for the last year has been an economic collapse as bad as the Great Depression,” Miller said in an interview. “My second greatest fear was that the economy would stabilize and begin to recover and the financial industry would have the clout to defeat the fundamental reforms that our nation desperately needs. My greatest fear seems less likely, lately, but my second greatest fear seems more likely every day.”

Regulators Resist Volcker Wandering Warning of Too-Big-to-Fail - Bloomberg.com
MOCKING THE US TAXPAYER

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