Paul Volcker, Former Fed Chairman To Wall Street: "Wake Up, Gentlemen"

Former Federal Reserve Chairman Paul Volcker delivered a jarring message to high-level bankers and regulators at an exclusive meeting in Sussex, England. "Has there been one financial leader to say [executive pay] is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate," he said, according to the Times of London.

Volcker, a veteran of the financial world and currently chairman of President Obama's Economic Recovery Advisory Board, spoke on Tuesday at the Future of Finance Initiative conference, organized by the Wall Street Journal.

Amid throngs of bankers arguing that new regulations should not impede on financial "innovation," Volcker pushed back, blasting Wall Street's increasingly complex financial products as useless to economic growth. In what seems to have been a shot at exotic securities, he named the ATM cash machine as the most successful financial innovation in the past 20 years, the Times reported.

Volcker is one of a number of financial luminaries calling for at least a partial return to Glass-Steagall -- a Depression-era law that separated Wall Street investment banking from Main Street commercial banking. The Wall Street Journal's editorial page also endorsed the concept in a recent editorial as a way to "reduce moral hazard" and "limit certain kinds of risk-taking by institutions that hold taxpayer-insured deposits."

At the UK conference, Volcker criticized complex financial products that helped lead to economic ruin, such as credit default swaps. He challenged the industry to provide "one shred of evidence" that these financial products are socially useful.

As Washington's Blog points out, Volcker backs the views of billionaire George Soros and "Black Swan" author Nassim Nicholas Taleb, who both want banks to be treated as public utilities.

Some recent critics of current Fed Chairman Ben Bernanke and have said the Fed should learn from Volcker's tenure during the 1980s, when he raised interest rates during a time of economic unease. In minutes from a recent closed-door meeting, the Federal Reserve said that its members are concerned that record-low interest rates could fuel another speculative bubble.

Read the entire piece at the Times of London.

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Comments

[elfNW]

03:31 PM on 12/10/2009

'He challenged the industry to provide "one shred of evidence" that these financial products are socially useful.'

I thought I would never see it. One of these Wall Street insiders actually saying it: “the emperor has no clothes.”

[mkenn]

12:46 PM on 12/10/2009

What can I say?... http://www.youtube.com/watch?v=uBRZw5kd474 ...actually this song says it all for me.

[balancedsolution]

02:50 AM on 12/10/2009

ATMS are the biggest innovation in the last 20 years. That's why there's about 75 on every block, to include ATM machines, grocery store checkouts, and actual banks.

The actual ideas for financial innovation shouldn't be that difficult, but the "confusion" in all credit card paperwork, mortgages, and other contracts is so difficult to keep the average consumer in the dark.

welcome to our world. greed is good is not the paradigm any longer. look what it's done to you, your friends, and your family...i'm sure one of you has been HAD!

what a country.

FLAT TAX / EASY TO READ CONTRACTS / NO Commissions On PAPERWORK /

Keep it simple stuipds

[peacekitten]

05:51 PM on 12/15/2009

nothing is quite as stuupid as a flat tax.

it's utterly unfair. and you don't even see the irony of your comment against greed in such stark contrast.

steve forbes would love you.

[hopefull253]

01:24 AM on 12/10/2009

He's like the Godfather "we got a good thing going don't screw it up!"

[realpolitic]

01:01 AM on 12/10/2009

It is too bad Obama seems to be relying more on the voices of Bernanke and Geithner than Volcker, who tells it like it is.

[thnk4selfagain]

12:10 AM on 12/10/2009

These finance leaders need to be broadsided, yet Volcker should be saying this specifically to Congress and Wall Street. My fear is that history will refer back to this time as a moment when responsible action to avert disaster for the West was heard but no heed was taken. If all this is falling on disgustingly rich and arrogant ears, perhaps the best course of action is to take up pitchforks for the sake of our civilization and its future.

[sonofsamphm1c]

11:52 PM on 12/09/2009

Pual Volcker willfully threw the economy into a bad recession and double-digit unemployment.

[thnk4selfagain]

12:04 AM on 12/10/2009

Study up on the stagflation of the 70s and the ill effects of Nixon's price-wage controls. It was situation he acted capably to end, with bad effects for some protected industries, but a job that had to be done nevertheless. He also stood up to Reagan, bet you don't like that too much either.

[Ralph Noyes]

12:44 AM on 12/10/2009

Volcker postponed for 30 years what is happening now.

[breakingpoint]

11:32 PM on 12/09/2009

the financial industry is run by smart men with the emotional intelligence of a spoiled nine year old..
gimme gimme gimme it's mine!

[breakingpoint]

11:38 PM on 12/09/2009

Not so much wake up Gentlemen, more like grow up Gentlemen!

[tttony]

11:21 PM on 12/09/2009

Thanks. Now I gotta go do my Six Flags dance.

[Holden Caulfield]

10:03 PM on 12/09/2009

Just a quick question, does everyone realize that he also believes that we need to tighten credit and hike rates? So mortgage rates up and no more NINJA/liar loans? Personally I think that he is right (on splitting the banks and on rates) but are we really all prepared to ditch "community reinvestment" policies and various Federal policies (via Fannie and Freddie) which force banks to lend to people who can't possibly repay them? If banks are utilities they can't also be social engineering tools which is partially what the government has forced them to become (the other part has been enrichment vehicles at our expense for the benefit of an overpaid minority).

[sonofsamphm1c]

11:50 PM on 12/09/2009

There are no ninja "liar" mortgages. They were banned by Bernanke.

[land2341]

08:08 PM on 12/09/2009

Question to the people:

If the US' new economy (as proposed by Wall Street) involves the us being the global bank, then deposits by foreign countries are liabilities because that is money owed back with interest, and Loans made are assets as that is a accounts payable with more interest - correct? So the banks have been partaking of the huge pool of money (not my term) from foreign investors and putting it into loans - only loans internally in the US? Who were they loaning that money to? Because right now we are exporting debt, which remains a liability. The only foreign countries that want to borrow from us are those who cannot pay it back. The rest should be looking around for a new more stable bank.

Is it just me or does this sound like a lousy business plan?

[ericd96]

07:40 PM on 12/09/2009

The U.S. economy did fine throughout most of its history without derivatives or credit default swaps or any other of these new financial instruments that were cooked up in the 1990's. These type of contracts should just be made illegal.

[todd55]

07:24 PM on 12/09/2009

Does anyone really think that Tim Geithner, Lawrence Summers, Benjamin Bernacke, Loyd Blankfein and Jamie Dimon will listen to Paul Adolph Volcker? What do the five have in common?

[basenji]

10:08 PM on 12/09/2009

What?

[HamletsMill]

01:31 AM on 12/10/2009

You need to factor in Soros as a counter balance...

[Ergon]

07:24 PM on 12/09/2009

I'd take him a little more seriously if he criticised the Fed.

[basenji]

07:02 PM on 12/09/2009

Unfortunately you left out the key statement from the article. Soros is right 100% and this is exactly what the crooks did to GM, GE and some of the banks. They bear raided the bonds to cause the collapse.

"Meanwhile, George Soros argued that CDS should be banned. The billionaire investor likened the widely traded securities to buying life assurance and then giving someone a licence to shoot the insured person.

“They really are a toxic market,” he said. “Credit default swaps give you a chance to bear-raid bonds. And bear raids certainly can work.”"