Yes, Paul Volcker, former chair of the Federal Reserve under Presidents Carter and Reagan, the guy credited with ending stagflation, is calling for more regulation of the financial sector and the imposition of greater governmental control of markets. Why? Because self-regulation doesn’t (and has never) worked.
But you can’t tell the TeaOP candidates that. They continue to prattle on about the power of The Free Markets To Solve Every Possible Problem Facing America! Never mind that our current circumstance is a direct result of deregulation. Facts don’t matter. Only ideology.
“There is no Dana, only Zuul!”
“By now it is pretty clear that it was faith in the techniques of modern finance, stoked in part by the apparent huge financial rewards, that enabled the extremes of leverage, the economic imbalances and the pretenses of the credit rating agencies to persist so long,” Mr. Volcker said in this remarkably candid talk.
…That heavy lifting includes addressing capital requirements (make them tough and enforceable), derivatives (make them more standardized and transparent) and auditors (ensure that they are truly independent by rotating them periodically).
He also spoke of the perils of institutions that are too large or interconnected to be allowed to fail. Calling this the greatest structural challenge facing the financial system, he said we must shrink the risks these companies pose, “whether by reducing their size, curtailing their interconnections or limiting their activities.”
Transparency, enforceability and small enough to fail. My, what a Socialist! Do you love Stalin, Mr. Volcker? Why do you like North Korea more than America?
You can read his original speech here. He goes further and criticizes the theoretical foundation of the free-market advocates who rolled back regulations on banking.
One thing I found missing from the old lectures was a clear expression of an intellectual rationale for all the changes in the financial environment. Theorizing was lacking about market efficiency and rational expectations, which together would lead to stability and the optimal allocation of resources.
I well recall a conversation with Bill Taylor near the end of my Federal Reserve time [circa 1987]. In stark terms he set out his concerns. As I recall the words, he put the point forcibly: “If you permit banks to securitize and sell their loans, they will lose interest in maintaining a strong credit culture and controls. And you are going to end up with even bigger crises.”
Mr. Taylor was clearly prescient as we cling to the edge of a financial precipice hoping against hope that someone in Washington will figure out what to do.
Mr. Taylor was indeed prescient. And you’re absolutely right about us clinging to the edge of a financial precipice. It doesn’t appear, however, that there’s much hope in Washington, or in the financial industry itself. Most of them are “fans of the status quo.” Volcker’s is one of the only “voices of reason on matters financial” in the great echo chambers of Washington and Wall Street. We must raise our voices along with those of the Occupy movement, which continues to gain traction and credibility.
Phil, you educate with your posts. Don’t ever stop.
You also eradicate with them. The rightwing pseudo-experts who used to get up on their soapboxes around here have high-tailed it outta here.
Thank you for that. Thank you for your “voice”.
Aw, shucks… Thanks. 🙂