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Paul Volcker Blasts The Goldman Business Model, Moral Hazard, And Calls For A Return Of Glass-Steagall
Tomorrow at 9 am, former Fed Chairman Paul Volcker will testify before the House Committee on Financial Services, discussing topics on Systemic Risk and Resolution Issues. Since a former Fed Chairman will effectively be discussing the actions undertaken by the current one, this promises to be a most interesting testimony. We present some key points from Volcker's prepared remarks below: at first blush it would appear that the former Chairman is distancing himself substantially from the activities of the current one, and among other things, is proposing serious curbs on Moral Hazard, on the lack of Fed's accountability, highlights the need for a return to a Glass-Steagall system, and blasts the prop trading/hedge fund business model, whereby in discussing what he believes should be prohibited activities by systemically important firms, he highlights "ownership or sponsorship of hedge funds and private equity funds [as] should in my view a
heavy volume of proprietary trading with its inherent risks." If that is not a direct stab at Goldman Sachs, nothing is.
The testimony, which will also include other influential financial experts such as Arthur Levitt, and Moody's Mark Zandi, will be broadcast live tomorrow at 9 am, and the webcast can be seen here, without commercial breaks in which fat bearded men sing and cry, extolling the virtues of General Electric turbofan engines.
Volcker on moral hazard:
However well justified in terms of dealing with the extreme threats to the financial system in the midst of crisis, the emergency actions of the Federal Reserve, the Treasury, and ultimately the Congress to protect the viability of particular institutions – their bond holders and to some extent even their stockholders – have inevitably left an indelible mark on attitudes and behavior patterns of market participants.
- Will not the pattern of protection for the largest banks and their holding companies tend to encourage greater risk-taking, including active participation in volatile capital markets, especially when compensation practices so greatly reward short-term success?
- Are community or regional banks to be deemed “too small to save”, raising questions of competitive viability?
- Does not the extension of support to non-banks, and even to affiliates of commercial firms, undercut the banking/commerce divide, ultimately weakening the commercial banking system?
- Will not investors in money market mutual funds find reassurance in the fact that when push came to shove, the Treasury with an extreme interpretation of its authority, took action to preserve those funds ability to meet their declared commitment to pay their investors at par upon demand?
What all this amounts to is an unintended and unanticipated extension of the official “safety net”, an arrangement designed decades ago to protect the stability of the commercial banking system. The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted. Ultimately, the possibility of further crises – even greater crises – will increase.
Think of the practical difficulties of [a Too Big To Fail] designation. Can we really anticipate which institutions will be systemically significant amid the uncertainties in future crises and the complex inter-relationships of markets? Was Long Term Capital Management, a hedge fund, systemically significant in 1998? Was Bear Stearns, but not Lehman? How about General Electric’s huge financial affiliate, or the large affiliates of other substantial commercial firms? What about foreign institutions operating in the United States?
On what is effectively a repeal of Glass-Stegal
As a general matter, I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for our capital markets.
And here is where life gets interesting for the biggest too big to fail hedge fund in the world - Goldman Sachs:
Ownership or sponsorship of hedge funds and private equity funds should be among those prohibited activities. So should in my view a heavy volume of proprietary trading with its inherent risks. Some trading, it is reasonably argued, is necessary as part of a full service customer relationship. The distinction between “proprietary” and “customer-related” may be cloudy at the border. But surely by the active use of capital requirements and the exercise of supervisory authority, appropriate restraint can be maintained.
The point is not only the substantial risks inherent in capital market activities. There are deep-seated, almost unmanageable, conflicts of interest with normal banking relationships – individuals, businesses, investment management clients seeking credit, underwriting and unbiased advisory services.
On Federal Reserve accountability:
I am not alone in suggesting that a Fed governor should be nominated by the President and confirmed by the Senate as a second Vice Chairman of the Board with particular responsibility for overseeing Regulation and Supervision. The point is to pinpoint responsibility, including relevant reporting to the Congress, for a review of market developments and regulatory and supervisory practices. Staff authority, independence, professionalism, experience, and size should be reinforced.
On duration of unbridled Fed intervention:
There is also an interesting question as to the period over which events are both “unusual and exigent”. What is involved in emergency lending is the need to act immediately and forcefully, which only the Fed may be able to do. But after several months, the Congress working with the Administration should be able to determine the proper amount and time for continuing extraordinary assistance.
Full Volcker testimony:
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How long before he gets suicided?
Stop the programmed responses. It's not funny. Stop expecting anything to happen to Volker. Every single person on this planet is capable of horrific violence. It's not a super human ability that only the controlling have. Just ask a wife abuser that got stabbed to death by a fork.
I'd say that fork had issues.
ahhhh hahahahaha. great morning laugh thanx!
He'll be Alzheimered immediately.
Are we immune now and this is us?
Before we get too teary-eyed for the good old days when
men were men and women and government could balance a checkbook, raise interest rates, or even credit Ol Blue Blarney, let us remember what happens when the
government monopoly media ignore incriminating BB, HG, HP, LS, TG testimony and regurgitate 0 handler teleprompter scripted soundbites.
Fortunately, we here have the link and website
to retain some semblance of functional reality
instead of mass euphoric disconnect.
Time to quote Sheen Father to Son: "He's using you kid.
..Get a real job."
http://www.imdb.com/video/screenplay/vi3774546201/
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493
I hope the former chmn isn't taking a Cessna to the hearings, and hope he can count the aspirin he might take.
It's a wise move on his part. His reputation is on the line as long as he's associated with this administration, and besides, they've effectively relegated him to the sidelines anyway.
His reputation is on the line?
You do realize that he is nearly a part of the fossil record, right?
He is nearly the poster child for the ZH tagline.
His independence was noticed early during the interviewing for this administration.
He was summarily cut from any short list.
...but kept on merely as window dressing. Glad he is finally speaking out.
Good man, that Volker.
I was fooled by a picture during the campaign. It showed Obama with a table full of economic advisors. At the head of the table were Obama, Volker on his right hand and almost touching, a few others and at the end Robert Rubin with his hands on the table looking like a kid who had been caught with his hand in the cookie jar.
Well Rubin is long gone but his acolates are in charge. Volker was shunted off and really has been humiliated.
That said where was Volker these last 15 years? The only man with enough stature to question the silly paradigms. He was in the deep sidelines. Muttering the occasional small rebuke. He was a wimp. Where are the men who will take a stand on prinicpal when the principals are important? Who will treat the giant issues as something more than debating points for gentlemen over cocktails?
"That said where was Volker these last 15 years?"
Sheer speculation on my part, of course, but I believe he succumbed to the same numbing toxin that 98% of the country did during that period--with unemployment mostly low, and the stock market mostly high, who is really going to risk their reputation trying to rock the boat unless it's merely to serve as a cat's paw to criticize their political opposite? When times are good everyone wants to take the credit, and when times are bad everyone wants to blame the other guy.
The problem is that just about anyone with a lick of common sense could see that the last 15 years have been one long example of the "bigger fool" bubble theory of economics in action, with a dash of consistent debt leveraging over the last 35 years thrown in for good measure to try and keep the can rolling down the road following the oil crisis of 1974. We are pretty much near the end of our rope as far as debt is concerned (across all three major sectors--government, financial, and consumer), and it's just a matter of time before this current bubble pops as well.
There might still be a chance if some Congressmen find their stones to risk their political careers, enact the regulations that Volcker suggests above, and actually makes sure those regulations are enforced--all the regulation in the world won't do any good if the people in charge don't enforce those laws. If it doesn't happen, though, we'll probably just continue to muck through until the day comes where we end up being openly dependent on Asia or some other global entity to keep us from completely collapsing.
Even with printing presses, when a country spends it's last dollars and credit for a bank heist, in which money is pumped into failed entities, it is at the expense of everything else...and clarity is assured at times of intense distress, such as the times we are having in the US right now.
Obama used Volcker, and i am sure he knows it, and it stings.... With this, Mr. Volcker will set a record that is honest and disputing the force fed "conventional wisdom" [aka LIES] on our"needing" these toobigtofail entities, and for that, he will win points for heaven.
That's spot on. When good times are rolling no one will welcome the removal of the punch bowl or knowledge of what's in the punch bowl.
Greed breeds intentional ignorance and bliss.
It is hard to know where to jump in, so the question about where Mr. Volcker has been the last 15 years is about as good as any.
Mr. Volcker's wife was terribly sick for many years. He had ample opportunity to enrich himself like so many people have done, but he did not succumb in any significant sense. Given his stature and therefore his temptation his honorable behavior stands out in this particular era of excess and self-aggrandizement.
Volcker did work with James Wolfensohn, before Mr. Wolfensohn took the job at the World Bank.
Mr. Volcker is from Teaneck. His father was a civil servant at a time when that was a point of pride, as it was for many people still alive today.
You wrote, "He was a wimp." Your definition is not accepted by all, and hopefully not by most.
Thanks for this information.
I never knew this about Mr. Volker. Speaking as an "older female", now that I read this, he truly is an honorable person........ this is correct behavior, it is good and honorable behavior.......thank you for adding this information to the comments area. Sincerely .....
I never knew this about Mr. Volker. Speaking as an "older female", now that I read this, he truly is an honorable person........ this is correct behavior, it is good and honorable behavior.......thank you for adding this information to the comments area. Sincerely .....
AND, of course YOU would have been the first to listen...right? Look at all the people who started warning back in 2005 and 2006 like Bill Fleckinstien. The all got escorted to the back door. THE MEDIA controls what the sheeple see and hear, no 26 year old media exec would have dared air and such views. Look at the jerks on that spew and swill show CNBC...they crappied on anyone who warned, just like they are now. No, Mr Volker said thing during this decade of ignorance, but YOU didn't listen.
rapier: "That said where was Volker these last 15 years?"
THANK YOU. Volcker acts like he didn't help create this disaster.
He was warning people in 2005. There was an article in the WP "An Economy on Thin Ice" in which he was sounding the warnings. How many esteemed experts like Volcker were ridiculed, treated with distain and disrespect because those that would benefit the most wanted the party to continue.
"I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change."
Paul Volcker has been marginalized since he left office because he is a truth teller who pointed out that the emperor had no clothes.
"How many esteemed experts like Volcker were ridiculed, treated with distain and disrespect ..."
Almost as many who were IGNORED over this same period for sounding the warnings nobody wanted to hear.
PV is a bit aged; however he could go the "hooker" route if the suicide program doesn't work.
Try as you might, you can't hold down all of the Vampire Squids' tenticles at once.
One wonders why he is not referred to "as the smartest man in any room"?
One also wonders why his learned words do not carry 100x the weight of Greenspan's?
Perhaps it is because he is the last of a dying breed. A man of honor, who above all refuses to be a whore to politicians and the men who control them. Which also explains why he has been marginalized in the current administration.
Tyler, thank you for the post. And for ....in which fat bearded men sing and cry, extolling the virtues of General Electric turbofan engines.
A man of honor, ... lizzy36
Say what? How is honor possible in a central banker? The purpose of a government backed fractional reserve banking cartel is to successfully steal purchasing power from all money holders including the poor.
I have this bridge I would like to sell you ...
Johnny Ringo, I'm your huckleberry....
I am always curious to those who rail against fractional reserve lending....what exactly would you replace it with, and how would you implement it?
small silver coins, like in the 1960's.
The purpose of fractional reserve lending is to create new money. Creating new money can be done in a honest, straight forward manner.
I would not abolish FRB, just legal tender laws.
Fractional reserve lending is fatally flawed from an entropic point of view, but it does do a fantastic job from a distribution perspective. Most 'alternatives' do ok from an entropic point of view but fail dismally from a distribution perspective.
One suggestion I've seen that may have some merit is 'digital coin' http://www.digitalcoin.info/
Colonial Scrip.
Tally sticks. Actually, they worked pretty well but on a miniscule level. The equivalent would be the government only creates money when it buys government infrastructure. But yeah, lack of liquidity is the problem.
I wouldn't even replace it. What we need to get rid of is the monopoly on money. So if someone wanted to create a gold backed currency they could, such as our government or joe blow on the street. If someone creates a currency such as the silver liberty dollar, that someone goes to prison.
So if you hate war, and believe that their only purpose is to kill and steal property do you also believe that a solider in that war can never be honorable?
Perhaps our differences boil down to the fact that I believe honorable service is always possible, regardless of the structure.
Perhaps a further difference is i do so with more respect than you have displayed.
While I empathize and even agree to some degre with your objections to the federal reserve, the structure exists. I have not heard a viable suggestion for an alternative system.
I've got two alternatives that I think of...but they are part of a bigger battle I have in my head, probably the idealistic part of me and the batshit insane idealistic part of me. One part thinks that it is possible to remove the Federal Reserve system, and replace the money we have now with this:
http://en.wikipedia.org/wiki/United_States_Note
then the batship insane part of my brain starts screaming stuff about human nature and faith in human beings generally doing the right thing and other such nonsense but it leads me to an interesting conclusion to have an ad-hoc approach to government and politics with or without rules. Some call that anarchy, but lets not argue semantics. In this sytem anything can be money, and I would try to make the first energy based currency. A hundred calories or maybe even Calories (tradeble energy can come from anywhere BTW) would equal 3.14159... bats or something or other.
not enough...I was about to tell the world how I really feel.
Plus, I can still use a keyboard.
Hey, at least you are thinking of alternatives.
I believe strongly in the intersection of idealism and batshit insanity.
But then I have the flu, and have been delirious for the last 48 hours.....(and because of the insanity over H1N1 i have been benched for 5-7 days, so i have time on my hands to explore the alternatives you have put forth)
pls get well soon Lizzy!
Get well & please keep hydrated Lizzy.
The double post. Apologies
"I have not heard a viable suggestion for an alternative system. " Lizzy
Well first, legal tender laws should be abolished. That way business can opt out of the boom/bust cycle and develop alternative money and banking solutions. Second, Lizzy should buy some popcorn and coke and watch the dollar, the Fed, and FRB get eaten alive by at least one honest alternative banking and money solution.
BS. Watch the Money Masters. There's a viable system at the end of the movie. It's been used to great success at various points in american history. There's always been viable systems there's always been better ways. They've been forcibly and violently and manipulatively destroyed through time because the federal reserve system is a lie. It's only protection is that it remain a big enough lie that not enough people keep looking into it. If a lie is universal or close to universal it becomes the truth.
For the curious..
http://video.google.com/videoplay?docid=-515319560256183936#
...
"The great mass of people... will more easily fall victim to a big lie than to a small one." Mein Kampf, Vol 1, Chap. 3
Someone posted this the other day, and i find myself using it over and over because it is completely applicable to the Federal Reserve and the blackholebank bailoutheist. We are, as a country, close to the end of the rope, and this is why the truth about this big lie is floating to the surface. I do believe the Fed will put to an end and some of this multigenerational theft will be stopped, just not sure when and how.
I often tire of the "What would you replace our current system with?", rhetorical question. What you really should ask is 2 questions, "What will our current system be replaced by?", and "What is the most equitable and happy society, currently and historically?". For all I care we could use canoes and boulders for their exchange value, and I'd be perfectly fine with that, as long as we could be reasonably content as a society.
Of course, things will probably get worse before they get better... from a macro perspective it probably doesn't matter what Paul Volcker says or doesn't say tomorrow, or whether he is a hero or a patsy.
Please. i regularly read your comments, but a system nefariously started by men on Jekyll island who's goal was to privately control the money supply and used a $100 BILLION dollar marketing campaign (inflation adjusted) to do so...um ya.
I am sure if we set our goals to the matter, with some strong principles - and the constitution! - the academics could come up with a people OWNED central bank - that would be "free from the ravages of congress." (haha)
To dare to state that somehow the current system has been anything but wildly out of control - both here and in the world (fed funded war state, subversion of the world by debt) is totally out of line.
The only reason things look so rosy when we continually lose our purchasing power is by finding dirt-wages cheap production/resources elsewhere and partially through technological advances.
Me likey your post.
Uh, he has a record does he not? And it is good, is it not ?
I was around, I remember.
If the Volker record reads right, he raised interest rates to the upper teens on his watch, purportedly to stop an inflationary spiral. A REAL one. One in which the missing part of the current scene, hourly wages and salaries were rapidly increasing, chasing inflation ever higher. People were changing jobs just to get another $100.00 a week, and the jobs were there to do so.
How, exactly, was this bad for financial institutions, the
banking industry? Higher interest rates benefit the truly rich, do they not? And penalize the middle class.
And didn't that later precipitate a wholesale dismantling of major corporations with merger after merger occurring,thruout the 80s, eliminating millions of jobs nationwide?
I'm not all that certain that closer detailed scrutiny of Volker's record would permit his continued standing as a man of honor. He was the establishment back then, from my read of the record they did just fine. As they always seem to. Even now.
Most business models will crack under funding rates of 15-20% prime, in particular when it fluctuates on a weekly/monthly basis. Volcker/FED forced the excesses back into the box from the late '70s inflationary spiral. While this, in turn, caused a deep recession during 1982 it also purged dying businesses that could no longer compete.
Those 15% gnma mortgages are a relic of the past, and should stay there
I wonder sometimes if he and maybe even Ronnie are not controlled opposition. Very hard to see through all the bullshit nowadays.
Yea. I vote for him, since the other options are even worse in my view, but I just can't be sure.
I agree he is establishment. Thirty years at the Federal Reserve has a tendency to do that.
But I look at the totality of his record. And I see a man who tried more often than not to do the right thing (granted that is simplistic but i don't think you of all people require a dissertation on the many decisions he made in his many roles within the Federal Reserve) regardless of how much pain it may have caused in the short term.
All we have had for the past 15 years, is powerful men, willing to sacrifice any long term economic stability if it would mean short term pain. Moreover, they do so for personal and political gain (and for personal and political gain of their powerful friends).
Volcker was and is not perfect. But he is NOT for sale to the highest bidder (those with entrenched interests in maintaining the status quo) and that goes a long way in my book.
He lost his job, because he refused to bow down to the worst political pressure a Fed Chairmen has ever had to endure.
Unlike Bernanke who in the last 6 months acted like he was running for Ms. Teen USA. The talent portion of his performance was his cheerleading on 60 minutes.
The GE jet engine maker's love swoon does bring one to tears ... as if it were nuns knitting booties for the pope of Rome they are employed. Volcker says it all and and if allowed knows what to do; he also knows the whores are in charge and the TBTF club has assigned him a pony, not a horse.
"One also wonders why his learned words do not carry 100x the weight of Greenspan's?"
We're getting there. Volker is bravely helping to draw the battle lines and people are taking sides. Volker = dissent. At this point he is every bit as relevant as AG, and perhaps more relevant.
Too late Volker, some may be confused by "good central banker, bad central banker" but not I, sayth me.
We plan to take the punch bowl away and smash it!
Volcker should not have to share a forum with that phony captured whore Arthur Levitt.
Have you noticed that for all the tut-tuting about the economic council Obama administration put in place, you never heard one word from Paul. He was shut up really quick. I think it may be a case of keep your friends close and your enemies closer.
Too bad they let their enemy off the 'Rez' tomorrow to go speak to Congress. I so would love to see someone have a "set that clinks" to ask Paul meaty questions of why his proposals have zero traction with this current administration.
Obama needed Volker on his team during the campaign so he can boast a "divided cabinet" akin to the one that Lincoln, Obama's fav prez, had. Now that he has won, he can break all promises and do what he really wanted to do, which is what he is doing now. As far for everyone else, they don't care, because politics and government action only matters when election season is up or they're out of a job and starving.
And the sun will rise in six something hours. Yes, I know, stating the obvious in this forum is redundant, but I'd just like to point out that any such points are not well received at the local establishment.
Moral hazard? The City of Miami (ie taxpayors) just agreed to build a free 2.4 billion$ stadium for the baseball team (that no one watches or care for). Apparently times are good in Miami. Apparently even baseball teams are so bankrupt even they cant afford to fund themselves. Baseball, just like AIG and Goldman Sachs, fucks over the taxpayor.
I am almost ashamed. For Paul:
http://www.youtube.com/watch?v=7f_HsjpSVaI
Where have all the good men gone
And where are all the gods?
Where's the street-wise Hercules
To fight the rising odds?
Isn't there a white knight upon a fiery steed?
Late at night I toss and turn and dream
of what I need
I need a hero
I'm holding out for a hero 'til the end of the night
He's gotta be strong
And he's gotta be fast
And he's gotta be fresh from the fight
I need a hero
I'm holding out for a hero 'til the morning light
He's gotta be sure
And it's gotta be soon
And he's gotta be larger than life
http://www.stlyrics.com/lyrics/footloose/holdingoutforahero.htm
Sorry but that's a rediculous sentiment. Why does there have to be some super hero? It's just a bunch of fucktards spreading stupid science, screwed up economics. All ya got to do is bash them upside the crown chakra. That's the most terrifying outcome. Hundreds of thousands of people with NO LEADERS no BANNER to rally behind. Just screaming their indivdiual understandings at the bullshit monster.
I hear you. I am actually quite cynical. Too little too late. Why this period of time? Has GS decided to short themselves now that they have their boner-us-es and they have sent him in to tank it?
I am conditioned by my culture. I want a hero. Like I said, I am almost ashamed.
In reality, I stay vigilant. It won't be done for me. I know that.
Peace Hephasteus.
No peace till there is true peace. They got web bots crawling all over the web. They got huge databases they mine for data. They know we are out here. They see and here our fuck you's every day. They send us dreams to try to force us to focus on our own faults so we stop focusing on theirs. They send out people to try to get everyone to focus on each others faults instead of the real problems. Every thought gets to them. The clear concise ones cut them like swords. They face hundreds of thousands of people who have slowly surely mastered the arts of logic and reasoning. All they do is beg for more time. Beg to put it off. A monolithic conciousness seems so powerful and able to control the outside forces it doesn't care about but it's breaking down. It's being overpowered.
whoa...very nicely said Hepasteus!
We must always remember that desperate men do desperate things. The Fed and the rest of the gang are getting desperate.
"The testimony, which will also include other financial experts such as Arthur Levitt..."
WTF?
correction: The testimony which will also include another on-the-payroll Goldman lap dog, Arthur Levitt...
we tend to leave the occasional easter egg here and there
Just out of idle curiosity, is it possible that TD's various alteregos (or at least some of them) are not entirely aware of each other's specific identity? It would make for a fascinating, double-layered latticework of pseudonymous genius (though it might boggle the mind somewhat as well). It would perhaps be tough to establish entrance criteria (what makes one good enough to become a Tyler), but it would also be a heck of a decentralized, cellular organizational structure.
Sorry, I read statements and writings by Volcker, Pearlstein, Kaufman, Rakoff et al and can't help but get carried away by the possibilities... Whether inspired by the same idea(l)s, or simply independently coming to the same (correct) conclusion, or copying off each other, or being one and the same, ZH's work appears to be giving the appearance of gaining traction in as yet small but growing ways (poor Mr. Saleh notwithstanding). Even at the risk of imagining influence where there is but coincidence, I must salute ZH for the extremely important work being done. But there is far more still to BE done.
I don't pretend to have read the entirety of the proposed regulatory reform from Treasury (http://www.treas.gov/press/releases/reports/Blueprint.pdf), but the scan I did does scare me in three different aspects:
a) there is no mention of investment banks outside of historical mentions of the Glass-Steagall Act (1933) separating commercial and investment banks, and the Gramm-Leach-Bliley Act of 1999 dissolving that separation. No discussion of ANY of the points Volcker makes above. Please read and prove me wrong, I would LOVE to be wrong about this.
b) if concentrates even more (if that is possible) power in the hands/tentacles of the Fed, without any checks, constraints, reporting duties outlined (again, I only skimmed the doc)
c) it proposes to create a new, separate Prudential Financial Regulatory Agency SPECIFICALLY to regulate "financial institutions with some type of explicit government guarantees". Now I may be imagining things here, but does that not imply the permanent continued existence of a substantially LARGE number of such institutions?
This plan for "reform" was explained to me last year by a Washington insider who once worked for the Fed. He said the SEC would be gutted of its enforcement powers (Madoff was the set up for this) leaving it as tame as the CFTC; and the FDIC would be stripped of its powers to direct financial institutions to curb their risks or preserve their assets.
His summary ended with: "It will take us five years to figure out what the Fed has done and another ten years to fix it."
Be afraid.
Thanks for setting my mind at ease. I knew I could trust the USG to do the right thing... And silly me, here I thought all the confusing, unclear, needlessly complicated and self-referential Treasury proposal was really just too advanced for my untrained mind to comprehend correctly.
Hi London Banker!
Could you please give us more details about all of this?
London Banker - you are greatly missed in the blog o sphere - Hopefully you will publish an article on ZH - (for those who don't know LB had one of the best econo blogs until he "retired" and went back to work)
http://londonbanker.blogspot.com/
Those sniping at PV should consider the confidentiality rules that apply to Presidential Committees. His testimony to Congress will likely result in his resignation from the council. Clearly, something has been decided on, or discussed, that he must break silence with. Perhaps extending the Fed's regulatory powers is the last straw.
So in the Soviet Union they once held a competition for the best short joke. Who can inject the most humor into the least amount of words. The winning joke:
Communism.
So in the same spirit here is my attempt:
A former Federal Reserve Chairman is talking about moral hazard.
Almost as good: The trouble with our leaders is that one half isn't capable of DOING anything, while the other half is capable of doing ANYTHING. I dunno, Dice, Volcker could have STFU and mumbled along with Tim's proposal. Can sinners never gain redemption?
I don't think this one can. He is just going out there and presenting the other point of view so that they can incorporate some of his points and then dust their hands and pat themselves on the back for a job well done while the insanity, inevitably, continues. Hell maybe he even thinks that he has to say all this stuff so that people simply know that this opinion exists in the White House and they're not just letting the banks run wild.
The end result is that this articulation of ideas gives the percention of greater stability and accountability to a system that lacks any of those things. That is not a good result even if Volker's intentions are pure.
I see your point, though disagree that no good result can come of it. We will just have to wait and see the live performance on the off chance that he has and takes an opportunity to voice active opposition to (vs. cerebral, "minor policy point") token counteropinion to the current state of affairs and the proposal to papier-mache over (or significantly, institutionally, permanently ratchet up) the mess with the current treasury proposal.
Should he immediately resign? Should he shout his disapproval from the rooftops? Run for elected office? You are right that a) he is advocating continued and increased Fed powers and b) he really is criticizing Bernanke/Paulson/Geithner with relatively "soft" gloves. 'Tis a fine line to advocate positive change without discrediting the only institutions capable of bringing about such change... Not an easy position to be in.
Sure it is an easy position to be in. If he has solid integrity and is not beholden to those who asked him aboard at presumably a decent salary.
But anyone advocating for even more powers for the FED is automatically blacklisted in my book.
"Western Capitalists"
"The will of the people"
or the politician's favorite argument backer:
"you know, the American people are not stupid..."
thank god for paul volcker. he is a true capitalist. he got us out of big trouble in the 80s by going against the grain and raising interest rates.
i just hope people listen to him.
I've always admired Paul Volker and I had real hope for the Obama Administration when I saw him standing next to the president. I now know that putting any hope in the American political machine is a waste of time, but Volker might have given them even a modicum of sanity.
Interestingly, Paul Volker does not have a Ph.D. in Economics. He has an M.A. in Political Economy. The lead prosecutor in the Enron fiasco, Sean Berkowitz, also has a bachelors in political economy. It really is a different degree than the wonkish economics discipline and I think that's part of the reason the Greenspans, Bernankes, Rubins, Krugmans, and Summers of the world ignored him. There's a greater emphasis on philosophy and ethics in Poli Econ that the economics students thought was just boring. But being able to manage an excel spreadsheet or program in SAS could never give you a clear understanding of what is actually going on in the world.
I got my degree in political economy and I wouldn't trade it for anything. I'm glad to see Volker late in his life do the right thing.
Based on this read you would have to assume that this is a pretty big slap in Bernanke's face. It also means that there can be no extension of the QE program. Volker is the senior economic voice in the WH, not Summers, Goolsbee or Timmy G. Even more important Voker has the respect of the global financial community. If Ben tries to expand QE after this statement the dollar will react in a big way. Bernanke knows this at this point. He watches screens too. He knows where the dollar, gold and the other anti QE barometers are currently priced.
If the 'market' concurs with this view it will be interesting to see the response. It is possible that the first response will be, "Oh good QE is over, lets party". But in my view you just saw the low in the bond and bill market. There is no way they can borrow another trillion without rates moving up.
Like TD says, this is going to get interesting........
Shrinkage: the antithesis of growthyness.
Let's hear him talk about the old days when laws were obeyed and people went to jail, institutions were shut down and banks weren't trading equities with TARP dollars.
Costanza in an unheated pool....Priceless.
Does any body know if I can view the testimony on CSPAN web site? It would be interesting.
It's an odd feeling when an adult finally walks into the frat party. Lots of sheepish grins and shuffling of feet and folks suddenly feeling rather foolish for wearing that arrow-stuck-onto-the-head thing.
It will be interesting to see if CNBC runs the speech, particularly the part where Volcker takes a swipe at parent company GE, or if instead they re-run that Porn special or just let Kudlow come in and introduce himself yet again and explain why Volcker doesn't understand anything. Maybe Jerry Boyer can chime in, too.
And since much of this testimony really does seem to be aimed at Goldman Savings and Loan---oops, it's a BHC, not an S&L---my mistake, VS (Vampire Squid) might be wise to have its Prop Desk take a massive short position in GS, thereby guaranteeing the survivability of the firm in what will become known as Tautological Trading or the F**k Me Trade.
Boyer looks like Peter Griffin with a beard...and perhaps as equally dense
While Volcker raises many great points, he omits the rampant control fraud that effectively led to our current state. While TBTF is a definite problem, widespread banking system insolvency is the next big issue.
We need to focus on preventing massive problems to begin with. As William Black stated, they were taking down banks before they began posting losses. Clearly, bank supervision went downhill.
Volcker also makes little to no mention of the unsustainable aggregate debt to GDP, excessive bank leverage, or the perils of massive unregulated financial instruments.
Does any body know if I can view the testimony on CSPAN web site? It would be interesting.
Does any body know if I can view the testimony on CSPAN web site? It would be interesting.
Mr Volcker will have his say to Congress.
Then fix will disregard his advise.
The fix will change a few cosmetic things. But the same gang and ideology stays in charge.
Because it is America destiny to either go bankrupt or go to war. The only constant is who has all the money. And that's ain't you.
Volcker is a central banker of the old school who believed in the public function of the central bank as enforcing order in the rough game of financial intermediation. He believed regulation was important and beneficial in preserving financial integrity of banks and markets. His chairmanship of the Federal Reserve pre-dated the ascendency of Chicago school economists who preached "free markets" as more likely to serve the public interest than the enforcement of regulations.
Volcker's Fed enforced the McFadden Act, prohibiting interstate banking and the ammalgamation of huge too-big-to-fail banks. Volcker's Fed enforced the Glass-Steagall Act, prohibiting commercial banks from using their leveraged, insured deposits in proprietary securities trading. Volcker's Fed enforced margin limits on securities finance by banks. Volcker's Fed enforced the Bank Holding Company Act which limited the ability of banks to affiliate with securities or insurance companies.
Volcker's Fed enforced all the rules - for even the most powerful banks. That is why his like hasn't been seen in Washington since. The bankers remember what effective regulation was like, and they will do anything to ensure that they never suffer from effective regulation again by discrediting regulators, discrediting regulation and ensuring their own freedom from transparency or accountability.
...the fact that he wont let go of Glass-Steagall shows he cares because allowing Glass-Steagall to go down was like legalizing lawlessness...this is one HUGE issue, and correcting and reenacting Glass-Steagall would be a significant, corrective start for us. I love him for this...he's been saying this for a long time.
Hence my belief that the time may well be upon us when we discover who holds the power, the monster or those that created the monster.
Thanks LB for your series of quality posts.
L B,
your comparison points out the differences to today.
No effective regulation today: What does that imply?
Excess leverage, insiders profiting and the public being ripped off.
After enough painful losses the investors will leave that place for whatever else and never come back. Without somebody to take money from the game comes to an end.
The scary thought is that this implies depression as the final outcome.
Great to hear from you again LB ... your fans miss you dearly!
Thanks for the kind word. No one here where I work presently knows about my alter ego. I gave up my virtual status as a blogger for the power to change a few things in the real world.
It's worth saying for those who habitually throw scorn on the SEC and Fed, that if good people don't go into government (and stay in government) then government won't be good. One the more harmful aspects of rising income inequality and bonus culture is that it denigrates public service, and therefore undermines the retention of skilled professionals in the public sector.
Income inequality also complicates enforcement. As a young regulator, I thought nothing of enforcing against executives making 10 or even 20 times as much as me. But when the guy across the table makes 100 or even 1000 times as much, then you have to wonder whether your brave little enforcement effort is going to stick, or will come back to hurt you through your superiors or political interference.
One potential positive of deflation is that it costs the rich much more than the poor, reducing their ability to buy influence and democratising the political process. It also makes careers in public service a more attractive option, even encouraging some talented young people to regard a career in public service as a long term good rather than as a stepping stone to private riches.
I don't know if anyone will see this..it's late after the post, however.....
This blog, is the best I have ever read...ever! Good work TD & Company:)
Everyone wants to know how I know the financial news way before they even see it anywhere! You are appreciated. A fellow zero! And I think I got to get me one of those shirts!
+1. welcome aboard. Think about the coffee cup as a present for the media challenged in your life.
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At the time of the democratization movement in China in 1989, there were members of the Politboro sympathetic to the student/worker protestors. One of these whose name escapes me, stupidly visited with the students after negotiations between them and the regime had failed, apologizing to them for not having been able to have done more. It was the last public appearance he ever made. Precisely such will be the fate of Volcker.
Volcker, who is elderly, can probably expect a torrent of abuse from the establishment media, abuse culminating in suggestions of senility or emotional instability. In ten years, our ruling clique will be imprisioning dissesters of this intensity in psychiatric hospitals, or detaining, torturing and holding show trials for them.
I hope you are wrong, though fear that in essence (if not the extremes of methods) you are not. Heck, people can be sidelined, made irrelevant without the need for such draconian methods.
Fun light reading for anyone still (already) up:
"[Neil Barofsky, the special inspector general for the U.S. Treasury's $700 billion Troubled Asset Relief Program (TARP)] who took office in December 2008, said the Treasury has improved its transparency in administering the program, but has repeatedly failed to implement his recommendations to increase disclosures, including detailed reports on what banks are doing with taxpayer funds.
"We remain puzzled as to why Treasury refuses to adopt our recommendations to report on each TARP recipient's use of TARP funds."
Barofsky also said that Treasury also has refused to adopt regular disclosures of borrowers that fail to repay loans obtained through a Federal Reserve securities lending program aimed at easing pressures in consumer credit markets.
He also said the Treasury does not intend to disclose trading activities, holdings and asset valuations in so-called public-private investment partnerships that are being created to buy troubled assets. About three quarters of the $40 billion in nine funds will be supplied by the Treasury"
http://www.reuters.com/article/newsOne/idUSTRE58N0RI20090924
Full testimony from others on US Senate Banking (and other) Committee on "Financial Rescue", including Barofsky and Elizabeth Warren:
http://banking.senate.gov/public/index.cfm?Fuseaction=Hearings.Hearing&Hearing_ID=6450475c-f46a-46c5-ab24-6c199c173f62
in the same way, i am afraid the whole truth about the worlds biggest bankheist (the big bailout of the toobigtofail) that we are living through will be written off as "radical and riduculous" since Michael Moore is covering it in his movie. From the previews, it looks like he is right on, but since Michael Moore has a mixed reputation, some love him, some hate him, i am afraid that this will be another way for the agents of the financial/government complex/cartel to stereotype the truthtellers as nutso in order to trivialize the truth, and thus allow more lawlessness.
agrotera, I can only hope that when this period passes and the world turns once again that if this period is referred to as "radical and ridiculous" it is in the same way Nazism is.
Keep the faith and stay strong.
Oh My God. (about the topic)
I know what the Timothy Geithner, Chinese visit was all about. In secret Timmy G promised the Chinese to hold up the Dollar and spike the stock market till the end of the year. He did this so the Chinese could go on a spending spree before the US implodes, to make them feel better about our default and the world wide depression we caused. The Chinese are preforming spectacularly. Anyone who can fog a mirror over there gets a loan just like we did. Only, you got to multiply what we did by five to get to what the Chinese have done just since the Geithner visit. On top of that they are going all over the world buying up everything in sight with their reserves. Maybe they would go easier on us if we could accommodate them? I don't know, but it looks to me like we are not going to make it to the end of the year.
Chinese students laugh at Geithner (dollar)
http://www.youtube.com/watch?v=hBk-ryQIuAw
Volker is ruining it for the children at play. I can just here the Fast Money guys tomorrow, Ah common Paul stop ruining it for us. We're having so much fun fleecing the taxpayer. Can't you just let us play a little while longer?
From my limited perspective this Volker speech may well be important is because it might represent a recognition in certain rarefied quarters that the current course that we have embarked upon is no longer tenable. If this is the case then we should be on the lookout for more substantial follow up in various forums with the requisite discussions & incorporation into the pending legislation and actions of multilateral institutions.
I cannot but help consider that there is indeed fear with what has been wrought among some of the more established focal points of financial power and what their creations have become. We'll see who is truly in charge, the monster or those that created the monster in fairly short order.
TD - Thanks for this particular posting with the inclusive prepared remarks.
People on this thread have been totally bamboozled by the elder statesmen Volcker facade. Volcker was instrumental as Nixon's TS in drafting Bretton Woods II allowing the US to go into overdrive deficit spending mode and establishing the world's current fiat currency scheme that is about to come crashing down. He is merely watching over the final destruction of a monstrosity he created more than 35 years ago.
Volcker will be brought in as the white knight after Bernanke falls on his sword for collapsing the global economy. Mr. "one global currency, one global bank" will then propose the "financial reform" necessary to establish global governance.
Everybody on this board appears totally blind to what is going on in this WWF private banking cartel fraud.
Wake the fuck up!
RE-read some others...we are not all enthralled with Volcker.
+1
Volcker's visible presence (only visible, not audible) in the Obama camp was always meant to silence inflationists. Red Herring. His presence there was one factor that convinced me of the final monetary outcome. I was surprised at first by his willingness to lend his countenance and cachet to this situation that can only end in the destruction of the currency. He is nothing if not a team player.
I hadn't given any thought to the possibility that he was also "Plan B". Interesting.
I am constantly amazed by people's desire to believe that there is a solution to this crisis that doesn't involve sovereign default and loss of lifestyle.
Edit: The only reason Volcker is being allowed to speak now is because of the proximity of the monetary precipice. He is filling his role as Red Herring. "Dear World: See? There IS someone highly placed in the Obama Administration that knows what he's talking about and is willing to make tough choices." And the world will lap it up. Jawboning is the only tool the Fed has left.
"And the world will lap it up. Jawboning is the only tool the Fed has left."
Without question SWR. The power of Mutually Assured Destruction has arrived in the world of central banking and international finance courtesy of the US federal reserve, treasury & worldwide TBTF institutions..
"I am constantly amazed by people's desire to believe that there is a solution to this crisis that doesn't involve sovereign default and loss of lifestyle."
Agreed. However, never underestimate the power of denial. It is the only thing keeping the current farce going combined with the mentioned MAD approach to monetary policy.
YOU are SOOOOO right!
God knows the "the white house team" sent him across the street to Farraguit Square to feed the pigeons often enough. But no one caught that, or paid attention to it.
The Administration will say 'we did the best we could' and how do you attack that? And, I voted for this bunch, or was it the other team...can't tell the difference anymore without a program.
My program screen save has been edited.
If Volcker is Establishment, then the Establishment is cracking...
I fully expect to see even more Schiff/Paul/Grayson/Cuomo-types running for seats in 2010 and 2012. The seeds of a viable third party are already in the ground. People at all levels are starting to align themselves with Volcker/Grayson/Paul/etc.
This is no longer a Red/Blue/Right/Left debate. For more and more people, Repub + Dem = guilty. For this reason alone a third party should materialize... it's a convenient way to restore credibility for both politicians and the system/congress.
This would make a bit more sense if it was bank prop desks which actually caused banks to collapse.
Except it wasn't.....
But noone cares on this website....they just want to take potshots at goldies to try and make up for their own personal failings...
Welcome to the group of "noone".
"But noone cares on this website....they just want to take potshots at goldies to try and make up for their own personal failings..."
why then waste your time with us uninformed dolts?
and btw: how do you know whether the posters at zh are successful or not in their private life.
seems to me you just want to take potshots at zh posters.
LJC - As in the engineer on detail to build a bridge? Marvelous!
The comment was adressed to London Banker, I put it here by accident. See under LB's last post
BAILOUTS, REGULATIONS AND RE-REGULATION
Aubie Baltin CFA, CTA, CFP, PhD.
Assume that the intent is to do as stated above: finish eviscerating any real regulatory power on the part of the SEC, and instead grant all of this power to the Fed. (BTW hurry + write your Senator today and demand they sponsor the Audit the Fed bill). Would not the outcome of this allegedly deliberative process, already preordained to arrive at that conclusion, be mightily enhanced by Volcker's testimony, adding legitimacy to the final product? If anything, Ben Bernanke is the one who heeded the advice to never waste a crisis (as a mode through which to seize power for unelected, non-transparent entity.)
Time to close down this beast. There must be an alternative. If the fear is politicians in charge of the money printing, I'd still rather have them under the tent of By The People, For the People. Elitists vs. The Crowd. The wisdom of the elites beyond question and control, the crowd despised and mocked for their supposed ignorance. Time to read the Declaration of Independence again. Looks like we've come full circle. I guess 200 years is about the limit on these experiments, unless the People do something.
Panda 6: by the way, you are clearly a Goldman douchebag so f - - - off.
What a lame post....what a predictable comeback....what a fanboy cheerleader you are
Speaking of fanboy's.. Or are you one of those that like their sushi served on barely legal girls of CCE while on a taxpayer funded business outing?
BTW, thanks for the junk rating. you have elevated my standing immeasurably.
Whatever fanboy - go play another tune
Ned/Layne--please don't feed the trolls....
Do you think anyone will listen to what Volker has to say?
I sure hope so.
Much of what he talks about will not be popular with the financial companies and these companies will lobby hard to make sure no substantive changes come about.
Will the politicians do the right thing (as Volker did in 1980) or will they bow to political pressures and the influence of the lobbyists (as Volker refused to do in 1980)?
Treasury Secretary Larry Summers (currently Director of the National Economic Council and Assistant to the President for Economic Policy) on Glass-Steagall back in October 1999:
"Treasury Secretary Lawrence H. Summers said in an interview, ''At the end of the 20th century, we will at last be replacing an archaic set of restrictions with a legislative foundation for a 21st-century financial system.'' The measure, he added, ''would provide significant benefits to the national economy.''
http://www.nytimes.com/1999/10/23/business/new-financial-era-overview-ac...
"....legislative foundation for a 21st Century Financial System...", eh?
Need not be a linguist to interpret and deconstruct that phrase.
Summers is the afterbirth of the double horned issue of Lord Blankfien and Jamie Dimon's gang rape of the global financial system.
you've left a few folks missing: Sanford Weill, Robert Rubin, Alan Greenspan...
Summers was deputy to Rubin's sherriff
as for Brooksley Born.."you know nothing!"
Not a damn thing will happen. The puppet masters have all the strings in Congress and in the White House covered. The Fraternity Brothers of GS are in control ( and now buying controlling interests in the media companies too). The best way to shut the mouths of heros like Mr Volker is to deny they coverage! Why has not the right talk media gotten their aggressive christian soldiers martching over all this rapping of this country, one nation under God....nope not in their interests it seems. As a 'former' card carring member of the Birch Society I voted for Obama (the othr two were a Republician joke designed to loose) and did so with high hopes. I now realize, sadly very sadly, he simple works for the 'man'.
NOTHING is going to change! "It is the same as it ever was" from the Talking Heads.
A complimentary note to TD, ZH and staff, for bringing topics like this to the attention of the public. Whereby, issues like HFT, dark pools, debt levels, and many more, would not even be discussed e outside of only a few. A sincere "thank you" to the entire ZH team. Great work.
After Volker's testimony a screen flashed up saying that on Friday the full commitee would be discussing HR 1207 (Ron Paul's Audit the Fed bill)
I hope so!