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Volcker Says the ‘Financial System Is Broken’
September 24, 2010, 8:41 am
The financial system is still at risk even after an overhaul of financial regulation in the United States and new capital requirements for international banks, says Paul A. Volcker, former chairman of the Federal Reserve and an adviser to President Obama.
In a bleak assessment delivered Thursday at the Federal Reserve Bank of Chicago’s 13th annual International Banking Conference, Mr. Volcker said:
The reason we are all here is that the financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term, unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets.
Mr. Volcker supports the financial overhaul and the enhanced power of the Fed to monitor systemic risk. But he also said that there was need for structural changes in markets and regulation, arguing that there were inherent limits to the abilities of regulators:
“Relying on judgment all the time makes for a very heavy burden whether you are regulating an individual institution or whether you are regulating the whole market,” he said. That decision, he said was “subject to all sorts of political and institutional blockages.”
“Even if you sense something going wrong, doing something about it is extremely difficult,” he said.
In his speech, Mr. Volcker covered a lot of ground. Barry Ritholtz, an investment researcher and popular blogger, summarized it this way:
Volcker unloaded on banks and CEOs; he trashed regulators and the inept business schools. He opened fire on the Fed, bombed money-market funds.
Mr. Volcker was also pessimistic about a recovery, saying, “It’s been so difficult to get out of this recession because of the disequilibrium in the real economy.”
Go to Mr. Volcker’s Speech on Reuters Insider »
Go to the Real Time Economics blog of The Wall Street Journal »
Go to On Money blog of The Chicago Tribune »
Go to Barry Ritholtz’s Big Picture blog » |
