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Paul Volcker on financial innovation
Tuesday, December 08, 2009
Speaking at the Wall Street Journal's Future of Finance Initiative earlier today, former Federal Reserve chairman Paul Volcker looked to finance's recent past and saw little to like, noting that he has yet to see any evidence that financial market innovations have provided any benefit to the economy.
Apparently, Volcker thinks the industry reached a peak when it invented the ATM and, given what's happened over the last year or two, it's hard to disagree with that view.
He said, "It really helps people, it’s useful."
This, as opposed to what was broadly considered to be "innovation" by his successor at the central bank in the form of derivative products such as collarteralized debt obligations and credit default swaps that "took us right to the brink of disaster."
He also called for the return of Glass-Steagall, a move that would again separate commercial banking from investment banking, and criticized compensation plans that had become too generous and, as we've come to find out over the last couple years, too dangerous.
"Tall Paul" reportedly left the stage to thunderous applause.
4 comments:
Paul is the only banker that inspires any confidence in me. I wish President Obama would reappoint him. All of the others want to slowly inflate away people's savings/pensions, and pillage the taxpayers for derivatives bailouts.
Please. As of a month and a half ago PV was not calling for the return of G-S, and the press conveniently omits his role in deregulating the industry (particularly the S & Ls) under Reagan. Not to mention he opposes Ron Paul's bill to audit the Fed. He's just another bureaucrat who misses being able to run things.
Note: unlike the lazy reporters who treat PV like Diogenes, I was actually around during his tenure.
The problem is not financial innovation, but government tinkering in the financial market. The financial problems were created by market distorting policies by the federal government, including Freddie, Fannie, the community reinvestment act, and the policies of the Federal Reserve. This was followed up by bailing out private companies that took advantage of these policies instead allowing them to go through the bankruptcy process.
There are two problems in the financial market today. The first is too little innovation, because a concerted effort to not have patents apply to financial products and services. The second is government meddling in the financial markets and the attitude that the banking sector is more important than the other parts of the economy.
Another innovation is online banking.
I can't think of anything else.
Dale - Financial innovation = liar loans, derivatives, reverse amortization loans, etc.
These things have nothing to do with government regulation since they did not regulate those things.
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