Volcker: We Need Leadership to Fix the Crisis
Soothing words from former Fed chair Volcker:
"The inevitable recession can be moderated. The groundwork can be laid for reconstructing the financial system and the regulatory and supervisory arrangements from the bottom up. The extraordinary interventions by the government (and taxpayer) should be ended as soon as reasonably feasible.
That rebuilding will be the job of another day — of a new administration here in the U.S., of finance ministries and central banks working together. It must draw upon the strength of the now chastened private sector. It will require more understanding of the risks embedded in so-called financial engineering and of the perverse compensation incentives that have exalted risk over prudence.
There is, and must be, recognition of the essential role that free and competitive financial markets play in a vigorous, innovative economic system. There needs to be understanding, in that context, that financial ups and downs — and financial crises — will be inevitable, even with responsible economic policies and sensible regulation. But never again should so much economic damage be risked by a financial structure so fragile, so overextended, so opaque as that of recent years."
Read the whole piece. It is a combination of realism, and optimism, and at the same time, a thinly veiled swipe at the entire Greenspan philosophy, with some mild criticism of the Bush administration thrown in for good measure.
But most importantly, Volcker states that this is fixable. (and that’s good enough for me).
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Source:
We Have the Tools to Manage the Crisis
Now we need the leadership to use them
PAUL VOLCKER
WSJ, OCTOBER 10, 2008
http://online.wsj.com/article/SB122360251805321773.html
See also:
Denmark Offers a Model Mortgage Market
GEORGE SOROS
WSJ, OCTOBER 10, 2008
http://online.wsj.com/article/SB122360660328622015.html
A Short Banking History of the United States
JOHN STEELE GORDON
WSJ, OCTOBER 10, 2008
http://online.wsj.com/article/SB122360636585322023.html
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October 10th, 2008 at 7:13 am
I totally agree. He is correct. It can and will be fixed.
He’s taken a swipe at Greenspan before. We discussed it here… I don’t have time at the moment to recapture the BP piece.
October 10th, 2008 at 7:13 am
Anything is fixable but how much pain will there be?
Has anyone thought about what would happen to the short funds value if shorting the entire market would become illegal?
Has the put options market ever been shut so people can’t bet against the market?
October 10th, 2008 at 7:15 am
And take a breath over the weekend.
When investors see our economic leaders jumping from rock to rock to ford the river, trying not to get their dainty feet wet, it doesn’t insure confidence.
Make one weekly announcement, smile a little, trying not to look like you left the iron on at home, and look like you have confidence and know what you are doing.
Here in the south, all these news leaks, blurbs, and worried looks do not inspire confidence. Try looking like you can perform your job. Most of these mopes look like they lost their last friend, and that assumes they ever had any…
October 10th, 2008 at 7:25 am
agreed.
but how does that fit with the election reality?
doesnt this man remember that he was booted out of office after a single term? although i admire him for his courage and actions i doubt there are other men in politics of his caliber.
October 10th, 2008 at 7:50 am
@baychev-
Do you remember that Volcker served two terms, from 1979 to 1987? If not, try harder.
With every passing day Volcker’s stock rises relative to that of his two successors. Volcker actually solved problems rather than paper over them. We could use the help.
October 10th, 2008 at 8:54 am
“Volcker: We Need Leadership to Fix the Crisis”
And exactly WHICH of the gang of Keystone Cops in this administration can step-up and provide “Leadership” ?
.
October 10th, 2008 at 8:57 am
VJ – Maybe none. This is the end of the Grover Norquist know nothing do nothing pay nothing foil hats. Too bad the tuition for kindergarten ended up being so expensive.
October 10th, 2008 at 9:20 am
Don’t forget that Volker is partially responsible for this mess; with the Lat-AM/NY bank fiasco.(no mark to market there!)
That set the stage for the endless moral hazard trades(PPT puts)continually placed during Greenmonkey reign.
October 10th, 2008 at 9:30 am
Prediction from Thingumbobesquadamus
Today, Messer George Bush will regale the nation with this needful admonition: “Remember, my fellow Americans prosperity is just around the corner.” … or words to that effect.
October 10th, 2008 at 10:12 am
Volker is, and was, a statesman masquarading as a politician, meaning he did what was right, not what was popular.
Somebody will have to come forth and tell Americans that, yes this is fixable, that the tale of this great nation is not over, but that fixing it will require pain.
All the deferred pain of the last decades of living beyond our means and pretending doing so was sustainable is about to come crashing upon our heads.
Pain can only be deferred for so long. Let it crash. Rip the band-aids off, the wound will heal quicker. Liquidate, liquidate, liquidate.
Life without pain is like capitalism without failure, and the government is ultimately powerless to prevent either pain or failure.
October 10th, 2008 at 10:32 am
Should we bring back Volker to the FED? I think I’m open minded on these proposition.
October 10th, 2008 at 11:56 am
We desparately need an adult in the room – Volcker will do just fine if he has the stamina for solving another crisis (he was a much younger man when he destroyed the inflation dragon). One big issue is what kind of team would he bring with him? I worry about bringing aging stars out of retirement, no matter how good they once were.
Assuming an Obama victory on the 4th, I would not count out a bipartisan decision to remove Paulson before the end of the year and install Obama’s Treasury pick so they can get started even before Obama is directly in charge. I’m not sure markets want to wait until Feb or March before Obama’s team is actually doing things. It might actually help Bush’s legacy: the idea that he allowed an incoming Dem President’s appointments to run key parts of the administration before the Dem President actually became president! What a statesmanlike move it would be! We might actually forget for a day or two how much of a total f**ckup this elite, common-man faker, silverspoon jack-@ss, Dubya has been.
October 10th, 2008 at 11:56 am
We desparately need an adult in the room – Volcker will do just fine if he has the stamina for solving another crisis (he was a much younger man when he destroyed the inflation dragon). One big issue is what kind of team would he bring with him? I worry about bringing aging stars out of retirement, no matter how good they once were.
Assuming an Obama victory on the 4th, I would not count out a bipartisan decision to remove Paulson before the end of the year and install Obama’s Treasury pick so they can get started even before Obama is directly in charge. I’m not sure markets want to wait until Feb or March before Obama’s team is actually doing things. It might actually help Bush’s legacy: the idea that he allowed an incoming Dem President’s appointments to run key parts of the administration before the Dem President actually became president! What a statesmanlike move it would be! We might actually forget for a day or two how much of a total f**ckup this elite, common-man faker, silverspoon jack-@ss, Dubya has been.
October 10th, 2008 at 1:29 pm
I enjoyed seeing Volcker on Charlie Rose yesterday. One thing that struck a chord in me was his statement to the effect of “we need fewer financial engineers and more electrical engineers”.
Really. Time to quit playing with Monopoly money and get back to creating real, not illusory wealth.
October 11th, 2008 at 1:25 am
People’s trust on the financial system is lost. The past 30 years experience of investment market has shown that extraordinary profit should not be expected on a wide-spread scale. This trust needs to be reestablished on the basis that long term growth is real.