Comments on: Paul Volcker: “Not an Ordinary Recession”

By: Alex

Alex — Mon, 23 Feb 2009 16:57:21 +0000

Did anybody else notice how he slammed his grandson? Talk about tough love…

Well, I have to admit the kid deserved it. Can you imagine being so stupid as to write to one of the greates central bankers of all time, and saying “I am just following orders”? Not to mention the fact that this sad individual also blithely disregarded this man’s clear advice to do something else with his life. It just goes to show you, that most people just don’t listen, if they think its in their interest to do so.

More and more I am seeing that moral suasion does not good. Screw up or facilitate screw-ups, and you go to jail…for years…and cannot work in finance ever again. Its probably the only way to really change behavior.

By: BG

BG — Mon, 23 Feb 2009 14:50:17 +0000

What I meant to say was “Fool me once, shame on You, fool me twice, shame on me”.

By: BG

BG — Mon, 23 Feb 2009 14:46:15 +0000

After all these years, Paul Volcker has still got it!! I respected his opinion and insight then and I respect it now. That’s a hellava lot more than I can say for just about anybody else. Come to think of it, I can’t think of another person that qualifies to be in the same group with Volcker. There are plenty who are probably smarter; but, they can’t be trusted.

It is also interesting that there are only a few comments on this post. I think Volcker has it exactly right. The party is over. We are forced to clean up your mess this time; but, it will not be happening again on my watch.

What’s that saying, “Fool me once, shame on me, fool me twice……”?

Thanks for this post.

By: Avl Dao

Avl Dao — Mon, 23 Feb 2009 04:16:33 +0000

As I’ve said, the Debt Unwind seems to be carrying us into a Structural Economic Transformation. Volker’s comments are not incompatible with this observation: he seems to paint a picture that is incompatible with running a 300+million person nation on a GDP 70% driven by debt-fueled consumer spending.
Assume x years go by before we can get Household Debt as a % of GDP back to its historic norm.
Then whatever level of consumer spending that’s do-able on a “pay-as-you-go basis by the consumer, with no net increase in HH debt, will depress the consumer’s 70% contribution to GDP.
The implications forward for employment alone are tremendous.
But…the implications of requiring x years to pass before HH debt as a % of GDP gets returned to historic norms is equally tremendous. Both imply new lower equilibrium points for swaths of the Service economy’s payrolls (headcounts & median salaries) in banking, retailing, hospitality, real estate brokers, construction, etc. The reduction in dollar-multipliers will be ginormous. Infrastructure stimulus jobs will not close the headcount & payroll reductions.

Whether global debt markets will find some synchronicity in regulations is a big unknown. What is not a big unknown is that if the economies importers/exporter nations of China, Japan, Eurozone, Latin America and the US all attempt to come out of the downturn in anything close to resembling “the same time”, global Oil futures will spike and likely throw everyone back into recession.

The last Structural Economic Transformation, 1973-1984, was partially masked by 3 recessions, 2 energy crisis, 4 changes in the White House, and repeated bouts of stagflation and double-digit inflation, before giving birth to Service Economy with a GDP driven by consumer spending.

By: eaglepilot

eaglepilot — Sun, 22 Feb 2009 22:17:08 +0000

I think that the world will be moving forward to an Ozzie & Harriet (O&H) type of future, where you live within your means, you don’t try to be “keeping up with the Jones’” and you get very close to your neighbours. How do you think O&H would react to an “investment bank” or “financial engineering”? Does your mind’s eye show Ozzie’s quizzical look?

A bank should be a BANK, taking in deposits and putting out mortgages/business loans that help the community. When the model moves from the basics to the esoteric is where you lose your way. An investment organization should be an INVESTMENT ORGANIZATION, not a bank. Using customer deposits (federally guaranteed) as a base for INVESTMENT leverage is a recipe for disaster, as we have seen. We have seen the banks morph into a monster that does not remotely resemble a bank.

Let’s get back to the basics, determine “What is the (new) American Dream?” and work towards that. Five or ten years from now will be here in five or ten years, and we will be measured by what we have done to move forward from this mess. We could be the next “greatest generation”, it’s within our capability.

By: d4winds

d4winds — Sun, 22 Feb 2009 19:07:03 +0000

Excellent. He doesn’t say it explicitly, but re-instating Glass-Seagal may be his cup of tea. Otherwise the 2 systems he describes make no sense. I would add to his comments that no financial institution, whether heavily regulated and government-backed or not, should be allowed to be become “too big to fail.”

By: mezamashii

mezamashii — Sun, 22 Feb 2009 18:47:43 +0000

This is a very good speech. Thanks for posting it. It shouldn’t be surprising that he is arguing for a Canadianesque system. In 2008, the World Economic forum rated Canada’s banking system as the healthiest. The US came in 40th & the UK 44th.