“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence.”

-Paul Volcker, Former Federal Reserve Chairman


Former Fed chair Paul Volcker “berated bankers for their failure to acknowledge a problem with personal rewards and questioned their claims for financial innovation.

According to the Times of London, Volcker surprised “senior figures in the financial world for failing to grasp the magnitude of the financial crisis and belittled their suggested reforms.”


As bankers demanded that new regulation should not stifle innovation, a clearly irritated Mr Volcker said that the biggest innovation in the industry over the past 20 years had been the cash machine. He went on to attack the rise of complex products such as credit default swaps (CDS).

On the subject of pay, he said: “Has there been one financial leader to say this is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate.”

He said that financial services in the United States had increased its share of value added from 2 per cent to 6.5 per cent, but he asked: “Is that a reflection of your financial innovation, or just a reflection of what you’re paid?” (emphasis added)

It seems that Tall Paul is getting frustrated with the lack of any financial reforms. Volcker is starting to lash out at the bankers who have effectively blocked any reforms.

Perhaps someone could press him to redirect some of that ire back here at home, where CEA cheif Larry Summers and Treasury Secy Tim Geithner are unindicted co-conspirators in the prevention of any significant financial reforms passing in the US.


‘Wake up, gentlemen’, world’s top bankers warned by former Fed chairman Volcker
Patrick Hosking and Suzy Jagger
The Times, December 9, 2009


Category: Bailouts, Corporate Management, Credit

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “Volcker: Only Financial Innovation Has Been “ATM Machine””

  1. flipspiceland says:

    As revealed yesterday by the more experienced posters, Volcker caused a great deal of harm during his tenure. [BR: WTF?!?]

    It’s unfortunate that we can never return to the days of yesteryear and see what would have happened during Tall Paul’s tenure if there were no Central Banker like him (or anyone else) with the power to control interest rates and it were left to a purely market driven scenario.

    And it doesn’t look like there will ever be an economy that is permitted to have interest rates that are
    so driven.

    On the matter of reforms: forget it. It’s all just heated conversation, worse than Monday morning quarterbacking, conjecture, and hindsight.

    If the FED were to disapppear right now some other mechanism would be in place to continue to accumulation of greater fortunes in the hands of a relative few.

    Nothing short of a bloody revolution with accompanying executions will change a cotton-pickin’ thing.

    The likelihood of that?

  2. [...] only financial innovation in last 20 years, says Volcker – Big Picture “I wish someone would give me one shred of neutral evidence that financial innovation has led to [...]

  3. SteveC says:

    Today’s headline: “Britain to impose 50% tax on banker bonuses above 25,000 pounds”. I wonder how long before that movement starts here?

  4. fsl,

    good point~ good thing we live in a ‘Free Market Democracy’ – wherever that is..

    w/this: ““I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence.”

    -Paul Volcker, Former Federal Reserve Chairman

    excellent piece of soundbyte, one would think the He, as an ‘Economist’, would, if anyone, know that ‘Economic Growth’ is, in and of itself, is fatuous.

    If he were asking, “I wish someone would give me one shred of neutral evidence that the, recently employed, financial innovation has led to economic advantage for certain groups in our Economy — one shred of evidence.”

    then, He’d be asking a question that Economics can answer.
    Only Financial Innovation Has Been “ATM Machine”, hmm…, how many would use an ATM, if the machine didn’t give you a Receipt?

  5. ZackAttack says:

    “When one stunned audience member suggested that Mr Volcker did not really mean bond markets and securitisations had contributed “nothing at all”, he replied: “You can innovate as much as you like, but do it within a structure that doesn’t put the whole economy at risk.”

    Banks thrived for centuries without any concept of securitization. Some will learn to do so once again.

  6. Its Me says:

    I just finished a biography on Cicero, that great Roman Statesmen during Romes transformation from a republic to an empire.

    If we use Rome as a comparison we are no where close to having it all topple down. The time to be aware is when one party grabs the military. Then we are in for it.

    Right now its just angst against the bastardized system of wealth consolidation. Regulatory issues for banking industry wonks. Hardly the stuff to well up the passion in the masses.

  7. monmick says:

    Unindicted co-conspirators is an interesting term but, in this case, not quite the “mot juste”. You need an indictment in order to have an unindicted co-conspirator. In this case, perhaps unfortunately, there is no indictment (yet)…

  8. call me ahab says:

    “Nothing short of a bloody revolution with accompanying executions will change a cotton-pickin’ thing.”

    they did quite a bit in the early 20th century to strip power from the industrial titans (robber barons) and broke up their monopolies w/o a revolution- it would seem the same type of legislative action could be possible regarding the financiers of the modern era-

    however- don’t get me wrong- i would like nothing more than to see bankers dragged form their buildings and beat by an angry mob-

    in the detective that would be known as a “clue” and our legislators would most certainly be paying attention after such an “unfortunate” event

  9. Marcus Aurelius says:

    We are Roman, and we are not Roman. A more appropriate historical precedent might be found in the Medici and the Republic of Florence.


    As for classical Rome, our military already has its own Praetorian Guard, in the form of Blackwater and its ilk. In clear violation of United States federal law (18 U.S.C. § 1385, Federal troops and mercenaries have already been used as “law enforcement,” to control the citizenry (maybe the clearest sign at all the the Republic is dead). Google: army times northcom

  10. bsneath says:

    BR says: Larry Summers and Treasury Secy Tim Geithner are unindicted co-conspirators….

    Well put.

    Financial Innovation? No. The industry developed tools for financial manipulation.

    Simple question: Are our financial markets more secure today than they were before these products were developed? Of course not. Buffet warned us a decade ago of the disaster we are now facing.

    This is one of the issues that a third political party will need to take on since both of the existing “parties of puppeteers” are corrupted and compromised.

    I predict there will be civil unrest next year if the main street economy resumes its downward spiral just after Wall Street doles out $140 billion in bonuses. This is a set up for something major to happen. I hope it is done through the ballot box next November but as of now there are few choices other than corrupted Republican or corrupted Democrats.

    This will be one election where “the lesser of two evils” will not cut it IMO.

  11. Marcus Aurelius says:

    flipspiceland: Bought my first condo at age 20 at 17% interest on a 5 year note — shortly after Volker put the hammer down on inflation. Flipped it in year 3 and made good money before the first RE bubble I ever witnessed popped. Always saw Volker’s policies as a good thing.

    The best regulation, outside the obvious “Federal Bank” scam, is a clear set of conservative (and I’m not talking about what passes for political “conservatism” today), clearly written laws along with the mandate that those laws be enforced to the letter.

    We don’t need no stinkin’ central bank.

  12. MayorQuimby says:

    BR- It’s spelled, “banksters” not “bankers”.


  13. Wes Schott says:


    Volcker – good, banksters – bad

  14. The Curmudgeon says:

    What?!? The financial industry is not a value-adding enterprise?!? You mean to tell me that everything from day-trading stocks to flipping houses to Dubai World “investments” in New York hotels (the W Hotel they bought at the peak for about $250 m recently sold at foreclosure for $2 m) have added no value to the economy? Jeepers, what would we do without all the shuffling around of money that has become an end unto itself?

    The only regulation that would have any meaning would be real regulation at the source, i.e., regulation of the Federal Reserve to remove one of its mandates (full employment, which can’t be achieved through monetary manipulations anyway) and make it responsible for looking out that the medium of exchange is stable and does a good job of communicating value. Fix that, and all the rest will take care of itself.

  15. CTB says:


    Real change comes at the ballot box? Not likely this year. We need a credible third party. I’m just worried who the power vacuum will be filled by.

  16. Had Enough says:

    Its Me,

    This is not Rome, nevertheless. You will find that what it would take to topple the empire in our case is much less than what it took Rome to do. The typical Roman was much more conditioned to putting up with cruelty, abuse and bullshit than contemporary Americans are today. Today’s American is much better informed of his possibilities and has a greater sense of entitlement and privilege than the classical Roman. He will react accordingly when the time comes for him to give up what he sees as his right.

    Technological advancements in transportation afford the contemporary American many easy options not available to the Roman by which to abandon his country entirely, if necessary. You will find leaders dumbstruck as to how to pay the bills that pay for their power once they discover that they have zero tax base and no way to easily keep borrowing after many young tax-paying adults have simply disappeared from official payrolls.

    The freedoms and rights granted commoners that separate the modernized, developed Western Europe from poorer, undeveloped East today can be traced to the unusual economic threat posed to European feudal lords by their own peoples, that if abused might have run away from their villages and abusive leaders to seek asylum elsewhere, leaving no one to work the land and provide the surplus. This was a powerful incentive for European nobles to cooperate with their peasants; cooperation that lead to eventual greater freedom and prosperity than enjoyed by Asian peasants living during the same period. I am certain it will again prove a powerful incentive to our own stupid leadership as well when the time comes.

    Canada has a lot of land and easy immigration policies. South America has some of the most sparsely populated lands with untapped resources on the planet. When things get bad, there are still several options. We are only 300 million individuals and out of this number, our productivity depends on just a fraction of these who would describe themselves as part of our struggling middle class. It is this same fraction that has the greatest ability (education, skills, ability, perhaps some cash) to leave first and the most to lose from staying (promise of higher taxes and inflation, lower services, saturated/declining consumer market and political agenda dominated by geriatric interests, big brother government, overpriced/rigged investment assets.)

    Fair warning to all you complacent plutocrats if you continue to enforce the status quo!

  17. call me ahab says:


    good point

  18. worth says:

    Obama may have grand idealistic visions, but this is a situation that calls for a doer, not a dreamer.
    In other words, in a world crying out for Teddy Roosevelt, we are stuck with Woodrow Wilson.

  19. [...] seems that Tall Paul is getting frustrated with the lack of any financial reforms.”  (Big Picture also Real Time [...]

  20. DeDude says:

    So far it seems that the only people who have benefitted from financial innovation are the innovators. They got their juicy fees, everybody else got screwed.

  21. Mannwich says:

    @DeDude: “Financial innovation” = euphemism for “fraud”. Until that’s dealt with a substantive way, nothing has been fixed.

  22. flipspiceland says:

    @BR and MA:

    Re: Volcker’s tenure

    QUESTION: Did you feel personally bad that your policies were throwing people out of work?

    PAUL VOLCKER: Yeah. I would get asked a question a lot about, “How can you conduct a policy that appears to throw people out of work, anyway?” And my answer to that, internally and externally, was twofold. First of all, in the short run, I was convinced that the economy was going to have a bad recession anyway. That there were so many distortions and so many excesses built into the inflationary process that sooner or later, a recession – likely to be a serious recession – was going to happen.

    I remember very well when I took office that there were forecasts within the Federal Reserve, [that,] without any tightening of policy, there was going to be a recession. Actually, it didn’t happen very quickly. But I also felt that in the long run, there wasn’t any question that the economy was going to operate more efficiently; productivity would be greater; you would have less instability in the future if you could manage to stabilize prices. And on that score, I think the evidence is at least consistent with that view.

    QUESTION: How long had you been on the Fed before you became chairman?

    PAUL VOLCKER: Well, I started out in the Federal Reserve as a young economist and spent about five years in the Federal Reserve Bank of New York. And then I spent some years in the Treasury and had been undersecretary of the Treasury for Monetary Affairs during an extremely interesting period, including a period when inflation really got started, which made a big impression upon me. And then I went and became president of the Federal Reserve Bank of New York, which is the most important operating arm of the Federal Reserve System, in 1976, I guess. And then went to the chairman of the Federal Reserve Board in 1979.

    He was part of the FED that caused the problem back in the 70s in the first place.

    I don’t see him as the savior most do since he caused a great many people to be unemployed. Comparing the situation to the present, here you have interest rates at zero and STILL have extremely hig unemployment.

    So no matter who is running the FED it appears that they are only able to manipulate things to suit a few hundred gazillionaires at the top, and the hell with the rest of it..

    END the FED, NOW!

  23. ArifJAA says:

    If were going to remain a Democratic Republic (or either if you prefer) and have a Central Bank, then that Central Bank should answer to the people, that is be regulated. The Fed’s Political Independence indeed.

    Yes, Congress will probably make a short term hash of it, but at least in theory they can be voted out or impeached. Right now our finances are being run by a Banksters private club, allowing Congress to get their payoffs while pretending they are as outraged as the rest of us.

  24. [...] Volcker has become quite vocal lately. Be sure to check out the interview he has with Der Spiegel and in Monday’s [...]