“Bankers and regulators have not come anywhere close to responding with necessary vigor” to the worst economic crisis in 70 years. There is a lot of evidence that financial weaknesses brought us to the brink of a great depression . . . The proposed changes are like a dimple.”

-Paul A. Volcker, Dec. 8. at a conference in West Sussex, England.

>

That paraphrased quote above comes to us from none other than Tall Paul on his five country, eight week, Bankers Shame lecture series. The Bloomberg article its from (Regulators Resist Volcker Wandering Warning of Too-Big-to-Fail) extensively reviews the anti-Geithner, anti-Summers World Tour.

Even thought this is obvious, it still needs to be repeated:

“Two years after the start of the deepest recession since the 1930s, no U.S. or European authority has put in force a single measure that would transform the financial system, based on data compiled by Bloomberg. No rule- or law-making body is actively considering the automatic dismantling of banks that Volcker told Congress are sheltered by access to an implicit safety net.

There’s little evidence that policy makers are heeding Volcker, the former chairman of the U.S. Federal Reserve. More than 50 regulatory overhaul proposals have been submitted in the U.S. and Europe, the data compiled by Bloomberg show. Lawmakers and regulators have debated new rules for capitalization and leverage, central clearing for derivatives trading, oversight of hedge funds and ways to monitor systemic risk.

While the U.S. House of Representatives has approved a financial regulation bill, authorities in the U.S. and Europe have sidelined measures that would automatically force changes in the structure of financial companies that Bank of England Governor Mervyn King called “too important to fail.” Volcker is leading a chorus arguing for restricting the size or primary functions of financial institutions.”

Of all the critics out there on this issue, none is more important, accurate and credible (present company included) than Volcker. He is The Man on these issues: Make banks smaller, make them accountable, don’t engage in moral hazard, do not reward reckless speculation. If they are too big to fail, then they are too big.

If the President were nearly as smart as advertised. he would jettison the dynamic duo in favor of Volcker’s prescriptions. He is the only politician/banker who is not afraid to prescribe foul tatsing but effective medicine . . .

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Source:
Regulators Resist Volcker Wandering Warning of Too-Big-to-Fail
Gadi Dechter and Alan Katz
Bloomberg, Dec. 15 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=aDbxsIHM30H8&pos=11

Category: Bailouts, Credit, Really, really bad calls, Regulation

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.

37 Responses to “Volcker’s anti-Geithner, anti-Summers World Tour”

  1. YY says:

    Well said BR, the truth is quite simple and straightforward, but the failure to reform will be very costly, and the time for reform is vanishing.

  2. thehofa says:

    What is more comical is Sorkin’s “Who’s the Boss” column today… “you can’t fax a handshake”… Obama should have never let Blanky, Macky, Parsy on the ploycom.

    Tell Volcker to roll up his sleeves and get to work.

    ~~~

    BR: I think that is what he is doing

  3. Joe Retail says:

    What’s with the spam? Every third time I try to read an article here I get a full page invitation to participate in a survey – the only way I can find out of it is to leave the site and come back. I thought this kind of *%^% had gone the way of the dodo bird on legitimate sites.

  4. bsneath says:

    Obe-Won is very smart. But he is also relatively young and extremely inexperienced in matters related to free market economics and finance. Further he is more a philosopher/ thinker and as such he must rely on the tactical/doers to get things done. This is where his Administration is failing, IMO. By his nature Obama can be manipulated by tacticians who are more interested in personal & political tactical advantage than in “big picture – saving humanity” concepts.

  5. Why is Obama ignoring Volcker?
    It’s so obvious that Timothy and Larry are dunderheads.

  6. Marcus Aurelius says:

    Asking the banks to act in a socially responsible manner won’t work. Saber rattling and half measures (windfall taxes, salary caps, claw-backs, etc.), designed to scare the banks into acting in the best interests of the nation, won’t work (that’s like negotiating with bank robbers for the return of half of the money they stole).

    The only way we will get our economy and our country back is by destroying the corrupt banking system (and along with it, those responsible for the chicanery) that we have allowed to replace our constitutional government. Our reaction should be drastic, vicious, and frightening to those who have put us in this position — let the next guy think twice about going down that road.

    Isn’t it strange that there have been no investigations and/or inquiries initiated and/or Special Prosecutors appointed to go after those responsible for this mess?

    We no longer have the backbone to do what is required.

  7. wally says:

    This is painful to watch. In a few years people will look back and wonder why nobody listened to that advice. The reasons will be weak and foolish – just like the reasons why nobody reacted to the credit bubble.
    Then, of course, it will be too late to avoid the damage.
    We’ve been this road before.

  8. damanimichael says:

    I think it was a political tradeoff, Obama got something and in return agreed to give Summers and Geithner one year to do something. Knowing that they would fail, he had Volcker lurk in the background. Now that their year is up, both Volcker and Obama are launching a major offensive. I am anticipating changes in Q1 2010. We are going to find that Obama is more savvy than we give him credit for…

  9. rickety rick says:

    too bad you didn’t take the opportunity to say that to congress’ face.

    volker’s correct. we average citizens need a louder voice to get the congress crooks to listen.

    obama is drinking from the same kool-aid as bush and clinton did.

  10. bsneath says:

    Marcus Aurelius Says:
    December 15th, 2009 at 9:35 am

    “Asking the banks to act in a socially responsible manner won’t work. ”

    No, and that is one of Obama’s failings. He believes he can articulate big-picture concepts of right and wrong to his fellow beings and they will follow. It doesn’t work that way with bankers or any businessman for that matter who cares only about the bottom line.

    Obama needs to recognize the private sector for what it is and steer it in the right direction with actions (financial incentives and disincentives) and not with words.

  11. Marcus Aurelius says:

    bsneath:

    Having offered the carrot as a sign of good faith, I hope Obama realizes he’ll need to pick up the big stick and use it if he want’s to get this mule to move. No change results in more of the same, and the country is getting wise to the same ol’ same ol’.

  12. franklin411 says:

    There were 30,400 banks in America by the end of WWI. From 1921-1929, 5,700 banks failed. From 1930-1932, 5,100 banks failed. The panic reached a crescendo in January and February 1933, as various states (Nevada, Louisiana) declared their own bank holidays to stop runs on local banks. By Roosevelt’s inauguration on March 4, 1933, the entire American banking system had ground to a halt. Virtually every bank in America was closed, whether by State banking holidays or actual bank failures.

    The Emergency Banking Act was passed in March 1933.

    The Securities Act was passed in May 1933.

    The Glass-Steagall Act was passed in June, 1933.

    When was there a similar event in this current crisis–a crescendo of panic? Arguably, we saw it in September-October 2008, when TARP was passed. TARP prevented anything like what happened in 1933 from happening again, for better or for worse.

    Any commentary that ignores this fact is simply disingenuous.

  13. willid3 says:

    a hopeful sign?
    http://baselinescenario.com/2009/12/15/wake-up-gentlemen/

    i am thinking that we have so many that believe that the ‘market’ will fix all that they don’t believe it had any thing to do with the debacle and won’t even if they have the facts in front of them. (some eventually figure it out though but not till its slammed into them. see Alan Greenspan)

    and some will also push back based on history that many industries have used regulation to further their economic interests against the countries economic interests.

    so how do you get many to admit the failure of ideology and ensure that new regulations don’t further one industries gains? and how do you do it so that you can avoid regulatory capture? and considering humans are involved, how do we avoid ideological ignoring of facts until things collapse (and even then)?

  14. Assassin says:

    Yes, franklin411, I’m sure the greatly reduced bank runs between the 1920s-1930s and 2008 have nothing to do with the fact that FDIC insurance didn’t exist until _after_ those earlier bank runs. No sir, it’s all the genius of TARP. Ignore that “Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.” Blessed be Hank Paulson.

  15. Citi, Wells to Repay Bailouts
    http://online.wsj.com/article/SB10001424052748704869304574595600479204352.html

    Citigroup Inc. and Wells Fargo & Co. won agreements to begin extracting themselves from the U.S. government’s grip by paying back a total of $45 billion in aid, marking a major milestone in the year-long effort to rescue the American financial system.

    The U.S. financial system faced the possibility of collapse a year ago. With the deals announced Monday, however, banks will have repaid $161 billion of the $245 billion in capital that was pumped into about 700 institutions as part of the Troubled Asset Relief Program. Citigroup and Wells are the last major lenders to return their TARP money.

    Citigroup said Monday that it would repay $20 billion that the government pumped into the company last fall and would unwind an agreement in which the government was shielding the New York company from most losses on $301 billion of assets. Hours later, San Francisco-based Wells said it would repay its $25 billion taxpayer lifeline as soon as it drums up $10.4 billion by selling shares

  16. wally says:

    “for better or for worse.”

    Any commentary that ignores this fact is simply disingenuous.

  17. bsneath says:

    BR Says:

    “If the President were nearly as smart as advertised. he would jettison the dynamic duo in favor of Volcker’s prescriptions. He is the only politician/banker who is not afraid to prescribe foul tasting but effective medicine . . .”

    He must do this if he wishes to hang on to the trust of moderate voters and the middle/working classes. Otherwise he will be seen more and more as a puppet of Wall Street. All bark and no bite. Just another seedy Chicago politician. An elitist wannabe who abandoned traditional Democratic causes.

  18. Rikky says:

    one can pontificate all day that obama’s strategy is patience which if not rewarded will lead to a spare the rod spoil the child event. until i see something other than empty talk so far he’s been a complete and utter failure in using his position to drive the reforms necessary to safeguard this country. another similar type event might well be the end of us. pray tell how is health care or any other of his desired policies more important than tackling the elephant in the room?

  19. franklin411 says:

    @Assassin:
    Between 1886 and 1933, there were 150 proposals in Congress for a Federal deposit insurance system. It wasn’t until the 1933 bank panic that deposit insurance was finally enacted. Why?

    Because there had never been a wave of bank failure and panic that matched the 1933 crisis. As long as the problem seemed manageable, legislators had no incentive to buck the status quo. It took the reality of an insolvent banking system to break the banking industry’s iron control of Washington.

    Oh, and guess what? The banks OPPOSED the FDIC in 1933, saying it would ruin the industry! Ha!

  20. willid3 says:

    rikky i think its obvious why health care is important. cause if we don’t solve the rising costs in there, it will collapse the economy. in a time when deflation is running rampant, it still has inflation. about the only other inflationary pressure is from energy. but a lot of that is pure speculation to make up for losses in other gambles. this year we are expecting pay about 2.5 trillion dollars for health care (up from 2.2 trillion last year). at the current rate its growing it will be 5 trillion fairly quickly. which would make it almost 1/2 of the reported GDP.

  21. bsneath says:

    thehofa Says:
    December 15th, 2009 at 9:20 am

    What is more comical is Sorkin’s “Who’s the Boss” column today… “you can’t fax a handshake”…

    thehofa , that was an excellent article. Certainly Obama did not like being snubbed like that. Lets hope he is appropriately pissed off at the arrogance of this crowd. Lets also hope that he clearly sees through Dimon’s suave bull shit.

    Putting Obama on Hold, in a Hint of Who’s Boss
    By ANDREW ROSS SORKIN
    Published: December 14, 2009

    http://www.nytimes.com/2009/12/15/business/15sorkin.html?ref=todayspaper

  22. Assassin says:

    franklin411: What’s your damn point? So we agree the FDIC insurance was pivotal. And yet you’re insisting that TARP is to thank for stopping bank runs. No, insured deposits are primarily to thank.

    It doesn’t surprise me in the slightest that the banks would oppose the FDIC; their greed and cluelessness is timeless. But that little tidbit has nothing to do with the TARP silliness.

  23. Rikky says:

    willid3 are you saying reforming the banking system is less important than health care in terms of the risks to our economy and way of life? hogwash. the crisis almost destroyed us and who’s to say it wasn’t just deferred for the moment?

  24. bsneath says:

    (Please disregard the naive hopefulness of my previous post.)

    The two faces of O
    Prez’s lovefest with Wall St. ‘fat cats’
    By CHARLES GASPARINO

    “…But the president’s meeting yesterday with the CEOs of the largest banks was nearly a lovefest, I’m told by attendees.”

    http://www.nypost.com/p/news/opinion/opedcolumnists/the_two_faces_of_oTswtJpCjQusQCFCMdiluJ/1

  25. willid3 says:

    no rickky i am not. i am saying that they are both important. one is needs drastic immediate attention. the other needs attention or the results of ignoring it will be as drastic as the first. ignoring fixing the financial system, and wall street can and will destroy us. ignoring the other will definitely do so too

  26. hue says:

    volcker is probably the only fed head with the cojones to raise interest rates to 20% to fight inflation. can you see, Elmer (Greenie) doing that?

  27. bsneath says:

    What is going to happen when the “informal welfare system” runs out of cash?

    Poll Reveals Trauma of Joblessness in U.S.

    “More than half of the nation’s unemployed workers have borrowed money from friends or relatives since losing their jobs. ”

    http://www.nytimes.com/2009/12/15/us/15poll.html?partner=rss&emc=rss

  28. farmera1 says:

    Why are all the heroes pushing their eighties ?????

    Volcker
    Buffett
    Templeton
    Bogle

    Is it me or does it seem that those that are the true honest competent leaders are all pushing eighty? I’m not eighty but am in my mid sixties, so it is a safe assumption that I suffer from age bias (I hope). I sometimes think that all that were good in this country are getting old. The younger set that should be leading this country all fit into molds like these guys:

    Lay
    Geitner
    Bush
    Madeoff
    Paulson
    etc

    I also believe that leaders reflect their country, not the other way around. Corruption is rampant, chronyism, corporatism, wars, debt etc etc. I see many things that don’t bode well for the future of this country.

    I wonder if Obama can make the necessary repairs, but I also believe (and believed) that making any changes was and is going to be very very difficult.

    One thing you can say for sure, deleveraging is a bitch. Regulating corrupt markets is going to be barely possible. Ending wars is always harder than starting them. Then you have Medicare, SS just over the horizon.

    Have a nice day.

  29. bsneath says:

    @farmera1

    uh, you forgot pension funds……

  30. willid3 says:

    @farmera1
    and 401ks?

  31. [...] Can Paul Volcker move the consensus on financial reform?  (Baseline Scenario, Big Picture) [...]

  32. ancientone says:

    My bigest disappointment in Obama has come from his handling of the big banks mess…….I was hoping he would be another FDR and restore some semblance of law and order in and around Wall St., but it appears now that he either doesn’t understand the problem, or he doesn’t think he can get congress to really fix things, so is settling for some make-believe reforms that won’t really hurt any of the “fat cats” he so readily condemns in word only. It took Big Money thirty years to dismantle the New Deal framework, and we got another disaster, just like before. With our pathetic educational system, the public had no clue what was being foisted upon them until it was too late.
    History is voting thumbs down on America. We’re too ignorant to remain a great power.

  33. bsneath says:

    ancientone Says: “My biggest disappointment in Obama has come from his handling of the big banks mess… but it appears now that he either doesn’t understand the problem, or he doesn’t think he can get congress to really fix things…”

    Obama understands quite well that the Investment Banks are more than willing to help finance his war chest to keep Democrats in power and to pay for his reelection bid in exchange for a little quid pro quo.

    Enough said.

  34. ancientone says:

    bsneath Says, if you’re right, then we can really kiss this country goodby. Big Money can only keep squeezing the working classes down further and further until they are too poor to buy anything, and then America will look a lot like Brazil; a few very rich people behind high walls, and a lot of poverty and crime all around them.
    God bless unregulated business.

  35. mknowles says:

    Is it possible Volcker is doing this on behalf of President Obama, unofficially?….

  36. kevinearick says:

    Ironic. Many who referred to Paul Volcker as Darth Vader are now praying for his return.

    Ironic; that’s all.

    His participation would be helpful, if the Lazarus catalysis is to proceed.

    Can I sell you an Austrian bank to go along with Citicorp and Wells Fargo in your Goldman Sachs pension fund, with a government guarantee to cover the current cash account deficit, paid through monetary expansion billed to the future?

    Oh; that doesn’t work any longer.

    Never mind.

    Return to labor generally does no occur through reason, unfortunately, and the constitutional mechanism to that end was shorted several decades ago.

    Organizational legitimacy and individual self-regulation are the issues being avoided.

  37. [...] Bankers and regulators have not come anywhere close to responding with necessary vigor to the worst economic crisis in 70 years. There is a lot of evidence that financial weaknesses brought us to the brink of a great depression… The proposed changes are like a dimple —Paul Volcker, from his anti-Tim Geithner, anti-Larry Summers Bankers Shame World Tour [...]