Volcker Spares No One in Broad Critique ["Financial System is Broken"]

WSJ ^ | September 23, 2010, 4:38 PM ET | By Damian Paletta

[DeaconBenjamin]

Former Federal Reserve Chairman Paul Volcker scrapped a prepared speech he had planned to deliver at the Federal Reserve Bank of Chicago on Thursday, and instead delivered a blistering, off-the-cuff critique leveled at nearly every corner of the financial system.

* * *

“This is a plea for structural changes in markets and market regulation,” he said at one point.

Here are his views on a variety of topics.

2) Banking — Investment banks became “trading machines instead of investment banks [leading to] encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system.”

3) Financial system — “The financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.”

6) The recession — “It’s so difficult to get out of this recession because of the basic disequilibrium in the real economy.”

10) Risk management — “Markets that are prone to excesses in one direction or another are not simply managed under the assumption that we can assume that everybody follows a normal distribution curve. Normal distribution curves — if I would submit to you — do not exist in financial markets. Its not that they are fat tails, they don’t exist.”

11) Derivatives — “I’ve heard so many stories about how important” derivatives are but “there doesn’t seem to be much doubt that the creation of derivatives has far exceeded any pressing need for hedging.”

[skeeter]

13) The Fed and Dodd-Frank — Volcker said it was a “miracle” that despite all the criticism aimed at the Fed the central bank “came out with enhanced regulatory authorities rather than reduced regulatory authorities.”

"Miracle"?The obvious irony intended by Volker is utterly lost in the translation here.

[Brilliant]

It’s not so much the financial system that is broken as it is the political system. But the political system is the contagion that infects everything.

[cherry]

volker can go shove it.....he is the problem....people like him....instead of being a stawart and a statesman, he choose a worthless evil side .....good riddance...