Straight Talk on the Financial Crisis. Finally.
“By now it is pretty clear that it was faith in the techniques of modern finance, stoked in part by the apparent huge financial rewards, that enabled the extremes of leverage, the economic imbalances and the pretenses of the credit rating agencies to persist so long.”
Quick, which of the Presidential contenders uttered the above?
A. Mitt Romney
B. Ron Paul
C. Rick Perry
D. Herman Cain
Answer: none of the above (sorry, it was a trick question, coupled with some wishful thinking)
In fact, former Federal Reserve Chairman Paul Volcker said it.
Volcker made those remarks in a recent speech, summarized by The New York Times’ Gretchen Morgenson.
The real treasures were found in Volcker’s to-do list for further reforms. That heavy lifting includes addressing capital requirements (make them tough and enforceable), derivatives (make them more standardized and transparent) and auditors (ensure that they are truly independent by rotating them periodically).
He also spoke of the perils of institutions that are too large or interconnected to be allowed to fail. Calling this the greatest structural challenge facing the financial system, he said we must shrink the risks these companies pose, “whether by reducing their size, curtailing their interconnections or limiting their activities.”
–Gretchen Morgenson, “How Mr. Volcker Would Fix It“; The New York Times (10/22/2011)
I don’t know how the financial mess will ultimately be resolved, but Mr. Volcker’s analysis of what caused it — and his prescription for fixing it — are both pitch-perfect.
Paul Volcker for President, anyone??
P.S.: I find it interesting that people always seem to lament that society no longer has any “wise men” to guide it.
We do — we just don’t listen to them.