Wednesday, April 9, 2008

Paul Volcker - a real central banker

The former chairman of the Federal Reserve, Paul Volcker, gives a speech to the Economic Club in New York. His remarks are a testimony to his deep rooted understanding of the workings of capital markets. His words are sometimes lecturing but always characterized by strong doubts towards the sustainability of the current system.

"It used to be a commercial bank centered, highly regulated financial system, it is an enormously more complicated and highly engineered system...all developed in unknown trillions and trillions of derivative instruments. It is very hard to argue that the new system has brought exceptional benefits to the economy in the early years prosperity was much more widely shared."

One can't help but notice his cynical thoughts on the "current mother of all crisis". "The bright new financial system for all its talented participants and rich rewards has failed the test of the market place."

Volcker in his thoughts on the role of the Federal Reserve does not tone it down either, I wished Greenspan and Bernanke would carefully listen in.

"As custodian of the nations economy, the nations money in particular, the Federal Reserve has the basic responsibility to protect the value of the currency and resist chronic pressures toward inflation. It is granted a high degree of independence in pursuing that responsibility. At the same time the Federal Reserve should be removed from and seemed to be removed from decisions that seemed biased to favor particular institutions and particular sensitive constituencies."

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source: Volcker Says Fed's Bear Loan Stretches Legal Power

source: Former U.S. Federal Reserve Chairman Paul Volcker on the current financial crisis
The Big Picture, Barry Ritholtz

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