Obama Dissed, Volcker Speaks Out Against Bankers Gone Wild

If anything about the financial crisis made you beet-red angry, then you must read Simon Johnson. Johnson is a former chief economist for the International Monetary Fund who wrote one of the best pieces on the financial crisis in print, the Quiet Coup. This week he urges people to pass on the message of Paul Volcker, former head of the Fed Reserve (before Greenspan), and now the head of Obama’s Economic Recovery Advisory Board.

Obama met this week with the heads of the major banks in an attempt to discuss regulation and the return of stability to the financial system. Guess who decided to attend the meeting with the President of the Free World only by phone? If you guessed Lloyd C. Blankfein, the chief executive of Goldman Sachs; John J. Mack, chairman of Morgan Stanley; and Richard D. Parsons, chairman of Citigroup you got it right. (Thanks guys, cause that shows how much you appreciated the use of all our taxpayer dollars!!)

The meeting continued with discussions about executive compensation, regulation, and making more loans available to small business. From the NY Times:

…the banks are seeking to restore executive pay to high levels and asserting that the government’s demand that they hold bigger financial buffers against possible losses makes it hard for them to issue more loans. During the hourlong meeting in the Roosevelt Room of the White House, Mr. Obama prodded the executives to stop fighting the regulation legislation intended to deal with the problems that led to the financial crisis”

Paul Volcker was one of the few outspoken critics of the unprecedented response by the Federal Reserve in the financial crisis. Far oversimplified, he did not agree that it was a good idea to bail out failing banks at all.

After President Obama’s meeting with the top banking executives, Volcker had this to say (emphasis added):

Every day I hear financial leaders saying that they are necessary and desirable, they are wonderful and they are God’s work. Has there been one financial leader to stand out and say that maybe this is excessive and that maybe we should get together privately to think about some restraint?
I hear about these wonderful innovations in the financial markets, and they sure as hell need a lot of innovation. I can tell you of two—credit-default swaps and collateralized debt obligations—which took us right to the brink of disaster. Were they wonderful innovations that we want to create more of? [...] Wake up, gentlemen. I can only say that your response is inadequate. I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information.

Paul Volcker and Simon Johnson for the win.

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December 17, 2009 | Filed Under Economy 

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