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.
Standing at a lectern with his hands in his pockets, Volcker moved unsparingly from banks to regulators to business schools to the Fed to money-market funds during his luncheon speech.
He praised the new financial overhaul law, but said the system remained at risk because it is subject to future “judgments” of individual regulators, who he said would be relentlessly lobbied by banks and politicians to soften the rules.
“This is a plea for structural changes in markets and market regulation,” he said at one point.
I was talking to someone recently who worked for Volcker at the President’s Economic Recovery Advisory Board during the financial reform bill debate, and he told me that basically, despite the meager stature of that office, there were several times during the negotiations when Volcker would slip into Washington unannounced and go from office to office in Congress to present the facts and protect his priorities in the bill. And then, bankster lobbyists would go into those same offices and the representatives, armed with actual information, would tell them, “Yeah, but Volcker said…”
The man has gravitas. And in his advanced age, he’s using it to rip the banksters a new one. Now you will never hear from these whiners that Paul Volcker is anti-business; they would rather deflect that over to Obama. But it’s Volcker, and certainly not Obama, making the most direct critiques of the crime spree they call their business practices. Here are just a couple of his observations:
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.”
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.”
As Marcy hit today, a new report shows that housing lock is keeping unemployment unnecessarily high, because people are tethered to their underwater mortgages. To the extent that there’s a structural problem in unemployment, it has to do with the fucked-up housing market. And that can be attributed to a systemic failure of the financial markets. Just take a look at the notes of this field hearing in Sacramento by the Financial Crisis Inquiry Comission:
Fueled by shoddy lending practices and nonexistent regulation, the Sacramento area’s out-of-control housing market contributed greatly to the financial crisis of 2008, witnesses told an investigative panel Thursday.
“The whole system became prone to widespread corruption,” said commission Chairman Phil Angelides, the former California state treasurer.
He said mortgages made in Sacramento and other communities “became the beating heart of a financial monster.” Investment banks used “some of Sacramento’s mortgages as poker chips” in a scheme to gamble on the housing market, he said [...]
The market crash has devastated the Sacramento economy. Some 43 percent of homes in the area are “underwater,” meaning they’re worth less than their loans, said economist Mark Fleming of market researcher CoreLogic. That’s about twice as bad as the U.S. average, he said [...]
Karen Mann, a real estate appraiser from Discovery Bay, said lenders pressured her peers to approve shaky home appraisals in order to keep loans flowing. Just about everyone involved thought they wouldn’t get caught by regulators.
The risky lending basically drove out the prudent lending, one witness said, because they’d lose market share playing by the rules.
What you’re left with is fraud. And Volcker told the truth about it, in ways that others would rarely dare.