“Wake Up, Gentlemen”

The guiding myth underpinning the reconstruction of our dangerous banking system is: Financial innovation as-we-know-it is valuable and must be preserved.  Anyone opposed to this approach is a populist, with or without a pitchfork.

Single-handedly, Paul Volcker has exploded this myth.  Responding to a Wall Street insiders‘ Future of Finance “report“, he was quoted in the WSJ yesterday as saying: “Wake up gentlemen.  I can only say that your response is inadequate.”

Volcker has three  main points, with which we whole-heartedly agree:

1. “[Financial engineering] moves around the rents in the financial system, but not only this, as it seems to have vastly increased them.”
2. “I have found very little evidence that vast amounts of innovation in financial markets in recent years have had a visible effect on the productivity of the economy”

and most important:

3. “I am probably going to win in the end”.

Volcker wants tough constraints on banks and their activities, separating the payments system – which must be protected and therefore tightly regulated – from other “extraneous” functions, which includes trading and managing money.

Read more . . .

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Tags: banking system, finance report, financial engineering, financial innovation, financial markets, managing money, paul volcker, payments system, wall street, wsj

This entry was posted on Tuesday, December 15th, 2009 at 9:54 pm and is filed under Consider This, Finance, Innovation Needed, Need to Know, Politics, Shape of Things to Come?, Worth Repeating, baseline scenario, economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.