Paul Volcker isn't happy

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Paul Volcker isn't happy.  At a recent conference of high-level bankers, the former Fed chairman made no bones of his dissatisfaction, criticizing them for their abject failure to grasp the magnitude of the crisis and the woefully inadequate reforms they have suggested.  As for pay and bonuses, Volcker was as clear as one can be, saying “Has there been one financial leader to say this is really excessive? Wake up, gentlemen. Your response....has been inadequate.”   Volker was at odds with the bankers’ push that new regulation not stifle innovation, a matter that your Editor claimed for years would eventually lead to one financial crisis after another.  Innovation means only new product and more revenue.  The end result has been a complete and utter disaster and if left unchecked, will again lead to calamity.  Volcker railed, “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence.”  Volcker also attacked the rise of complex products such as credit default swaps (CDS), a matter we addressed most recently in our November 9th issue (see http://www.cross-currents.net/j110909o.pdf).  Sir Deryck Maughan, a partner in Kohlberg Kravis Roberts, chimed in, citing the flawed mathematical techniques that permitted the industry to underestimate risks.  Billionaire investor George Soros also weighed in, likening CDS securities to buying life insurance while permitting the holder to shoot the insured.  Soros said, “They really are a toxic market.  Credit default swaps give you a chance to bear-raid bonds. And bear raids certainly can work.”  See http://tinyurl.com/yff4mpg for the full story.