12/12/09 Baltimore, Maryland – The poor bankers. Now Paul Volcker is giving them hell.
Volcker was the last central banker in America to have any real integrity. He saw what needed to be done and he did it. He hiked up rates and brought consumer price inflation under control. Thus began the bull market in bonds that continues to this day…29 years later.
Volcker saved the dollar…and saved the US economy from a worse bout of stagflation.
Circumstances are very different today. Now, our central bankers are trying to weaken the dollar. They see it as a way to escape debt and get out of a depression. This is, by the way, the depression caused by their own loose-money credit policies. Under the influence of artificially low interest rates, people borrowed too much. Then, they had to cut back…creating today’s depression.
Bernanke and company think they can hold off a correction forever – by increasing the amount of cash and credit available.
How does that work, again? People have too much debt…so you give them more, right? Investors and businessmen made too many mistakes…so you enable them to keep making them, right? The bankers lent too much money to too many people who couldn’t pay it back, so you insist that they offer more credit, right?
Everyone is mad at bankers. Not us, of course. We pet underdogs. We champion lost causes. We stand by diehards.
As far as we’re concerned, the bankers stole their money fair and square.
But the poor English bankers aren’t getting away with it. The sourpuss government of Gordon Brown just hit them with a 50% super-tax on their bonuses. Boo hoo.
And here’s Paul Volcker, as reported in the London Telegraph, telling them to wise up:
The former US Federal Reserve chairman told an audience that included some of the world’s most senior financiers that their industry’s “single most important” contribution in the last 25 years has been automatic telling machines, which he said had at least proved “useful”. Echoing FSA chairman Lord Turner’s comments that banks are “socially useless”, Mr. Volcker told delegates who had been discussing how to rebuild the financial system to “wake up”. He said credit default swaps and collateralized debt obligations had taken the economy “right to the brink of disaster” and added that the economy had grown at “greater rates of speed” during the 1960s without such products. When one stunned audience member suggested that Mr. Volcker did not really mean bond markets and securitizations had contributed “nothing at all”, he replied: “You can innovate as much as you like, but do it within a structure that doesn’t put the whole economy at risk.” He said he agreed with George Soros, the billionaire investor, who said investment banks must stick to serving clients and “proprietary trading should be pushed out of investment banks and to hedge funds where they belong.”
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
Does it seem like we’re heading into a global communist/socialist world state or is it just me? Wages/jobs are being dumbed down to mainly government jobs. Higher paying corporate jobs are being clipped due to perceived wrongdoing/corruption. Government growth and influence seems to be swallowing up the private sector in a race to salvage the destruction of the economy.
Is there no way to avert this?
I’m always fascinated (reminded) of the good line(s) in the old movie, “Wall St.” in 1989:
“….Too God*&^% cheap money sloshing around out there”
The line was meant to be the reason for the exorbitant money being moved around, made and just plain drenching the market looking for a home….
I agree with Volcker, but if that happens this time it will be a disaster worse than what we have…….so there are no good answers.
The FED is the modern ATM for banks…the ATM’s for the public (cheap money) has been a disaster….so will the ATM at the FED.
Until we wake up to the fact that “managed capitalism” is better for a whole society instead of a fallacious belief in “free markets” (which don’t really exist) we will continue to stumble and in worse cases, break our financial legs.
“Socially Useless”! That bout sums it up. Does-in-it??? *S*
When you see how markets are being structured and manipulated by many you may ask yourself if it not better to even go beyond Volcker and Soros and prohibit the banks from market making, too.
sierra, I agree with you up to the point where you start spouting nonsense about “managed capitalism.”
Who is going to “manage” that capitalism? The government….? Give me a break. We see what happens when the government gives itself the power to regulate, adjust, and benefit from the private sector. Now we have a government that is staffed by ex- and CURRENT bankers from the biggest firms in the US. What we have NOW is a managed capitalism.
These large firms exist precisely because they have used and continue to use the US government to eliminate their competition. If not for Congress and the Federal Reserve, last fall’s collapse would have not happened. GS, JPM, C, and MER have bent the American public over the proverbial chair…. Clinton, Bush, and now Obama have held us down…. with a little help from their 545 friends on the Hill.
“Is there no way to avert this?” Not as long as people still believe that the term United States means the United States of me. Cooperation is the only thing that might and that’s a big might save what ever we have left. Call it what you will. Communism, Socialism, Capitalism what ever. Around the world Social Democracies seem to work best. The people are more content and enjoy life that is not a total rat race.
“Social democracies” whatever the heck that means only enjoy life slightly out of the mud hut because they leech off of productive societies. Or in the cases of Norway, Scotland and Denmark, oil. Freedom works best. No government.
“because they leech off of productive societies.” Look around it is the productive societies that take resources from the “mud hut societies.” Its obvious you don’t have a clue what freedom means. Listen to the song. Nothing else to lose. No government would really mean cooperation on a level you do not know or understand.
Bors, you forgot Fascism in your list of cooperative -isms.
“Social Democracies seem to work best. The people are more content…” That is, unless that Social Democracy was the DDR.
That worked REALLY well. Had to wrap barbed wire around it to keep the people… out, or in?
I just read that the cheapest Harley motorcycle that sells in the States for $8,300 sells in Denmark for $28,000 due to tax. Keeping workers happy or something. I guess productive Denmark then is leeching of the USA – that mud hut society of the future.
Government is the greatest evil on earth.
Even a ‘benevolent’ government will kill more people and more often than the most dangerous serial killer.
Wars, depressions, political oppression, starvation, pogroms, “re-education”, secret police, families informing on each other – all come exclusively from government.
Government is truly evil.
If government joins with business – business becomes evil. If it joins with science, science becomes evil. If it joins with education, education becomes a tool of evil.
“Democracy is two wolves and a sheep voting on what’s for dinner.”
Who are the sheep? Always it is the People – the individual.
People have always said, “It can’t happen here.”
Well, it is happening here.