Paul Volcker speaks up
His predecessor, in contrast, has kept a lower profile. So it's worth noting that Paul Volcker went on Charlie Rose this week to discuss Bear Stearns and related matters.
The man who wrung out the inflationary excesses from the U.S. economy in the late 70s and early 80s is concerned about the Fed bailing out an investment bank (as opposed to commercial banks)…
We’ve seen the Federal Reserve take more extreme measures in some
respects than any that have been taken in the past to deal with a
financial crisis, which raises some real questions about not only for
the Federal Reserve and its authorities, but for the structure of the
financial system… The Federal Reserve is designed to lend to banks. And the banks were
considered to be at the center of the financial system, and lend
liquidity, provide cash in return for good assets, when a bank got in
trouble. Now they found in this case, where some of the investment
houses were in trouble, and prototypically Bear Stearns …
But, and it's worth remembering here that Volcker belongs to the power elite… he's not sure what the Fed could have done differently, since he believes federal regulators somehow fell down on the job:
In this situation, they [the Fed] stepped in and nobody else was there to do
it…They stepped into a vacuum, and I think quite appropriately, it’s a
judgment they had to make. But is this what you want for the
longstanding regulatory support system? My answer is no.
Later, Volcker decried something our own Bill Bonner has poked fun at — the mathematical models at the root of modern mumbo-jumbo finance…
The market was being run by mathematicians that didn’t know financial
markets. And you keep hearing, you know, god, that event should only
happen once every hundred years, according to my model. But those every
hundred years events are coming along every two or three years, which
should raise some questions.
Best part, though — he says his "feelings are hurt" because the Swiss franc is now at parity with the dollar.
Well, it does make those yearly trips to Davos a lot more expensive.