Volcker: Wall St. changing, but not very rapidly

Former Chairman of the Federal Reserve Paul Volcker. / CBS

Paul Volcker was the Chairman of the Federal Reserve Board from 1979 to 1987, and he's been an advisor to President Obama. With America's economy still unsettled, Chairman Volcker sat down just a few days ago with Anthony Mason for a Q&A:

In his office in New York's Rockefeller Center, Paul Volcker fills the hallway. He is a towering figure, both in height (he is 6'8") and in reputation. He spent eight years as Chairman of the Federal Reserve.

And these days he is casting a giant shadow over Wall Street.

He says he believes the culture on Wall Street has to change.

In the aftermath of the financial crisis, Volcker has led an outspoken campaign to curb greed and speculation. His concern, he says, is for the health of the banking system.

For nearly two years, the 84-year-old economist chaired President Obama's Economic Recovery Advisory Board, helping to shape the president's banking reforms.

In January 2010, Mr. Obama urged Congress to enact "a simple and common sense reform, which we're calling the Volcker Rule, after this tall guy behind me."

The draft of the president's speech had not included Volcker's name.

"I was absolutely surprised," Volcker said. "I knew nothing about it until the words came out of his mouth."

"How do you feel about having your name on part of this?" Mason asked.

"It's partly fun, partly an annoyance," he said.

The "Volcker Rule," which goes into effect in July, will prevent banks from making speculative bets that could put both themselves and taxpayers at risk.

"I think part of the problem is that that kind of mentality, trading mentality with very high incomes, distorted the culture of traditional banking," Volcker said. "It got out of hand."

He believes soaring salaries and bonuses encouraged bankers to make more risky trades.

"Do you think that's changing?" Mason asked.

"Changing, but not very rapidly," Volcker said. "There's a lot of resistance, for obvious reasons."

Volcker knows about resistance. When he headed the Fed during the Carter and Reagan presidencies, Volcker pushed interest rates above 20 percent to conquer inflation. He succeeded, but he had to take the country into recession to do it.

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[MIO42]

"It got out of hand."

Really?

I hadn't noticed

[marychgo]

Thank you, Paul Volcker, for hanging in there and trying to instill a modicum of common sense into a generation of financial services "geniuses" who may be too dumb to listen to you.

I'd like to see Glass-Steagall back in place of Gramm-Leach-Bliley, but I'm afraid that ship has sailed. But citizens DO need to keep pressuring both Congress and the administration to produce regulations as tough as they can under Dodd-Frank (particularly the Volcker rule and putting derivative through an exchange). And I strongly believe that a financial transaction tax is essential.

[venusvegasvada]

The Great Depression.

One of the things that was done (1933) to prevent it from happening again, was the passing of the Glass-Steagall Act. This broke up huge financial institutions that were into all the markets; I.E. real estate, investment, etc. The thought was they were too big to regulate, ergo, we'll break them down into smaller, manageable units.

Guess what? It worked! It worked great for everyone (except the greedy bank owners). Look at our Real Estate market. Nice and stable for decades.

That lasted from 1933 till 1999. That's when Washington caved in to the bank's special interest groups and repealed the Glass-Steagall Act.

They replaced it with the Gramm-Leach-Bliley Act. This once again allowed for the re-creation of gigantic financial institutions. "Too big to fail" sized financial institutions. Throwing history, prudence and common sense out the window in order to satisfy the bankers, they started the experiment.

Almost immediately after the repeal of the Glass-Steagall Act, banks everywhere from different markets started to merge together- reforming the gigantic financial institutions that had been banned since 1933.

Once reformed and driven by greed and massive amounts of profit, these experimental entities managed to nearly destroy the entire world financial system in just 7 years, from 1999 till 2007 when the music stopped.

Everyone wants to know how our entire real estate system suddenly got out of control after decades of stability? Everyone wants to know how the American taxpayer wound up paying for the meltdown of the world financial system? How did everything wind up on Fannie and Freddy's doorstep?

That's why. It's still not fixed either.

Get it together people. They are too big to be allowed to exist. They cannot be trusted (greed). They are too big to control.

Re-instate the Glass-Steagall Act.

Repeal the Gramm-Leach-Bliley Act

Refs:

http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act

[fredm6900]

Banks should act as banks only. Banks produce anything but paper. They are not more important than the rest of the economy, the real economy. They should not speculate or pay millionaire bonus to CEOs. They went too far. Any question on that, look at the results.

[sandiegopete]

Wall Street (the term really means the financial services industry) is not changing and will not change. Like any corporation a financial services company has as its one and only reason for existance the creation of profit for its owners. Especially in today's globalized economy the corporation owes no allegience to any specific country. Regulation on a local, or one country basis will not work in today's globalized economy. A financial services company that does not like the regulatory climate in one country can simply move its operations to another country. As an example, AIG headquartered its financial services division in London where it was able to sell a form of insurance called credit default swaps without having to be subject to the state insurance regulations that exist for companies in the U.S.

As the current re-writing of the Dodd-Frank Act demonstrates, every time an attempt is made to regulate the financial services industry the lobbyists ensure that the regulations are written in such a way that they ensure mimimal impact on the industry itself.

[RichZubaty]

Raise interest rates. Reward savers. Dry up speculators. Save the economy. Barack Obama is too dumb to be a Socialist. He still believes in free markets and trickle down.

[preacherbob1]

While your theses is admirable, your comments about the President are inane. I suggest you adhere to a modicum of civility as well as respect for the President. I would hope your parents taught you basic elements of respect.

[dzaffina]

so what do you suggest' romney/ryan?