Volcker on How to Reform Our Financial System

(CommunityMatters) I’m a total Volckerite – much of my initial confidence in President Obama’s financial stewardship stemmed from Paul Volcker’s and Warren Buffett’s support & advice.  During the last several months, I’ve been especially bothered by reports that Sumners and Gheitner had been crowding him out from the President’s ear.  I’ve been pleased by reports and obvious, deliberate signals of late otherwise.  This editorial in today’s NYTimes superb. A few extracts:

Apart from the risks inherent in these activities [proprietary trading, ownership & sponsorship of hedge funds and private equity funds] they also present virtually insolvable conflicts of interest with customer relationships, conflicts that simply cannot be escaped by an elaboration of so-called Chinese walls between different divisions of an institution.

The concept of a “living will” has been set forth by a number of governments. Stockholders and management would not be protected. Creditors would be at risk, and would suffer to the extent that the ultimate liquidation value of the firm would fall short of its debts.

I’ve been there — as regulator, as central banker, as commercial bank official and director — for almost 60 years. I have observed how memories dim. Individuals change. Institutional and political pressures to “lay off” tough regulation will remain — most notably in the fair weather that inevitably precedes the storm.