TMFDeej (99.47)

Note to White House: Stop Listening to Idiots, Start Listening to Volker

October 21, 2009 – Comments (9) | RELATED TICKERS: BAC , JPM

While I did not vote for either major Presidential candidate, one of the things that I liked best about President Obama while he was running was that he added Paul Volker to his team of economic advisors.  When I heard this I thought to myself, "That was a smart move.  Volker is one of the few people who is independent enough, smart enough, and has the intestinal fortitude to do what this country needs to get it back on track."

Flash forward to today and the Administration has basically ignored everything that Volker has to say, instead listening to academics like, Austan D. Goolsbee / Lawrence Summers (who not only is a jerk but is so stupid that he literally cost Harvard billions of dollars by encouraging its endowment to purchase derivatives) / Ben Bernanke, or Timothy Geithner who is a yachting buddy of everyone on Wall Street and can't even effectively manage his own finances (tax evasion, unable to sell his house) let alone the entire country's.

I can't believe that Volker hasn't been given an even more prominent position by the current Administration.  No wait, I take that back...I do believe it.  Giving Volker actual responsibility, makes too much sense.

Today's NYT contains an excellent article on the difference in opinion between Volker and the other members of the President's economic team on what should be done to fix the U.S. banking system:

Mr. Volcker’s proposal would roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities.

The Obama team, in contrast, would let the giants survive, but would regulate them extensively, so they could not get themselves and the nation into trouble again. While the administration’s proposal languishes, giants like Goldman Sachs have re-engaged in old trading practices, once again earning big profits and planning big bonuses.

Mr. Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street’s wild ways.

“The banks are there to serve the public,” Mr. Volcker said, “and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties” and ultimately fails.

The only viable solution, in the Volcker view, is to break up the giants. JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. Goldman Sachs could no longer be a bank holding company. It’s a tall order, and to achieve it Congress would have to enact a modern-day version of the 1933 Glass-Steagall Act, which mandated separation.

Glass-Steagall was watered down over the years and finally revoked in 1999. In the Volcker resurrection, commercial banks would take deposits, manage the nation’s payments system, make standard loans and even trade securities for their customers — just not for themselves. The government, in return, would rescue banks that fail.

On the other side of the wall, investment houses would be free to buy and sell securities for their own accounts, borrowing to leverage these trades and thus multiplying the profits, and the risks.

Being separated from banks, the investment houses would no longer have access to federally insured deposits to finance this trading. If one failed, the government would supervise an orderly liquidation. None would be too big to fail — a designation that could arise for a handful of institutions under the administration’s proposal.

“People say I’m old-fashioned and banks can no longer be separated from nonbank activity,” Mr. Volcker said, acknowledging criticism that he is nostalgic for an earlier era. “That argument,” he added ruefully, “brought us to where we are today.”

Amen Paul.  If that idiot Alan Greenspan hadn't helped to repeal Glass-Steagall we probably wouldn't be in the mess that we are in today, or at the very least it wouldn't be nearly as bad.

The last line of the NYT article is very telling,

So Mr. Volcker scoffs at the reports that he is losing clout. “I did not have influence to start with,” he said.

That's the problem folks.  Instead of a smart, strong person with integrity, a gaggle of baffoons with in my opinion at least in the case of Geithner and Summers questionable integrity are running the show.

Volcker Fails to Sell a Bank Strategy

Deej