Link
Some strangely tough talk from a member of the Fed. Perhaps he's positioning himself to stage a coup against Bernanke if Ron Paul's elected.
The first section of the speech:
Like most Americans, I am a strong defender of free market capitalism and I’m here today to make an argument that our country should take the difficult steps required to move its financial industry back toward that system.
I acknowledge that there is more than one view on this topic. There are those who believe we have made great strides with Dodd-Frank and if we implement it well, all will be fine. Some believe that that the industry is over-regulated, which may be true, but we should not confuse over-regulated with well-regulated. And some of us are certain that in spite of all that’s been done and debated, the soundness of the largest financial institutions and the systemic risks they continue to pose is no better. In my view, it is even worse than before the crisis. As well-intentioned as the Dodd-Frank Act may be, it will not improve outcomes. Today I will describe why I believe that is the case and, more importantly, what must be done to give the United States a financial system that is healthy and competitive, and that supports rather than endangers the economy.
There are many villains in the story of the recent crisis and much written to name them, describe them and even curse them. If you want to know how it happened, read "Thirteen Bankers" and "All the Devils Are Here." If you want to know how to fix the problem, I highly recommend "Regulating Wall Street," from New York University’s Stern School of Business. If you want to understand why the American public refuses to ignore the injustices associated with executive compensation in bailed out companies versus budget cuts borne by the middle class, read Rolling Stone’s article "Why isn’t Wall Street in Jail?" If you wonder why "no one saw it coming" then I suggest you read up on Brooksley Born or, a decade later, Meredith Whitney.
Or, you might even read the remarks of an Iowa-educated bank regulator turned-policy maker in Kansas City. Fifteen years ago, I gave a speech entitled "Rethinking Financial Regulation," which summarized the major threats facing our financial system. My suggestion then was to take steps to reduce interdependencies among large institutions and to limit them to relatively safe activities if they chose to provide essential banking and payments services and be protected by the federal safety net. I also argued that safety net protection and public assistance should not be extended to large organizations extensively engaged in nontraditional and high-risk activities. A final point of those remarks was that central banks must pursue policies that preserve financial stability. I am going to repeat those suggestions today, and as often as the opportunity allows. History is on my side.
Today, I am convinced that the existence of too big to fail financial institutions poses the greatest risk to the U.S. economy. The incentives for risk-taking have not changed post-crisis and the regulatory factors that helped create the crisis remain in place. We must make the largest institutions more manageable, more competitive, and more accountable. We must break up the largest banks, and could do so by expanding the Volcker Rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis.
Some strangely tough talk from a member of the Fed. Perhaps he's positioning himself to stage a coup against Bernanke if Ron Paul's elected.
The first section of the speech:
Like most Americans, I am a strong defender of free market capitalism and I’m here today to make an argument that our country should take the difficult steps required to move its financial industry back toward that system.
I acknowledge that there is more than one view on this topic. There are those who believe we have made great strides with Dodd-Frank and if we implement it well, all will be fine. Some believe that that the industry is over-regulated, which may be true, but we should not confuse over-regulated with well-regulated. And some of us are certain that in spite of all that’s been done and debated, the soundness of the largest financial institutions and the systemic risks they continue to pose is no better. In my view, it is even worse than before the crisis. As well-intentioned as the Dodd-Frank Act may be, it will not improve outcomes. Today I will describe why I believe that is the case and, more importantly, what must be done to give the United States a financial system that is healthy and competitive, and that supports rather than endangers the economy.
There are many villains in the story of the recent crisis and much written to name them, describe them and even curse them. If you want to know how it happened, read "Thirteen Bankers" and "All the Devils Are Here." If you want to know how to fix the problem, I highly recommend "Regulating Wall Street," from New York University’s Stern School of Business. If you want to understand why the American public refuses to ignore the injustices associated with executive compensation in bailed out companies versus budget cuts borne by the middle class, read Rolling Stone’s article "Why isn’t Wall Street in Jail?" If you wonder why "no one saw it coming" then I suggest you read up on Brooksley Born or, a decade later, Meredith Whitney.
Or, you might even read the remarks of an Iowa-educated bank regulator turned-policy maker in Kansas City. Fifteen years ago, I gave a speech entitled "Rethinking Financial Regulation," which summarized the major threats facing our financial system. My suggestion then was to take steps to reduce interdependencies among large institutions and to limit them to relatively safe activities if they chose to provide essential banking and payments services and be protected by the federal safety net. I also argued that safety net protection and public assistance should not be extended to large organizations extensively engaged in nontraditional and high-risk activities. A final point of those remarks was that central banks must pursue policies that preserve financial stability. I am going to repeat those suggestions today, and as often as the opportunity allows. History is on my side.
Today, I am convinced that the existence of too big to fail financial institutions poses the greatest risk to the U.S. economy. The incentives for risk-taking have not changed post-crisis and the regulatory factors that helped create the crisis remain in place. We must make the largest institutions more manageable, more competitive, and more accountable. We must break up the largest banks, and could do so by expanding the Volcker Rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis.
