Julia Werdigier reports from England:
Paul A. Volcker, the former chairman of the Federal Reserve and an adviser to President Obama, told a room packed with banking executives on Tuesday to "wake up" to the need for more drastic regulatory changes.
"Has there been one financial leader standing up and saying, ‘This is really excessive’?," Mr. Volcker asked about 80 bankers, executives and investors at a conference organized by The Wall Street Journal."
But Volcker didn't stop there. He went on to tell
some of the world's most senior financiers that their industry's "single most important" contribution in the last 25 years has been automatic tell[er] machines, which he said had at least proved "useful".
Echoing [Britain's Financial Services Authority] chairman Lord Turner's comments that banks are "socially useless", Mr Volcker told delegates who had been discussing how to rebuild the financial system to "wake up". He said credit default swaps and collateralised debt obligations had taken the economy "right to the brink of disaster" and added that the economy had grown at "greater rates of speed" during the 1960s without such products.
When one stunned audience member suggested that Mr Volcker did not really mean bond markets and securitisations had contributed "nothing at all", he replied: "You can innovate as much as you like, but do it within a structure that doesn't put the whole economy at risk." ...
Mr Volcker argued that banks did have a vital role to play as holders of deposits and providers of credit. This importance meant it was correct that they should be "regulated on one side and protected on the other". He said riskier financial activities should be limited to hedge funds to whom society could say: "If you fail, fail. I'm not going to help you. Your stock is gone, creditors are at risk, but no one else is affected."
As Yves Smith at Naked Capitalism pointed out, it's not surprising that Volcker said what he said. He's verbally cold-cocked arrogant financiers before. What was remarkable is "that the listeners were stunned. This is yet another proof of industry narcissism: the complete and utter inability to recognize and take responsibility for the damage it has wrought."
Is Congress listening?