Volcker has made a lot of splash recently, including his questioning whether financial innovation has improved society much since the ATM. This may or may not have been hyperbole on his part (the High Yield bond market led to some good innovations, for one), but it seems clear that he is indeed moving the ball along a different direction.
“Wake Up, Gentlemen”
The guiding myth underpinning the reconstruction of our dangerous banking system is: Financial innovation as-we-know-it is valuable and must be preserved. Anyone opposed to this approach is a populist, with or without a pitchfork.
Single-handedly, Paul Volcker has exploded this myth. Responding to a Wall Street insiders‘ Future of Finance “report“, he was quoted in the WSJ yesterday as saying: “Wake up gentlemen. I can only say that your response is inadequate.”
Volcker has three main points, with which we whole-heartedly agree:
- “[Financial engineering] moves around the rents in the financial system, but not only this, as it seems to have vastly increased them.”
- “I have found very little evidence that vast amounts of innovation in financial markets in recent years have had a visible effect on the productivity of the economy”
and most important:
3. “I am probably going to win in the end”.
About Jason Paez
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