Paul Volcker: Think More Boldly

In December 2009, The Wall Street Journal sponsored its second Future of Finance Initiative (links to a dead page) to provide a forum for 80 of the world’s top financiers to brainstorm suggestions for reforming the financial system in the wake of the 2008 implosion of the global economy.

Paul Volcker, the former Federal Reserve chairman, responded to the group’s recommendations at the end of the program. His response is a rare instance of a wise man speaking truth to power and damning the niceties of political correctness. Some of his more interesting comments (links to a dead page) were:

• Is it really a true reflection of the [importance of the] financial sector that it rose from 2½% of value added according to GMP numbers to 6½% in the last decade all of a sudden? Is that a reflection of all your financial innovation, or is it just a reflection of how much you pay?
• Both Britain and the United States are suffering from a basic inability to produce things competitively, to keep up with the new economy. Is this a result of financial innovation that we should be really worried about?
• The most important financial innovation that I have seen in the past 20 years is the automatic teller machine. That really helps people and prevents visits to the bank and is a real convenience. How many other innovations can you tell me that have been as important to the individual as the automatic teller machine?
• 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. . . I do not want to stop you all from innovating, but do it within a structure that will not put the entire world economy at risk.

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