By Barry Ritholtz
“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence.”
-Paul Volcker, Former Federal Reserve Chairman
Former Fed chair Paul Volcker “berated bankers for their failure to acknowledge a problem with personal rewards and questioned their claims for financial innovation.”
According to the Times of London, Volcker surprised “senior figures in the financial world for failing to grasp the magnitude of the financial crisis and belittled their suggested reforms.”
As bankers demanded that new regulation should not stifle innovation, a clearly irritated Mr Volcker said that the biggest innovation in the industry over the past 20 years had been the cash machine. He went on to attack the rise of complex products such as credit default swaps (CDS).
On the subject of pay, he said: “Has there been one financial leader to say this is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate.”
He said that financial services in the United States had increased its share of value added from 2 per cent to 6.5 per cent, but he asked: “Is that a reflection of your financial innovation, or just a reflection of what you’re paid?” (emphasis added)
It seems that Tall Paul is getting frustrated with the lack of any financial reforms. Volcker is starting to lash out at the bankers who have effectively blocked any reforms.
Perhaps someone could press him to redirect some of that ire back here at home, where CEA cheif Larry Summers and Treasury Secy Tim Geithner are unindicted co-conspirators in the prevention of any significant financial reforms passing in the US.