Paul A. Volcker Quotes
If the bankers knew so much about capital markets, how come they got into so much trouble.
Volker was trying to reform the excesses of the banking industry in the aftermath of the Great Recession where the banks had to be bailed out by the American taxpayers.
Paul A. Volcker, Chairman, Federal Reserve Board, Response to criticism of many bankers that Volker really did not understand capital markets, Interview, CBS Sunday Morning, March 25, 2012
Sourced by: Eigen's Political and Historical Quotations
U. S. Treasury Secretary Larry Summers called Rajan a “Luddite” for this view, but what Rajan observed and predicted was exactly what happened in the Meltdown of 2008 which led to the Great Recession. Rajan was one of the few economists to call this right. Several, invested their own money assuming a crash and made billions. Most, like Summers and the Federal Reserve Chairmen in retrospect admitted that they missed the signs and didn’t connect the dots. See {637168}, {637987}, and {620038}
When the Meltdown hit America, the crisis drew attention to the fiscal solvency and stability of banks in most of the world. The Irish banks were much more overextended than those of most counties and when that came to light there was a bank panic in Ireland. Ahern and the Irish Dail (parliament) decided to bail out the Irish bank at a very great cost to the rest of the Irish economy and people. He believed if Lehman Brothers had been bailed out, as America did with other institutions, the Irish bank bubble would not have burst. It is not known whether he actually meant to use the word “testicles” or he made a gaff intending to use the word “tentacles”. Both have relevant meaning in the situation with a significant shade of difference in meaning between the two.
The Meltdown of 2008 and Great Recession that it caused
While Stockman and some others believe that the Meltdown of 2008 would have “run its course” if the government didn’t bail out financial institutions, the very conservative Republican Secretary of the Treasure Paulson and the Chairman of the Federal Reserve told President Bush, Congress, and incoming President Obama that if there was not a quick bailout, the economy of the nation would crash with a depression resulting as bad if not worse of the Hoover Depression of 1929. Bush and Obama and the majority of Congress agreed and took action to avoid that. There is no way of knowing whether they were right or Stockman was. However, the people with the responsibility of governing and safeguarding the nation clearly did not want to take a chance that the advocates of no action might be wrong.
Credit default swaps were in large part responsible for the melt down of the economy of 2008 and the Great Recession thereafter. A credit default swap was one of the favorite derivatives that became popular. Is an insurance policy that a company will pay off its bonds and not go bankrupt. It is a cross between an insurance mechanism and a stock exchange type security mechanism, and through heavy lobbying, escaped any kind of regulation. It cost a company no money to write a credit default swap, and they were paid to do so. As long as business and the economy was good, it was a terrific business but there was no way of ever knowing how much risk they were taking. So companies who wrote credit default swaps did not have to have the money to pay to back them up. When that happened in 2008, even the largest insurance company in the world collapsed because of the risk of having to pay the credit default swap and the U. S. Government had to take over the insurance company. In 2010, the Obama administration passed a financial reform bill that began to regulate credit default swaps. Buffet, the American who had made the most money in financial securities, realized the great danger not only to the company, but to the entire national economy. Most of the rest of the financial institutions, could make large amounts of money without have to have much capital as long as things went well. So credit default swaps began to exceed the other financial instruments in activity. Neither the Federal Reserve or the other government regulatory agencies chose to regulate these risky instruments nor even to require that they be publicly disclosed -- See {637987}, {637986} and {637992}.
AIG was America’s largest insurance company. It failed and the Federal Government in a massive bailout took over the company.
Paul Adolph Volcker Jr. was an American economist. He served two terms as the 12th Chair of the Federal Reserve under U.S. presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with having ended the high levels of inflation seen in the United States during the 1970s and early 1980s. He was the chairman of the Economic Recovery Advisory Board under President Barack Obama from February 2009 until January 2011.
