Imagining The Paul Volcker Treasury Department
Paul Volcker was pretty heavily involved with the Obama transition team, and certainly had the ear of the Administration at some point. I don't know the status of that now. But hopefully they pick up on this article in the Wall Street Journal:
Former Federal Reserve Chairman Paul Volcker on Wednesday said banks should operate in a much less risky fashion, including not making trading bets with their own capital, comments that could provoke intensified debates over the future of financial regulation.
Mr. Volcker, who currently is chairman of the White House's Economic Recovery Advisory Board, suggested banks should be restricted to trading on their client's behalf instead of making bets with their own money through internal units that often act like hedge funds.
"Extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking," he said in a speech to the Association for Corporate Growth in Los Angeles [...]
Mr. Volcker said banks should be banned from "sponsoring and capitalizing" hedge funds and private-equity firms, which are largely unregulated. He also said "particularly strict supervision, with strong capital and collateral requirements, should be directed toward limiting proprietary securities and derivatives trading."
He also said collateral and leverage restrictions against the largest nonbank financial institutions "may be needed."
That's because it isn't, it's just become a growth center for banks that can operate like a casino and get the government to bail them out if things go wrong.
Volcker is basically advocating a similar version of the reforms that came out of the Great Depression. Then, banks were separated into commercial and investment entities under the Glass-Steagall Act, and bank holding companies could not own other financial firms. That came out of the Pecora Commission recommendations, which dug up so much of Wall Street's corrupt practices that the necessity of reform could not be refuted.
In a Volcker Treasury Department, instead of Tim Geithner, we would have a chance to make these the starting points for reform, and invigorate the modern-day Financial Crisis Inquiry Commission, or Angelides Commission, to dig deep and look into what the financial firms did to nearly destroy the economy. The banksters would be fending off the cries for reform instead of using their lobbying arms to channel them in business-friendly ways.
Now wouldn't that be nice?
...Matt Taibbi says that Volcker was basically beached after the campaign along with a lot of the other more progressively minded economic advisers. It sounds pretty right.