Volcker says financial system is broken

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Subject Author Date Volcker says financial system is broken Don Tiberone 09-05-2008
Posted by Don Tiberone on September 5, 2008, 10:17 pm Sept. 5 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker said the U.S. financial system, dependent upon securitization rather than traditional bank loans, is broken, and may contribute to the weakest expansion since the 1930s. ``This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down,'' Volcker said today at a banking conference in Calgary. ``Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.'' The former Fed chief projected ``a lot'' more losses from the collapse in the mortgage-backed debt market, after the more than $500 billion tallied so far, should the U.S., European and Japanese economies fail to pick up. He urged changes in financial regulations, echoing calls among sitting officials and legislators. ``It is the most complicated financial crisis I have ever experienced, and I have experienced a few,'' said Volcker, who has endorsed Democratic presidential candidate Barack Obama. Volcker ran the Fed from 1979 to 1987, and engineered an increase in interest rates to 20 percent to quell inflation that exceeded 10 percent. Job Losses Volcker's comments came after a government report today showed the U.S. unemployment rate rose to a five-year high as the economy lost more jobs than forecast in August. The report underscored concerns that U.S. consumer spending will weaken and push the American economy into a recession. Fed Chairman Ben S. Bernanke said on Aug. 22 that financial turmoil has ``not yet subsided,'' and is contributing to weaker growth and higher unemployment. Policy makers will ``continue to review'' the Fed's measures to ensure liquidity to determine ``if they are having their intended effects,'' Bernanke said. ``Changes are going to have to be made'' to the global financial system, Volcker said. Banks three decades ago accounted for about 60 percent of U.S. credit; that later declined to about 30 percent as securitization -- where financial firms package assets into bonds and other instruments and sell them on to investors and other companies -- spread. Similar Threads Posted Re: The FED is doing more than "shoring up" the financial system October 6, 2008, 6:31 pm Re: The FED is doing more than "shoring up" the financial system October 6, 2008, 7:53 pm Re: Decaying financial system presents opportunity to rebalance A... April 15, 2008, 2:26 pm Korea Seeks Investor-Friendly Financial Regulatory System June 17, 2008, 8:18 pm Even J.P. Morgan Couldn't Fix This Broken Market February 22, 2008, 12:17 pm The QQQQ has broken the long term rising channel resistance September 30, 2007, 4:24 pm Key Support Broken, Foreigners Will Start Dumping Stock and Bonds OverNight!!! September 15, 2008, 4:20 pm Es day trading system - guaranteed to work - emini day trading system March 16, 2008, 2:18 pm Es day trading system - guaranteed to work - emini day trading system May 27, 2008, 6:00 pm Guaranteed Emini Russell trading system, Russell day trading system March 19, 2008, 3:38 pm