Volcker: We Need Leadership to Fix the Crisis

Soothing words from former Fed chair Volcker:

"The inevitable recession can be moderated. The groundwork can be laid for reconstructing the financial system and the regulatory and supervisory arrangements from the bottom up. The extraordinary interventions by the government (and taxpayer) should be ended as soon as reasonably feasible.

That rebuilding will be the job of another day — of a new administration here in the U.S., of finance ministries and central banks working together. It must draw upon the strength of the now chastened private sector. It will require more understanding of the risks embedded in so-called financial engineering and of the perverse compensation incentives that have exalted risk over prudence.

There is, and must be, recognition of the essential role that free and competitive financial markets play in a vigorous, innovative economic system. There needs to be understanding, in that context, that financial ups and downs — and financial crises — will be inevitable, even with responsible economic policies and sensible regulation. But never again should so much economic damage be risked by a financial structure so fragile, so overextended, so opaque as that of recent years."

Read the whole piece. It is a combination of realism, and optimism, and at the same time, a thinly veiled swipe at the entire Greenspan philosophy, with some mild criticism of the Bush administration thrown in for good measure.

But most importantly, Volcker states that this is fixable. (and that’s good enough for me).

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Source:
We Have the Tools to Manage the Crisis
Now we need the leadership to use them
PAUL VOLCKER
WSJ, OCTOBER 10, 2008
http://online.wsj.com/article/SB122360251805321773.html

See also:
Denmark Offers a Model Mortgage Market   
GEORGE SOROS
WSJ, OCTOBER 10, 2008
http://online.wsj.com/article/SB122360660328622015.html

A Short Banking History of the United States   
JOHN STEELE GORDON
WSJ, OCTOBER 10, 2008
http://online.wsj.com/article/SB122360636585322023.html

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