Former Fed Chairman Paul Volcker gave testimony today before a Joint Economic Committee of Congress. He addressed the current financial and economic environment and the role of the Federal Reserve.
He discussed how the financial market environment has changed considerably since his tenure as Fed Chairman in the early and mid 1980's. He pointed out that financial institutions like investment banks and hedge funds, whose failure can have tremendous effects on the financial system, are lightly regulated. "Systemically important investment-banking institutions should be regulated and supervised" in a similar manner to commercial banks.
Chairman Volcker stressed the need to update the entire regulatory framework, saying "It's not simply a matter of inexperience or technical failures." He also discussed the need to update regulations on a global basis because of the increasing coordination between world central banks.
He highlighted the difficulty faced by the current Fed in its role in the sale of Bear Stearns (NYSE: BSC) to JP Morgan (NYSE: JPM). However, he mentioned that unless a new regulatory framework is forthcoming, a similar situation will arise in the future.
Other witnesses agreed with Chairman Volcker's call for a new regulatory framework to reflect the new financial reality but disagreed with the exact form it should take cautioning against placing too much hope on regulation as a solution to the current financial situation.
The testimony clearly indicated the need for revising the government framework that was put in place largely during the Great Depression but also made it clear that no quick and easy solution is on the horizon.
Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices. He is the author of Follow the Fed® to Investment Success: The Effortless Strategy for Beating Wall Street. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.
Earnings preview for Ford
Apple shares rise on report Steve Jobs is free of cancer
Toyota whups GM in the first half of 2008
Reader Comments (Page 1 of 1)
5-14-2008 @ 3:22PM
william lindblad said...
This little more than acknowledging that a problem exists and laying the groundwork for a long debate that will accomplish little. Congress, more specifically Barney Franks and committee failed the public interest. That group is supposed to oversee the financial interests of the U.S. The hear all the testimony, get all the reports and surely spend some time in their respective districts. They are either blind or in bed with too many special interest groups. Since lobbyists are like locusts in Washington, going with the latter is probably correct. People, send them your "thank you" in Nov.