Monday, February 1, 2010

Volcker as Protector of Politically Connected Bankers

Paul Volcker has a long winded Op-Ed in today's NYT.

In the piece he calls for a new banking structure and for a new regulator (perhaps a goosed up Fed).

This new regulator would limit the capital and leverage for "a limited number of investment banks (or perhaps insurance companies or other firms) the failure of which would be so disturbing as to raise concern about a broader market disruption."

Why will I not be surprised if any such proposal results in a positive rating for any bank or other financial institution that holds a lot of government debt?

Yet, Volcker does nothing to address the real problem, that is, Fed money printing. If the money is stopped from flowing into one sector, it will flow into others. Does Volcker not get this?

He also calls for "a new 'resolution authority.' Specifically, the appropriately designated agency should be authorized to intervene in the event that a systemically critical capital market institution is on the brink of failure. The agency would assume control for the sole purpose of arranging an orderly liquidation or merger. Limited funds would be made available to maintain continuity of operations while preparing for the demise of the organization."

Isn't this what bankruptcy does now, aside from the reckless provision of funds? Funds are always available for the profitable portions of a firm, even when it is in bankruptcy. Why would anyone want to provide support funds for the unsound sectors that will die anyway under Volcker's plan? How is this helping anyone? If you have a loss, take the loss and move on.

The Volcker Plan will do nothing except provide short-term funds for the banking sector, until the political sector decides who to protect, who not, and how. Once all that is determined the rug is pulled out again from everyone and the politically favored are propped up and left standing, the competition is, on the otherhand, crushed. Sort of like what happened this time.

Some plan.

1 comment:

  1. Wenzel,

    'Course he gets it. He's an elite. He doesn't really care if this doesn't solve the problem. He knows he's the problem. But as long as he can provide a superficial solution, all is well and he can continue on.