Paul Volcker, the former Federal Reserve chairman whose name was given to a provision of the Dodd-Frank overhaul of financial rules, called for reforms of both government and the financial system in a speech yesterday.
Speaking at New York’s Cooper Union, where Abraham Lincoln was propelled to national prominence with a February 1860 speech, Volcker said the U.S. faces economic and political challenges that present a “grave threat” even if they’re mundane compared to the strife that Lincoln confronted.
“It is not only our economic prosperity that’s in jeopardy, but our national security and our ability to play a constructive role in a changing world,” said Volcker, 84.
Volcker said that progress has been made toward improving financial regulatory oversight, capital and liquidity standards and rules for derivatives. He said more needed to be done to regulate money market mutual funds, which he called “a new systemic risk,” and to rebuild a private market for home mortgages to replace the government-sponsored entities that dominate the business.
“The reform report card still reads, ‘Promising but definitely incomplete,’” Volcker said.
Volcker, who has served as an economic adviser to President Barack Obama, was an advocate for the so-called Volcker rule that would limit banks from making speculative bets with their own money. Some banks have criticized the regulation, saying that it could increase risks, while governments outside the U.S. have said it could curb their ability to raise money.
“Complexity is quite an important issue. So are considerations of the competitive impact and the desire for international consistency,” Volcker said. “Strong resistance to the principles involved by affected institutions, each with deep pockets and phalanxes of lobbyists, shouldn’t be surprising.”
Government isn’t functioning well enough to address issues such as tax reform and spending, Volcker said. One step in the right direction would be to improve the method for confirming presidential nominations, a process that he said has become “dangerously distorted.”
He suggested establishing a common set of vetting processes for possible appointees, a four-week limit for the relevant Senate committee to vote on a nominee, and a four-week limit for the full Senate to vote.
“A severely compromised appointment process is only a part of the increasingly bitter partisanship that seems to be poisoning our political life,” Volcker said.
Volcker, who waged a successful fight against inflation during his tenure as Fed chairman from 1979 to 1987, was asked by an audience member about the current economic outlook.
“There’s always a risk of inflation but right now it’s not on the top of the list,” he said.