Out of Control Policy Blog

Even Volcker Sees the Problems

President Obama's handpicked chairman of the Economic Recovery Advisory Board, Paul Volcker, warned Congress last week that the Obama/Geithner plan to overhaul Wall Street regulations would codify the concept of too big to fail. Volcker, the former chairman of the Federal Reserve during the Reagan years, testified before Congress on Thursday that the regulation reform plan developed by the White House and Treasury now in the House Financial Services Committee could lead to more taxpayer bailouts.

Yep, one of the president's own economic advisers is now willing to point out the screen door on the submarine. The systemic risk plan is a design flaw doomed to failure. Mr. Volcker told Congress:

The clear implication of such designation whether officially acknowledged or not will be that such institutions . . . will be sheltered by access to a federal safety net in time of crisis; they will be broadly understood to be 'too big to fail.'

The Wall Street Journal wrote in response to this testimony:

We don't agree with all of Mr. Volcker's prescriptions—nor he with ours—but on too big to fail he's exactly right. As he also told Congress, regulators are unlikely to correctly guess which firms will pose systemic risk, and the implicit protection by taxpayers could put firms not deemed important by Washington at a market disadvantage.

Regulations need to change. But the current plan in Congress is only going to turn the nation's "most important financial institutions" into government sponsored enterprises. I can't stop stressing enough the fear of JP Morgan Mae and Citi Mac if the Obama/Geithner plan goes through unchanged.

Anthony Randazzo is Director of Economic Research

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Comments to "Even Volcker Sees the Problems ":

Meghanx | September 29, 2009, 12:04am | #

I am happy to hear that the leader of one of the most powerful country is now on the look out for the best economic program that will restore the paralyzed economy. As the economy falters so many companies had been affected, a lot of unemployment cases had been reported, businesses became at stake of bankruptcy. Thus it may be worth to have a payday loans to came up with the economic policy program that will boost for a sustainable economy.

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