Paul Volcker

With Inflation Accelerating Around the World, Will the United States be Next?

Inflation is now thoroughly entrenched in India's economy, and some analysts fear that the United States could suffer the same fate if adjustments to monetary policy aren't made soon.

India's wholesale price index-based inflation rate in February accelerated to 9.89% from a year earlier. That was the fastest pace in 16 months, blowing past the Reserve Bank of India's (RBI) estimate for an 8.5% inflation rate at the end of March.

Soaring food prices were the primary driver of inflation. An index measuring wholesale prices of lentils, rice, vegetables and other food articles compiled by the commerce ministry rose 16.3% in the week ended March 6 from a year earlier after a 17.81% gain the previous week.

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It's Time For "Banks" to Stop High-Risk Trading

When members of the Senate Banking Committee recently asked Paul A. Volcker how regulators would identify banks engaged in excessive, high-risk trading, the former U.S. Federal Reserve chairman quipped:  "It's like pornography - you know it when you see it."

Volcker wants to make it illegal for banks to engage in such high-risk activities as "proprietary trading" - when an institution trades for its own accounts, as opposed to making trades for customer accounts. But as Volcker's comment illustrates, the proposal - known as "Volcker's Rule" - the whole concept of high-risk trading is pretty hazy and hard to define.

Just as hazy is the definition of what now constitutes a bank.

Long gone are the elegant subtleties of form and finesse that once defined the bank. In recent years, the entire concept has been cheapened by the vulgar obviousness of grossly enhanced compensation schemes.

No company better embodies this transformation than Goldman Sachs.

To find out why high-risk trading should be banned, read on...

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As Washington Turns on Wall Street, Investors Should Expect a Rough Stretch for Financial Stocks

Here in the United States, investors have been startled by the realization that Washington no longer appears to be acting as a benefactor to Wall Street, the financial markets, and the economy. Ever since the collapse of Lehman Bros. Holdings Inc. (OTC: LEHMQ) back in 2008, a Faustian deal was forged between Wall Street executives and the politicos in Washington: Ideologies would be thrown by the wayside to prevent a meltdown of the American financial system and the precipitous collapse of the economy.

First, the Bush administration swallowed its free-market credentials to take over Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), while handing the largest banks and the Detroit automakers big piles of taxpayer cash to keep them afloat. Then, the Obama administration resisted populist pressure to punish the bankers getting rich thanks to rising financial markets while unemployment continued to climb.

But that's changing now, and the attack dogs have been unleashed. Policy is moving from supportive (crisis management) to restrictive (crisis prevention and the scoring of political points) at a faster pace and to a much-more-severe degree than many imagined.

It started with extra taxes on bank liabilities to fund a reserve for financial crises, then moved to include a congressional commission to review the causes of the financial crisis, and then to more onerous regulatory oversight. But now it's growing into something more. And that's one big reason stocks in general and the financial sector in particular sold off so severely.

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My Confrontation With Ben Bernanke: The One Question He Refused to Answer

The Secret Service agents watched me warily as I approached U.S. Federal Reserve Chairman Ben Bernanke.

I didn't waste any time. After introducing myself, I showed him a copy of the talk he gave at the American Economic Association (AEA) meetings in January 2007. I circled all the times he used the words "panic," "crisis," and "stress" in his speech, entitled "Central Banking and Bank Supervision of the United States."

A total of 36 occasions.

I asked him point-blank: "Did you know in advance that a financial crisis was headed our way?"

He looked nervous. I could tell he was uncomfortable with my question. He looked at me stoically and smiled.

And he refused to answer.

But there was no doubt in my mind what the correct answer was. I think he was worried about his job if he said, "Yes."

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Why the Volcker Plan Doesn't Go Far Enough

I don't often agree with the Obama administration. So I have to say that I was surprised when I heard it had a plan to reduce the risk of another banking crisis. It wants to prohibit banks that are protected by deposit insurance from engaging in risky, proprietary trading, and it wants to break up some of the very largest banks.

I made both those recommendations in my forthcoming book "Alchemists of Loss" (Wiley 2010). The book, written jointly with Kevin Dowd, a British finance professor, should debut sometime late this spring(we sent the manuscript to the publisher last weekend - what a relief!). But after I studied the Obama plan further, I realized that I shouldn't have been surprised - the idea's sponsor was former U.S. Federal Reserve Chairman Paul A. Volcker.

Why Volcker's plan doesn’t go far enough...

"Volcker Rule" Socks Bank Trading, Funding for Hedge funds and Private Equity

The fallout from the "Volcker Rule," President Barack Obama's proposal to ban banks from making speculative investments that do not benefit their customers, rattled stock and bond markets last week as analysts panicked over the possible repercussions.

At its heart, the plan would fundamentally change the banking industry, separating commercial banks from investment banks, a line that was muddled over a decade ago by the repeal of the Glass-Steagall Act.

"Never again will the American taxpayer be held hostage by a bank that is too big to fail," Obama said Thursday.

Obama announced the plan with former U.S. Federal Reserve Chairman Paul Volcker at his side. Volcker has been stumping for months for increased regulatory control, and the President credited him for the plan's design, dubbing it the "Volcker Rule."

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