Paul volcker on conflicts, ethics, and the us banking industry cfa institute enterprising investor gas exchange in the lungs takes place in the

###############

In his recent memoir, Keeping At It, Paul Volcker gave me greater perspective on the trials and tribulations of leading the US Federal Reserve and pursuing public policy. That’s hardly a surprise. Few public servants over the last several generations can rival Volcker’s breadth of experience or knowledge. After all, this is the man who stared down the stagflation of the late 1970s and ushered in the so-called Volcker recession. He doubled interest rates to put electricity resistance questions the squeeze on runaway inflation, thus laying the foundation for the last four decades of price stability — talk about civic duty and toughness!

Paul Volcker: What almost overwhelms me in looking at the world of finance — banking and beyond banking — is how different it is from when I was most active. I’m more than 90 years old and I started out in banks — and at the Federal Reserve at different times — 60 years ago. The whole environment was quite different electricity terms and definitions. You didn’t have an active non-banking financial market. You had investment firms, but you didn’t have large and active hedge funds. Investment banking was a pretty exclusive profession made up of partnerships. I can remember when the law was changed a bit and permitted banks to expand their activities. There was debate in my bank about whether it should expand into those activities or whether that would lead to too many conflicts of interests.

There was concern by the “old timers” about introducing incentive pay criteria, how that would be the end of “honest banking.” And one must confess that there was something to what they were worried about. You now have this situation gas x strips directions with incentive pay dominating corporate and individual decision making. If the top executives are not getting as much pay as their competitors, the directors will worry about it and feel impelled to match the competition to show that they value your work. [It] has gotten all out of context, it seems to me. The amount of pay involved in the banks themselves is worrisome, but it also mirrors what is going on outside the banks.

Look at Goldman Sachs, the great archetypal investment banker. I considered going there once. For better or worse, I didn’t. But, in those days, it was a partnership. I had some very good friends, including John Whitehead and, most of all, [Henry] “Joe” Fowler, who had been secretary of the Treasury. He loved Goldman Sachs. It was a partnership. It was conservative and highly sensitive to culture. It would avoid some kinds of investment banking because they could lead to conflicts. It wouldn’t get involved in an aggressive takeover. That has changed.

Well, you can’t make a sharp distinction between bank and non-bank activities. Today, banks do stuff that was considered non-bank activities in the old days, and the non-banks are doing some stuff that would be considered bank activities electricity song. The non-banks have gotten much bigger relatively, and they don’t have the same regulatory framework. They have a lot more scope. The entire market is so much more complex, it is hard to follow.

There have been, increasingly as I sit here at home, increasing concerns about the culture of the financial system, banking in particular. The Holy Grail has been that the only thing that matters is how much profit the firm (and you) make, which Milton Friedman pushed. This is deeply in the interest of the people running these banks and non-banks gas quality by brand, and it is losing some of its attractiveness.

I am concerned. What’s the role of directors in keeping culture under control? Can the directors of a big bank really do an effective job of overseeing an institution? Or do they see their job as protecting the chief executive officer who they appointed? Or maybe the chief executive officer appointed them, so there is a certain amount of built-in mutual interest in ducking emphasis on internal controls.

The customer comes first. Which is what they all say. How many times do they say, “Your relationship is everything,” until they see a way of making a profit? You try to avoid conflicts of interest. But there’s not much some of these big banks still do that doesn’t involve a conflict of interest. It becomes apparent that you are paying a trader in direct relation to the profitability of their particular transactions. Are they going to worry much about whether that cheapest gas in texas conflicts with another customer of the bank? I don’t think so.

It’s a very difficult story. It becomes more and more difficult when the market is dominated by the few big banks. I’d like to see a lot more thinking about that. If an institution is big enough, it is bound to have conflicts. So how do you chop up the bank so that the differing interests of the customer and bank are separate enough that conflict is reduced?

The Federal Reserve was responsible for a regulation called Truth in Lending. It is a very simple concept. It says that banks must be honest when making a loan. They must explain j gastroenterol hepatol what the interest rate is and how they calculate it, how frequently it is compounded, what happens when you don’t pay, and so forth and so on. Banks were always [complaining] when I was in New York, “Another damn regulation, unnecessarily complicated, for a simple idea.”

When I went to Washington, I told the staff, “I want a simple Truth in Lending regulation — I want no more than 100 pages.” Staff said, “We can’t do it.” And I said, “Go do it anyway.” Then they finally, reluctantly, came up with a 100-page regulation and put it out for comment. Who do you think all the comments were gas in dogs symptoms from? The bankers. “You didn’t take care of the particular way that we advertise or whatever and we want another provision in there.”

Now you get something like the Volcker Rule. The traders say, “I want real freedom. I don’t want to worry about what is a proprietary trade — my idea is making money for the bank and for me, regardless of communicated intent. It is too complex.” So they talk to the regulators, and the regulators try to make very detailed rules about what is and what isn’t [ . . . ] I think you can do it a lot more simply than that. But to do that, the banks have to trust the regulator and the regulator needs to trust the bank. They are both us electricity hertz trying to fairly qualify what is a pretty simple idea: Are you operating for yourself, or are you operating for a customer?

A lot of the trading and a lot of the derivatives — which I don’t understand well at all — is trading for the sake of trading. It ended up with exposures at the banks that the regulators didn’t realize they had. The theory was that if the activity is going on outside of the banks, it is much safer for the banks. I was a believer in that theory, and I’m still a believer to some extent. When the non-banks get that important, you have to worry about them, too.

I saw a column, a news report, a few months ago. Some investment firm had a customer that was doing an MA, and a different part of the firm that knew the transaction was under consideration was buying or selling the stock. Apparently somebody complained and the firm lost a court case. On appeal, the lawyer for the firm said, “There is no problem here because there is no fiduciary responsibility. The customer was an adult and knew to take precautions, and there was no fiduciary responsibility among informed participants.”

You raise many concerns. Through CFA Institute, there are over 150,000 financial analysts who believe in putting ethics first. They are in the trenches holding institutions, management, and others accountable and practicing finance in ways that u gas cedar hill mo help the real economy. That’s the objective. So what would you tell this global army of on-the-ground watchdogs?

Thanks for this article. The moral sentiments and grand legacy embodied in Paul Volcker makes him a living legend, and a credit to the profession. Having taught and written on governance and investment ethics for the past 10 years at Marquette University in my Sustainable Finance course (and worked for one of the last partnership investment banks gasbuddy login left in the industry) where my students and I have discussed and examined the 2008 financial crisis, among others, I have to politely disagree with his position shared by most regulators that the answer is always more regulation. He himself acknowledges the problem in the article of more and more regulation is in effect “no limit tail chasing”.

The fundamental problem is the problem of agency, and misalignment with shareholders, which adversely affects clients. Fix the incentives and you address the client “in the crossfire”. The way to do that is to separate investment banking from commercial and retail banking (re-enact Glass-Steagal) , and ban investment banks (and hedge funds) from becoming public companies (mandatory reintroduction of the partnership model). Investment banks are in the business gas efficient suv 2010 of risk taking and as such must be managed as owners not hired hands. They are inherently different from Main Street banks and companies and must be treated as such. Ad infinitum of rules and regs over the last century is proof of this difference, but must be addressed at the core, not on the piecemeal margins, which has been our current state since the first investment bank went public in the late 1970s.