What was the last great innovation in the financial industry? Raise your hand. Yes, you in the back corner, Mr. Paul Volcker, former chairman of the Federal Reserve. What’s your answer?
He holds up a photo:
That’s right, Volcker believes the banking industry reached its peak when it invented the ATM in the 1960’s. More from Seeking Alpha:
“It really helps people, it’s useful.”
This, as opposed to what was broadly considered to be “innovation” by his successor at the central bank in the form of derivative products such as collateralized debt obligations and credit default swaps that “took us right to the brink of disaster.”
He also called for the return of Glass-Steagall, a move that would again separate commercial banking from investment banking, and criticized compensation plans that had become too generous…
Volcker was speaking at the Future of Finance Initiative and apparently left the stage to “thunderous applause.”
Are we afraid that the best and the brightest will leave high finance and pursue other occupations? That strikes me as a good thing: everything we know suggests that the rapid growth in finance since 1980 has largely been a matter of rent-seeking, rather than true productivity.
This is a sure-fire argument starter. There are those who would say Wall Street’s money-churning exercises create value for companies and allow them to conduct and increase their business. Goldman Sachs CEO Lloyd Blankfein calls it “God’s work.”
But if anyone in this whole situation sounds remotely close to godly, it would be Volcker.
As I’ve said before, the government and Wall Street need to put him in front of the class and listen.