Fed needs tough chief in Paul Volcker mould

[moh malekpour]

http://news.yahoo.com/s/ft/20080429/bs_ft/fto042920081601541458

The Fed must show some backbone. If you always take the friendly way out, no bubbles will ever be pricked and we shall always be reacting to crises in an increasingly speculative world. Paul Volcker, the Fed chairman before Mr Greenspan, had the character to do tough, unpleasant things where necessary. His two successors have not.

Both men were in a position to be powerful naggers in protecting financial standards; to question the quality of new financial instruments, not praise their ingenuity as Mr Greenspan did; and to question and review mortgage quality and off balance sheet financing. None of this nagging was done.

Finally, when shall we stop appointing as Fed chairmen either academic economists - out of touch with the messy real world? - or lightweight commercial economists and find someone with solid banking experience? Would a banker with even a hint of John Pierpont Morgan in him have allowed such a sad deterioration of credit and banking standards? Where was Mr Volcker when we needed him? Fired for doing unpleasant but necessary things. So perhaps we get the Fed we deserve. Let me end with Mr Greenspan's full and contrite repentance: "I have no regrets on any of the Federal Reserve's policies that we initiated back then."

What can you say to that?

 

[Terrel L. Shields]

The totally ignorant move by the Fed to drop rates an additiona ¼% failed as the markets did not respond. They should have held steady. But Volcker realized that you cannot control the economy by yo-yoing interest rates and printing more money. He recognized that the margins need to be changed and the investors need to wise up to the risk and force them to put up more money. Until the banks are held in check, our economy is doomed to slip into recession and the Fed can drop rates to zero and it will not keep our economy from sliding into recession. Just watch. Oil prices will rise as the dollar falls and investors will flee the US markets for a lack of decent returns.