It always feels a bit odd, as a journalist, to have your own words reported although Justin Fox does a fine job of it today in his note on a New York University Stern School panel I sat on this morning.
The panel consisted of Paul Volcker, the former chairman of the Federal Reserve and head of Barack Obama’s Economic Recovery Board, Myron Scholes of Black-Scholes fame, Matthew Richardson, a professor of applied financial economics at NYU, and me.
My role was to make a joke about Fred Astaire while the more distinguished members of the panel discussed the future of the financial system.
Justin records some of the thoughts of Professor Scholes and mention’s Mr Volcker’s remarks on the merits of reviving some kind of Glass-Steagall Act split between utility banks and high risk financial institutions such as hedge funds and private equity funds.
There is another report here of what Mr Volcker said from Christine Harper of Bloomberg. Incidentally, the event marked the publication of a book by various Stern professors on the financial crisis.
Mr Volcker pointed out that Citigroup was showing signs of retreating to one side of any new Glass-Steagall split but that “Goldman Sachs would have to be split up if you separated these functions.” It will be very interesting to see Goldman’s reaction if Mr Obama takes up Mr Volcker’s suggestion.
The prize for the most entertaining contribution went not to any member of my panel but to Eric Dinallo, chief insurance regulator for New York State, who spoke later on.
Mr Dinallo made a comparison of the current financial crisis to that of 1907, which produced the so-called Bucket Shop laws. They banned the practice being able to place bets on movements in financial markets or indexes withough any ownership of the underlying securities.
He suggested that some uses of credit default swaps and other derivatives were like this, and were akin to “taking out insurance on your neighbour’s house and maybe hoping it blows up.” Repeal of Glass-Steagall and changes to futures regulation had some spectacular unintended consequences:
“Glass-Steagall was kind of clunky and was thought to be a bad idea. For some reason, we decided that we are just a lot smarter than people who lived 100 years ago and chose to deregulate huge swathes of investment products.”
