The former US Federal Reserve chairman told an audience that included some of the world’s most senior financiers that their industry’s “single most important” contribution in the last 25 years has been automatic telling machines, which he said had at least proved “useful”.
Echoing FSA chairman Lord Turner’s comments that banks are “socially useless”, Mr Volcker told delegates who had been discussing how to rebuild the financial system to “wake up”. He said credit default swaps and collateralized debt obligations had taken the economy “right to the brink of disaster” and added that the economy had grown at “greater rates of speed” during the 1960s without such products.
When one stunned audience member suggested that Mr Volcker did not really mean bond markets and securitizations had contributed “nothing at all”, he replied: “You can innovate as much as you like, but do it within a structure that doesn’t put the whole economy at risk.”
He said he agreed with George Soros, the billionaire investor, who said investment banks must stick to serving clients and “proprietary trading should be pushed out of investment banks and to hedge funds where they belong…If you fail, fail. I’m not going to help you. Your stock is gone, creditors are at risk, but no one else is affected.”