"We're in a government-dependent financial system," said Paul Volcker, former Federal Reserve chairman, adding, "I never thought I'd see the day."According to a report in The Wall Street Journal, Volcker's comments came as a result of what some are calling "anti-Wall Street rhetoric" witnessed on Tuesday during the Journal's Future of Finance Initiative forum. In spite of the government's hope to expand cooperation with private investors to spur the economy, the Journal suggests there is a perception that the lines of communication between government and private sector are limited. The AIG bonus flap and the House of Representatives' ensuing knee-jerk reaction of wanting to tax these bonuses at an unprecedented rate hasn't helped things either.
In comments made to the Journal, Glenn Hutchins, co-chief executive of private-equity firm Silver Lake, said, "To point the finger at one group means, No. 1, you're not understanding the problem, two, you're stretching our social fabric thinly, and you're throwing the baby out with the bathwater. Trust goes both ways."
Former chairman of the Securities and Exchange Commission Arthur Levitt was even more blunt, telling the Journal, "This is an issue of 'we' and 'they.' Compensation is a part of it, but a symbolic part of it. We are a centrist nation ... We're now shifting to the left pretty far in terms of business-bashing and it has reached extremes of incivility that are intolerable."
Perhaps Levitt is referring to the death threats against some AIG executives who received the disputed bonus money and the proposed bill in the House to tax the bonuses at 90 percent, along with a general anti-business atmosphere that has been evident in Washington and over the airwaves these past few months. Saying the financial services industry feels ostracized is probably an understatement.
The banking and capital markets sector (and AIG) got itself into this mess by making some bad decisions and taking some terrible risks. No question. However, the role of federal regulators in this debacle cannot be overlooked either. No one was minding the store the way they should have.
All this he said/she said business has to stop at some point. Everyone knows a lot of people fouled up. The industry has to get back on its feet again and the regulators have to get in sync with the industry. So maybe the Treasury's plan to buy banks' bad assets will help get things moving forward again. No one knows yet, of course. Meanwhile, Pres. Obama went on TV last night to pitch his multitrillion dollar economic stimulus plan which he says is at the core of a recovery. Will so much spending help the financial system recover? Will new regulations around risk that are being crafted in Washington (and don't forget about the upcoming G20 Summit) hamper, rather than aid, recovery? Some kind of new regulatory regime is necessary, but whatever measures are enacted into law have to be especially careful to allow banks to continue to want to spend money on innovation, new products, new technologies to improve the banking system, making it more real time and less siloed to better serve the customers.