tinyurl.com/6rnwlh -> www.bloomberg.com/apps/news?pid=20601087&sid=aw4J8Ty2h3fE
Paul Volcker said the US financial system, dependent upon securitization rather than traditional bank loans, is broken, and may contribute to the weakest expansion since the 1930s. This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down,'' Volcker said today at a banking conference in Calgary. He urged changes in financial regulations, echoing calls among sitting officials and legislators.
Volcker ran the Fed from 1979 to 1987, and engineered an increase in interest rates to 20 percent to quell inflation that exceeded 10 percent. US growth has averaged 23 percent so far this decade, down from 34 percent in the 1990s. The current growth rate is the weakest since at least the 1940s, when the government began compiling figures on quarterly gross domestic product. Job Losses Volcker's comments came after a government report today showed the US unemployment rate rose to a five-year high as the economy lost more jobs than forecast in August. The report underscored concerns that US consumer spending will weaken and push the American economy into a recession. Economists expect annualized rates of growth of 1 percent in the third quarter and 04 percent in the fourth quarter, according to the median estimate in a Bloomberg Survey in early August. Policy makers will continue to review'' the Fed's measures to ensure liquidity to determine if they are having their intended effects,'' Bernanke said. Changes are going to have to be made'' to the global financial system, Volcker said. Banks three decades ago accounted for about 60 percent of US credit; that later declined to about 30 percent as securitization -- where financial firms package assets into bonds and other instruments and sell them on to investors and other companies -- spread. Polite Way' Volcker said he agreed with descriptions of the current financial system as dysfunctional.
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