In presentations at yesterday's conference at the Federal Reserve Bank in Chicago and Wednesday's forum sponsored by the International Economic Alliance in New York, Volcker stated that the U.S. economy was having difficult moving away from the damage created by the recession because of the ‘basic disequilibrium in the real economy.’
‘The financial system is broken,’ Volcker said. ‘We can use that term in late 2008, and I think it's fair to still use the term, unfortunately. We know that parts of it are absolutely broken, like the mortgage market, which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.’
Volcker, who is currently a special adviser to President Obama, stated that the lack of specific strategies to reform the U.S. mortgage market should have been included in the Dodd-Frank Act. He criticized the recently passed legislation in regard to how it treated the Federal Reserve, claiming it was a ‘miracle’ that the beleaguered government agency ‘came out with enhanced regulatory authorities rather than reduced regulatory authorities.’
Volcker further criticized the world's major central banks and the Federal Reserve for being ‘maybe a little too infatuated with their own skills and authority because they found secrets to price stability.’ He also accused the Federal Reserve of dereliction in duty.
‘I think it's fair to say there was a certain neglect of supervisory responsibilities – certainly not confined to the Federal Reserve, but including the Federal Reserve,’ he added. ‘I only say that because the Federal Reserve is the most important, in my view.’