Paul Volcker, former Fed Chairman, and currently Chairman of the U.S. Economic Recovery Advisory Board

Tonight's special guest lecturer was Paul Volcker, speaking at the Kennedy School of Business at the Harvard Business School.  He discussed the current financial crisis and took Q/A from the audience. 

He doesn't mind protecting banks, but thinks the U.S. should have allowed some of the engineered financial firms fail in the wake of the crisis.  As it was, only Lehman was allowed to fail.  He doesn't believe that banks should be running hedge funds and CDOs.  He mentioned that he had a recent discussion with a Harvard professor and former Nobel prize winner.  Mr. Volcker stated that he believed that there was no correlation to show that the massive financial engineering products (that led to the financial crisis) had contributed positively towards U.S. economic performance.  The professor replied, "No, but intellectually it is a lot of fun."  Too bad that this intellectual economic experiment led to a crash in the world economy.

When asked about the future value of the dollar, at first he dodged the question, on the basis that the former Fed chairman should not offer his opinion of such things.  Then he relented and stated that he did NOT believe that the dollar would drop, because China and other nations own far too many (they own 1/2 of our treasury debt) too let the dollar fall.  He said, "they may not like the dollar, but where else are they going to put it?  In the Euro?  No.  The Yen?  No.  The RMB?  I don't think China will allow that.  So the dollar is going to remain the world currency, because there is still no better option."

On the Fed, "the Federal Reserve Board should not be an economics seminar, it should be a policy-making body."  He believes that the Board should not be dominated by economists, but should include non-economists and business leaders.

In case you are wondering (we were) he believes we are in for a long, slow recovery.  No quick fix.  No surprise.