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[Update] Rot at the core: Paul Volker notes that something is wrong with incentives, but can`t quite put his finger on it; guess that means MORE regulation

March 7th, 2009 2 comments

[Update:  Links fixed]

Bloomberg reported on March 6 that Former Fed Chairman Paul Volker, in proposals to the Obama administration regarding financial regulatory reform that were included in a January report he wrote with the “Group of 30”, commented that:

the financial industry’s problems stem from larger issues. “I don’t think this is just a technical problem, it’s a societal problem,” he said. He cited bankers on Wall Street receiving multimillion-dollar bonuses for engineering failed mergers.

“There’s something wrong with the system,” Volcker said. “What are the incentives, what’s going on here?”

 But it seems that Volker can`t quite put his finger on the core of the moral hazard problem.  Do any of my readers have any ideas?

Categories: limited liability, moral hazard, Volker Tags: