The former US Federal Reserve chairman told an audience that included some of the world's most senior financiers that their industry's "single most important" contribution in the last 25 years has been automatic telling machines, which he said had at least proved "useful". Echoing FSA chairman Lord Turner's comments that banks are "socially useless", Mr. Volcker (pictured left) told delegates who had been discussing how to rebuild the financial system to "wake up". He said credit default swaps and collateralized debt obligations had taken the economy "right to the brink of disaster" and added that the economy had grown at "greater rates of speed" during the 1960s without such products. When one stunned audience member suggested that Mr. Volcker did not really mean bond markets and securitizations had contributed "nothing at all", he replied: "You can innovate as much as you like, but do it within a structure that doesn't put the whole economy at risk." He said he agreed with George Soros, the billionaire investor, who said investment banks must stick to serving clients and "proprietary trading should be pushed out of investment banks and to hedge funds where they belong". – Telegraph

Dominant Social Theme: A stand for reason.

Free-Market Analysis: Paul Volcker, George Soros and others are picking up the pace. These people, in our humble opinion, are stitched right into the fabric of the power elite, and the elite appears to be a tad frustrated. The whole idea of "not wasting a crisis' – in this case a financial crisis – is providing an imperative to move ahead as quickly as possible with a global realignment of Western finances.

What we think is going on, in keeping with larger elite priorities, is that More Should Be Done As Soon As Possible. America is perhaps the best example of this craze for progressivism. When the Depression hit after the stock crash of 1929, in short order you had the creation of the Securities and Exchange Commission, the promotion of the NASD and the NYSE into quasi-governmental authorities and a host of other lesser changes that reset the dynamic of the United States Monetary system. But this time, events have moved more slowly, or at least have not generated the kind of global regulation as of yet that it seems the elite desires.

This time the changes thus far (from a global perspective) have been relatively subdued given the magnitude of the crisis. Sure, America and Britain are moving along with domestic regulatory programs. And internationally, there's been talk of a new monetary system managed by the IMF and the creation of an international regulatory authority, but we sense it is still going less quickly than it might have. In fact, it could be said that the crisis has had an impact on the wrong elements from the power elite's point of view. The SEC has come in for heavy criticism, instead of being hailed as heroes, central banking has been hit, and those in government who threw their weight behind various bail out programs like TARP have come in for criticism as well.

Generally speaking, there has been an exploration in both America and Britain of how the financial process has morphed from a private entity into a mercantilist one. Of course, this happened more than century ago in America, and has never been any different in Europe. But the conversation, thanks to the Internet, has been much elevated in the 21st century compared to the 20th. People are mentioning and even investigating this mercantilist muddling for the first time in decades.

So no, things could be going better for the mercantilist crowd. In fact, if one imagines that there is a power elite of tremendously wealth families and individuals that want to continually consolidate power and generate wealth from the process of mercantilism – the blending of government with private business to empower a few at the expense of the many – then the financial crisis has been fairly unrewarding thus far, at least from a global perspective. Thin gruel, so-to-speak.

However, it would seem that the international campaign is ratcheting up. The first shots in a renewed effort may have been fired by Volcker and leftist financier George Soros. In his speech, Volcker went out of his way (the Telegraph reports) to endorse remarks made recently by Soros:

He said he agreed with George Soros, the billionaire investor, who said investment banks must stick to serving clients and "proprietary trading should be pushed out of investment banks and to hedge funds where they belong". Mr. Volcker argued that banks did have a vital role to play as holders of deposits and providers of credit. This importance meant it was correct that they should be "regulated on one side and protected on the other". He said riskier financial activities should be limited to hedge funds to whom society could say: "If you fail, fail. I'm not going to help you."

Here's some more from a recent article in the Telegraph about what Soros recently had to say on the issue:

George Soros warns against rebuilding same 'Humpty Dumpty' financial system

Mr. Soros said the success of the post-1930s financial system was built on market fundamentalism – the belief that markets will always correct themselves – that in turn led to widespread de-regulation. "We now realize that was unsound," he said. "And we need some regulation." But he argued that the "big test" is "can you have global regulation or not? If you can't global markets will break down into their national units."

However, he warned against relying on individual regulators since "markets are imperfect but regulators are more imperfect." The solution, said Mr. Soros, is that the new system of regulation "has to be global" and has to include the regulation of credit. Mr. Soros noted that Alan Greenspan had argued against regulating credit markets but said that the former chairman of the Federal Reserve was wrong. He said that it would be wrong for regulators to try to prevent all bubbles but they should be prepared to step in and slow them down. He said credit bubbles should be controlled by "margin requirements and capital requirements" that should be varied according to the "mood of the market." …

Mr. Soros dismissed the idea of preventing banks from getting "too big to fail" as unworkable. He said he was also unconvinced by the notion of "living wills" for the banks. He said that the idea would have to be proven a few times and until then there was an "implicit guarantee to the banking system." He said while this guarantee was in place, governments had a "right and a duty to regulate those institutions – and also to regulate their salaries." He added: "The banking industry is receiving a tremendous amount of hidden subsidy" such as zero interest rates.

Mr. Soros said hedge fund salaries should also be scrutinized since the rewards in the high-rolling sector "drove the investment banks to give big bonuses too." However, he argued that hedge funds should not be subject to heavy regulation because they are "not too big to fail" and also "speculate with their own money." He said: "The proprietary trading operations should be pushed out of investment banks and into hedge funds where they belong. Investment bank [prop desks] speculate with investors money, hedge funds speculate with money that has been well advised in advance."

Mr. Soros is the founding sponsor of the Institute for New Economic Thinking which he said is "designed to change the teaching of economics that has been so firmly entrenched."

We can start to see from these remarks what the next regulatory onslaught may be. Since it is apparently not an adult occupation (Soros tells us) to consider ways to break up "too-big-to-fail" banks, the regulatory apparatus is going to have to grow larger still, to fully global proportions. Both Volcker and Soros criticize over-leveraging with the implicit or explicit prediction that credit will have to be regulated by a global super regulator. This global super regulator will regulate bank salaries as well.

The last place to make quick amounts of super-duper amounts of money is on bourses. Through proprietary trading, banking and investment banking, people can make loads of money and if you were amongst the elite – and uncomfortable about the amounts of money still available to the hoi-polloi — you'd probably want to shut down these avenues of pecuniary advancement as well. See, in our opinion, it's not an issue of regulation, actually, but propriety. Less competition, so to speak.

In fact, in our humble opinion, what needs to be shut down are central banks. Without the fiat-money boom-bust credit cycle, the financial system would calm down a great deal. And once it calmed down, there would be no need for the regulatory apparatus now in place. What occurs on regular intervals is that Frankenstein's monster awakes – charged up by fiat money — and then (after the predicable rampage has taken place) those who are close to the operation clamor for the regulation of electricity rather than the beast itself.

Despite the best of efforts of the power elite, central banking issues remain on the table. But the counterattack is coming. It is not central bank stimulation that is to blame but too much credit. And thus it is that the elite will now try to regulate credit and salaries as well within the financial system – and worldwide at that. And when credit is regulated at banks, by the way, it will be regulated for the average joe, too. A bureaucracy rather than a bank may decide if Joe is credit-worthy and even if he is, the current financial conditions may preclude a loan. Come back when the economy is feeling less stimulated – whenever that is, perhaps in several years. "But – but … I need the money now." "Sorry, Joe, maybe you can borrow it from friends, if you can find anyone with cash to spare." And, funny thing, he can't, and won't.