Paul Volcker - Former US Federal Reserve chairman HARDtalk

conviction. Those are the headlines. Now it is time for HARDtalk.

Economic America has lost much of his economic swagger. Can it get it

back? I have come to New York city to me Paul Volcker. He was chairman

of the Federal Reserve in the world Reagan era. He has served five US

presidents. Barack Obama sought his advice to engineer an economic

recovery. But does America possess the political leaders capable of

Paul Volcker, will come to HARDtalk. It is tempting for policy makers

here to look across the Atlantic to Europe and look at the date in

Europe, the lack of growth and to breathe a sigh of released. -- the

debt in Europe. There is no feeling of relief. We don't want anything

to happen over there that will upset our slow growth. Do you

believe there is a real danger that what is happening in Europe could

really affect the United States? question. It will affect the world,

the whole financial system. There is so much connection between the

banks. A large problem in Europe will affect us. It makes policy

making here it very difficult. There is not much we can do

directly. I said from my experience, sitting around here for 60 used in

international finance, -- 60 used. Isn't there something the United

States can do to resolve the situation? But I am not sure there

is enough. We have enough problems of Arran. -- offer our own. -- of

our own. -- 60 years. You are recognising the global power of the

USA has been reduced. That is very true. In 2008 he broke the habit of

a professional lifetime in being so it clear for your backing for

Barack Obama for President. I wonder now, whether you are

somewhat disappointed with him? Everybody is a little frustrated.

We saw him as a new phenomenon. He appealed to every good ensuing --

instinct. He looked like he would do with many problems in the world.

One problem was loss of stature internationally. In the United

States we projected onto Barack Obama hopes they could not be

realised by anybody. There is an certain amount of frustration.

laid his economic recovery Advisory Board for to use and then you left

it. Was that because you were frustrated that he did not have a

clear sense of economic direction? It was always going to be to-you

think that would be reviewed after two years. Why wasn't it used for?

-- used for? -- useful? A poor light that has to meet in public.

This makes it very rigid. -- a board like that. The public

meetings are rather stilted. It became a vehicle for informal

advice by some members of the group. It was not as effective as it could

have been. It is also fair to say that people in the White House did

not encourage a lot of outside advice. You are being diplomatic.

You're saying that people like the treasures it is secretary did not

want you interfering. -- Treasury Secretary. Let me invite you to

interfere now from the outside. You are no longer on the board but your

voice still counts. Here we sit with the United States facing a

massive deficit problem. A national debt that has risen beyond 15

trillion dollars. An almost unimaginable number. I never

thought I would see the day when we would count dollars in trillions.

How can Barack Obama avoid the kind of austerity programme that we're

now seeing in Europe? The austerity programme in Europe is Europe is

necessarily. His economy still has a lot of Australian. -- necessary.

The dollar remains reasonably stable. It is still bes still be

currency. - made a lot of strength. Some people would be saying you are

complacent. I am not complacent, but nonetheless we still have a

manageable problem compared to other countries. It is a peculiar

its rate in Europe where you have this common currency without a

common government. -- peculiar threat. That affects the degree of

austerity. We are not at that stage yet. We have time to do with this

problem if we do with it. But we have not dealt with its so-far.

That is the long-term. In the short-term there is an argument

inside the Democrat Party, that whether, with the jobless rates so

high or, with the housing situation disaster its, many people with

mortgages under water, there is an issue about whether the

administration should continue stimulus policies, whether the

Federal Reserve should continue stimulus. Do you believe they

should? It is hard to argue with their policies at the moment. Back

a constricted. They are going for the edge of what is possible. There

is not a case for tightening up at the moment with the sluggish

recovery. Prices are stable. Bemused no expectation of that

changing in the foreseeable future. -- there is no expectation. The day

will come for tightening up. For government, the real challenge is

tightening up soon enough before things get out of hand. We are not

there yet. Ben Bernanke has indicated that unbelievably low

interest rates will last for up to use. You were known for your work

in the Reagan administration for being the most concerned if Fed

chairman bear has been. You worry with interest rates so low? --

there has been. Low interest rates are not good. The situation cannot

last long. I would not be forecasting two D degree that the

Federal Reserve is forecasting interest rates. - made to the

degree. T you believe inflation could come back much quicker than

people realise?-do you believe? emerging world is not advancing

very quickly. The pressure is not there yet. There is not a case for

restrictive policies right now. There is no disturbance in the

price side. We can sit still for a while. But me ask you about another

aspect of the President was made economic policy-making. His

assurance to the American people that he would regulate Wall Street

so that these sort of financial meltdown we saw in 200 it could

never happen again. Do you believe he has delivered on that? --b 2008.

-- 2008. He has made considerable progress. More in the US than in

Europe. What has he actually achieved? The financial giants from

Citigroup Two Goldman Sachs. It is true to say that they are still too

big to fail. They are still indulging in the financial

practices that you believe they should stop doing. They are

reducing those practices. The so- called Bochum rule has been passed

into law. -- Volcker. You said banks should be stopped from doing

proprietary trading. You said that has to stop. The President appeared

to agree with you. Yet in the legislation, your simple

proposition has become 300 pages of incredibly complicated legislation.

The proposed regulation is 25 pages. But it has grown because there are

so many extensions. Tansions. Tan said the word exemption should be

pronounced loophole. He said if these Wall Street guys the smallest

hole and they will run through it. -- Ted Kaufmann said. That is what

makes the regulations so complicated. To you, we thought

your experience, that despite all the legislation that there is still

a fundamental problem with financial institutions that are too

big to fail? There is always a problem. There is a realistic

attack on a problem. There is a parallel effort in the UK. It is

important we get broad agreement between the US in the UK as to how

to handle failing big financial institutions. In the UK the

Government is committed to fundamentally restructuring the

biggest banks, so their merchant banking, their investment banking

operations, are fundamentally separated from their retail

operations. It is not happening here. We have a common concern. The

concern is to protect the essential banking system. The banking system

takes care of payments, because it's, makes loans. Those

institutions are essential. - made deposits. We don't want back

government protection extended to all these other activities. That is

precisely what the UK is saying. We are doing it in a different way but

it is the same problem. When the big bankers say the rule will kill

them, hinder their ability to operate, and European governments

say the same, because the big American banks can't trade-in out

it, so we cannot sell sovereign debt, what do you say? Why it never

made a regulation that would affect European countries ability to sell

debts. When complaints come from the Japanese banks as well, I think,

those lobbyists have really got Let's talk about something more

subject to us. -- subjective. Do you think This is still prevail

and? It is diminishing. When you get the kind of money that is being

made on Wall Street... And still being made. The boss of JP Morgan

Chase got a compensation package of $20.8 million. If you add on the

bonuses it added up to $42 million. You laugh by its by Tony many

Americans are not laughing. -- but I tell you. What has it done a to

really change the culture? markets have been counter-

productive and excessive. Times are changing. I understand the about

rage that got the banks into trouble -- the outrage. Why cannot

the US governments, given the context and the fact these guys are

still paying themselves the most unbelievable salaries and bonuses,

has not intervenes? It is a tough game for the government. It is

difficult to go in and tell people how much they should be paid. That

is a tough operation. How do you introduce a new morality on Wall

Street's? Not by me talking or anybody talking. It is going to get

taken back by performance on if the market. There are other things the

government are doing or considering, for example, in France the presence

says he will introduce a financials actions tax. President Obama seems

to shy away from these actions. They have complained about the

opener trading in Europe. Maybe some Americans would look at the

Europeans and say we wish we had a government that would take on the

banks like that. That is unfair. There are different ways of taking

on the banks. I do not have a basic quarrel with President Obama. He

has laid as a programme and pass it through Congress. I do not know of

any other government that has introduced such a comprehensive

bill. Let's look at one that other aspects of economic policy-making.

That is the longer term issue. The debt that hangs over America. Do

you see any way in which the current generation of political

leaders and the system itself in the US cannot deliver a solution?

political system is being tested, there is no question. I think we

have to pass the test. America has some scepticism as to whether we

can really pass that. We have to have the capacity to do it.

close to an sustainability is the US government right now? We have

talked about the $15 trillion of national debt. We have talked about

the ageing population and the soaring cost in Medicare and social

key security. How can you convince me that America remains solvent?

will take care of it. We are going to take care of aid. How? Increase

public expenditure. Medicare and Medicaid is more difficult. We are

going to have to raise revenue at some point. It is all right saying

we are going to have to do these things. You have seen what happens

when affairs -- efforts are made through the super committee of the

Congress to get some progress on spending. I can be as physical as I

possibly can be. -- as critical. We are in a very politically divisive

mood in the country at the moment. It is toxic. We may not get it this

year. We are not going to get action this year. The critical time

will come after the election. Can we have a response to the challenge,

that is effective in a timely way? I have to believe that is what we

can do. You said not long ago looking at this problem America has

with its budget, you said, at the end of the day if we needs to raise

taxes we should raise taxes. That runs against the grain of what so

many Americans think. Nobody understands better than that I what

we need to do. It is a great challenge. We need to combine but

is Terry programmes and build the programme consistently -- budget.

The tax system needs changing. you think that whoever leads

Am Amr the election will have to abandon efforts to finesse

some sort of middle off the ground deal. Will they have to lead on

this issue in a way that President Obama has shied away from? I hope

so. I think this is his opportunity. I will be disappointed if Mitt

Romney is elected and does not act upon it. If he is elected that is

an opportunity for him to do it. cannot end without some historical

perspective on your career as an economic policy-maker. You go back

through the Carter administration, Ronald Reagan, All the the

President. You have lived through economic slums. Do you think this

is different? Do you think America faces challenges the scale of which

it has never seen before? In terms of political influence around the

world, it has not been like anything in my lifetime. In the 50s

and into the 60s, even the 70s, there were other countries and we

have made some mistakes. Everybody makes mistakes. It may be a problem.