Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) co-chairman Charlie Munger recently praised Alan Greenspan's 2008 mea culpa before Congress, saying, "Of all the major figures, he's the only one who promptly said, 'I was a horse's ass.'"
I laughed, and remembered that those with bad raps can occasionally (if only halfheartedly) become the voice of reason, sanity, and responsibility. Here are three others who spoke the unpleasant but necessary truths this year.
In the early 1980s, former Federal Reserve chairman Paul Volcker was burned in effigy on the steps of the U.S. Capitol. People sincerely hated the guy for jacking up interest rates in order to break inflation. But it worked. He's one of the few policymakers willing to make necessary but unpopular choices without giving a hoot what you think of him. That's why he's someone worth listening to.
For the better part of 2009, Volcker yelled as loud as he could about the ridiculousness of "too big to fail." Few listened. Standing up to bankers is hard, you know. As my colleague Eric Bleeker showed, even the White House, which hired Volcker as chairman of the Economic Recovery Advisory Board, pooh-poohed his calls to reinstate some form of the Glass-Steagall act. Testifying before the House of Representatives in September, Volcker said:
There are some on "Wall Street" who would like to return to "business as usual." After all, for a time, and for some that system was enormously remunerative. However, it placed at risk not only the American economy, but also large parts of the world economy. The challenge is not to paper over or tinker around the edges of the broken system. We need to minimize the danger that the uncertainties and risks inherent in the functioning of a market-based financial system do not again jeopardize the functioning and foundation of our economy.
His solution to the problem is clear-cut, as summarized by Barry Ritholtz:
- Reaffirm the principle separating banking from commerce as our approach to financial regulation.
- Regulate derivatives as a typical financial product.
- Encourage more prudent compensation practices.
- Close existing loopholes that inevitably weaken prudential safeguards.
- Register and establish reporting requirements for hedge funds and private equity.
Volcker is one of the few people who understands that financial innovation -- often invoked as a rationale for letting megabanks like Citigroup (NYSE: C ) and JPMorgan Chase (NYSE: JPM ) remain huge -- is a total joke, rammed down our throats only by those whose livelihood depends on it. As Volcker quipped, "The most important financial innovation that I have seen the past 20 years is the automatic teller machine."
That's brilliant. And that's what I like about Volcker: He recognizes that ridiculously large banks primarily serve themselves, and no one else.
You might think I'm nuts for arguing that John Mack, Morgan Stanley's (NYSE: MS ) outgoing CEO, has anything good to say. Mack led the charge to fire up Morgan Stanley's risk-taking during the boom years, ultimately pushing the firm within an inch of bankruptcy.
Yet Mack said one of the most respectable things I've ever heard from a Wall Street CEO last month: "Regulators have to be much more involved. We cannot control ourselves."
Why was Mack suddenly able to speak so sanely? Maybe it's because he's about to retire (tomorrow, to be exact). His future income no longer relies on perpetuating the myth that Wall Street a) knows what it's doing, and b) can do what it doesn't know it's doing without blowing the rest of us up. That it takes someone who's leaving Wall Street to admit this should tell us something.
Most of the bank regulation debate surrounds preventative medicine. Few ever ask what happens when banks actually do go under. That's Sheila Bair's job, and she's darn good at it. As chairwoman of the FDIC, Bair's mission is to clean up the mess of hundreds of banks gone 'rupt.
For whatever reason, Bair doesn't get nearly the attention fellow regulators Tim Geithner or Ben Bernanke command. But her response to the crisis, and her philosophy for how to prevent another, has seemed far saner than most of her cohorts'. She states in no uncertain terms that there needs to be a new mechanism to dismantle bumbling financial institutions like Bank of America (NYSE: BAC ) , AIG, and Goldman Sachs (NYSE: GS ) should they explode again.
"The lack of an effective resolution mechanism for large financial organizations is driving many of our policy choices," Bair said earlier this year. "It has contributed to unprecedented government intervention into private companies. It has fed the 'too big to fail' presumption, which has eroded market discipline for those who invest and lend to very large institutions."
You take it from here
These are three small examples, but I'm sure you can do better. Know someone who spoke the voice of reason over the past year? Let's hear it in the comment section below.