3 People Who Spoke Up in 2009

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.

Paul Volcker
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.

John Mack
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.

Sheila Bair
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.

Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Berkshire Hathaway is a Motley Fool Stock Advisor selection and a Motley Fool Inside Value recommendation. The Fool owns shares of Berkshire Hathaway and has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 31, 2009, at 1:10 PM, plange01 wrote:

    buffett should retire and break up berkshire.this company has become to large to continue posting gains big enough to affect its share price.anyone smart enough to run a company like this already has his own money and does not need berkshire.my pick would be john paulson the ny hedge fund manager but being a billionaire already why bother...

  • Report this Comment On January 01, 2010, at 8:03 PM, xetn wrote:

    Why does everyone hate the free market on this site?

    You all write about how the Fed and FDIC "saved" the economy, when in fact the provide the moral hazard that encourage excessive risk taking in the financial sector. They are nothing more that socialist mechanisms for central planning. The Fed is supposed to "stabilize the money supply and act as lender of last resort". Looking at our money since the Fed's creation in 1913, the dollar has lost over 95% of its value. The Feds inflating of the money supply during the 1920's greatly contributed to the stock market collapse of 1929, and has done the same thing over and over leading to the boom/bust cycles including the dotcom and housing bubbles.

    The FDIC was created to prevent bank runs in the 1930s because some many banks were doing the same kind of risk taking that happened in the latest crash. Without the moral hazard created by these two entities, banks and other financial institutions would face the real risk of failure; bankruptcy.

    The free-market, something we have never really had in the US in at least the last 100 years, has a built-in regulatory system: the consumer. This regulator controls the economy better than any government created regulator in that they vote with their dollars. And, since they are not on the receiving end of big corporations/banks or lobbyist, they do not provide for any bailout for anyone who does not look after their (consumer) best interests.

    And even better, they do not create nor require any government spending or deficits.

    I would think that people who are subscribers to the Motley Fool would want this kind of system and much less government intervention in both business and personal. I would think that you would all want much less government spending on everything, so your taxes would be minimized and no Fed creating money out of thin air and destroying the value (purchasing power) of our money. This in fact is the primary method of government spending (money creation) and is a massive hidden tax on everyone.

    Lastly, government created regulation (over 70000 pages contained in the Federal Register) as of March 2005, costs each man, woman and child in the US over $4600 per year. (I am quit sure it is much, much greater now with the bailouts, stimulus and huge budget deficits). Just think how much better your lives would be with out all of this waste. And, it is all waste because government does not create any thing else. It does not produces anything, it does not have any of its own money to spend, so it takes it (legal theft) from Peter and gives to Paul, Paul is the only one happy about this. Every single dollar the government takes or creates is money that is removed from the real producers and job creators.

  • Report this Comment On January 03, 2010, at 1:12 PM, plange01 wrote:

    ex fed chairman greenspan was completely fooled by wall st into lowering rates to ridiculous levels that opened the door for millions of unqualified people to buy homes.the federal reserve is completely responsible for the financial collapse that has affected the entire world.greenspan will go down in history as the worse public official and biggest fool in ever and should be in prision.in a growing country like china greenspan would have been put to death..

  • Report this Comment On January 04, 2010, at 9:07 AM, BMFPitt wrote:

    I have been incredibly disappointed by the lack of power that Volcker has in the administration. I was incredibly optimistic when I heard they were bringing him on, hoping he would be a voice of reason.

    A voice of reason is only good if you actually listen to it.

  • Report this Comment On January 04, 2010, at 11:04 PM, jesse2159 wrote:

    Volker is a realists in a world of make believe. There would be no Enron without Arthur Anderson. There would be no banks on the edge of destroying America had the politicians simply done their job instead of sucking up to the K street lobby. This nation has become a smoke and mirror country where the hard truth isn't found any more, even in Generally Accepted Accounting Principals. Proof: Mark-to-market rules to accurately account for the price of assets that was recently set aside. Banks would rather give back billions in interest free stimulus money than become transparent.

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