Monitor Breakfast

Thursday morning was Paul Volcker's third appearance at a Monitor breakfast. His first was in August, 1979, the month he took office as chairman of the Board of Governors of the Federal Reserve System.

Mr. Volcker has had a distinguished career of public service. He was undersecretary of the Treasury for Monetary affairs (1969–'74) and later served as president of the New York Federal Reserve Bank (1975–79) before becoming chairman of the Board of Governors.

After leaving the Fed in 1987, was chairman and chief executive officer of Wolfensohn & Co. He also chaired the Independent Committee of Eminent Persons investigating the role of Swiss banks in handling the accounts of victims of Nazi persecution.

In February of this year, Mr. Volcker was named Chairman of the Independent Oversight Board for Arthur Andersen LLP.

Mr. Volcker is also chairman of the Trustees of the International Accounting Standards Committee and chairman of the National Commission on Public Service.

"It is widespread. It depends, I think, partly on what industry you are in.

But you have a whole profession that has arisen in the past 15 years or so called financial engineering. That has kind of a connotation of very sophisticated operations to take advantage of aberrations in the market to protect yourself from risk or whatever. But a large part of it is how to get around accounting rules and IRS rules... You have a lot of people figuring out how to get around the rules, how to strain the rules or whatever.

The cumulative impact I think is substantial. Now how you deal with that is what we are grappling with."

"It depends on the company again. But I think you have a basic problem there. Business has gotten a lot more complex. Particularly in the financial area with all these derivatives, options, swaptions, and all the financial engineering that is going on.

You have got all that complexity, maybe partly kind of phony but partly real. You have a great increase in the relative importance of intangibles...Part of the problem is, I think, the accounting standards, the accounting rules, haven't kept up with reality. Having said that, I don't know any magic bullet for catching them up. It is a very complex area and I don't know if we are being sufficiently imaginative. In some areas maybe we are being too imaginative."

"I think the average American with no particular expertise in this area and no particular background that enables him to decipher statements has to rely on the professional investor. You have to go to a mutual fund, other avenues of that sort.

Page: 1 | 2