(Adds details, background, quotes from paragraph four)
By Pedro da Costa and Kristina Cooke
NEW YORK Feb 20 The global economy may be
deteriorating even faster than it did during the Great
Depression, Paul Volcker, a top adviser to President Barack
Obama, said on Friday.
Volcker noted that industrial production around the world
was declining even more rapidly than in the United States,
which is itself under severe strain.
"I don't remember any time, maybe even in the Great
Depression, when things went down quite so fast, quite so
uniformly around the world," Volcker told a luncheon of
economists and investors at Columbia University.
Given the extent of the damage, financial regulations must
be improved and enhanced to prevent future debacles, although
policy-makers must be cautious not disrupt things further while
the turmoil is ongoing.
Volcker, a former chairman of the Federal Reserve famed for
breaking the back of inflation in the early 1980s, mocked the
argument that "financial innovation," a code word for risky
securities, brought any great benefits to society. For most
people, he said, the advent of the ATM machine was more crucial
than any asset-backed bond.
"There is little correlation between sophistication of a
banking system and productivity growth," he said.
He stressed the importance of preventing financial
institutions large enough to pose a threat to the entire system
from engaging in risky behavior such as running hedge funds or
trading for its own accounts.
The current crisis had its beginning in global imbalances
like a lack of savings in the United States, but policy-makers
around the world were too reticent to take action until it was
too late, Volcker said.
Now that the crisis had erupted, it was important to take
decisive actions, including a more effective regulatory
structure and some movement toward uniform accounting systems,
He said all financial institutions that are deemed too
large to fail should be subject to increased scrutiny, echoing
the findings of the Group of 30, a panel of policy-makers and
influential economists, which he leads.
(Reporting by Pedro Nicolaci da Costa and Kristina Cooke;
Editing by Tom Hals)