(Writes through with new quotes, background)
NEW YORK Jan 12 The financial crisis that has
plunged the United States into recession is different in its
complexity and scope than previous bouts of turmoil, key
presidential economic adviser Paul Volcker said on Monday.
Volcker, a former chairman of the Federal Reserve, said he
did not know how long the economic malaise would last but
policy makers should use this opportunity to rebuild the
financial system on a more stable foundation.
"Crises are old but this crisis is different," said
Volcker, whom President-elect Barack Obama has appointed to
chair the President's Economic Recovery Advisory Board.
"It's different in its enormous complexity; it's certainly
different in the massive intervention of government. It's more
global in scope than any previous crises."
Indeed, Volcker said the economy and markets were now
feeling the hangover effects of one of the greatest bubbles in
He said it started with stock price rises in the 1980s and
1990s and then the housing boom that reached its climax this
"Put that all together and there is no doubt in my mind
that that was the greatest rise in asset values, the greatest
boom in asset prices in all of human history," said Volcker.
He said much needed to be done to restore confidence,
integrity and fiduciary responsibility.
Volcker did not say exactly how he would like to see those
principles built into the new financial architecture. Instead,
he said this would be a subject of debate for Congress and the
new administration, which takes office on Jan. 20.
This rebuilding effort will not be a quick one, he added,
and is more likely to result in legislation next year rather
than in 2009.
"But I like to think the crisis is an opportunity," Volcker
said. "It's an opportunity to do some things that in ordinary
circumstances, in quieter circumstances, would not begin to be
The United States is currently in a recession that is
likely to be the longest since the Great Depression of the
1930s. It has also managed to drag much of the world down with
More evidence of the economic toll came on Friday with data
showing that the U.S. unemployment rate in December surged to
the highest level in nearly 16 years.
In all of 2008, 2.6 million people lost their jobs, the
largest slump in employment since a 2.75 million drop in 1945
when the country demobilized at the end of World War Two.
However, a year into the current recession and it is still
unclear when the economic and financial clouds will lift.
"We don't know how deep it's going to be," said Volcker.
Volcker is widely respected for his role as Federal Reserve
chairman from 1979-1987, when he helped end a devastating
inflationary spiral in the late 1970s by raising interest rates
to unprecedented levels.
The result was a recession in 1981-82 that generated the
worst unemployment since the Great Depression of the 1930s, but
which laid the groundwork for future growth.
Volcker, who was speaking at the Museum of American
Finance, where he was receiving an award for public service,
said the task now is to avoid another crisis like the current
"Financial crises should not be so pervasive, so strong as
to put the whole economy through the ringer as what's happening
right now," he said.
(Reporting by Burton Frierson)