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Feature
Ignoring the Tall Man
The Obama administration’s best economic hope remains Paul Volcker.
As the current political brawl appears headed for resolution certainly the most interesting, and possibly most important, political campaign this season has been waged well under the radar of the establishment mass media and has created not a ripple in official Washington.
A lot rides on whether Paul Volcker, the paterfamilias of the American financial community, finally succeeds in achieving the serious influence he is wrongly believed to have within the inner circles of the Obama economic team. If he does succeed, there is an outside chance that the problematic financial regulation and reform legislation that the White House cobbled together this summer with the banking stooges of both parties in Congress could lead to a real reform. Real reform would permit both oversight and restraint of Wall Street adventurers while allowing innovation and risk their proper places in the capital markets of the world. Without such real reform by America, we can scarcely expect European and other marketplaces to return to probity on their own. That they might fail does not bear thinking about.
Volcker’s strategy this summer offers a fascinating illumination of the compelling thesis advanced by Angelo M. Codevilla in the July/August issue of The American Spectator: that our nation is divided and its polity threatened by a Ruling Class that disdains when it cannot ignore the opinions of the far larger population of the rest of us, which he calls the Country Class. For while, at this writing, Volcker can clearly be said to be of the Ruling Class, he has been used as a kind of stage prop by both President Obama and leading Democrats in Congress to lend respectability to a mare’s nest of financial market reforms passed this summer, which promises much but may result in little except confusion.
Considering what cynically shabby treatment he has received over the last two years from the Ruling Class of both parties — ranging downward from President Obama himself — Volcker could be excused if he washed his hands of the whole financial markets crisis and went somewhere his undeniable expertise and insights would be better received. In other words, almost anywhere but at either end of Pennsylvania Avenue, where the rescue of the American economy has taken on an odor reminiscent of the time a popular administration and a tame Congress decided to privatize the petroleum reserve known as Teapot Dome.
But what Volcker has done instead is launch a surgical lobbying campaign targeting the real rulers within the Ruling Class, the minuscule clan of contributors and organizers of big-dollar campaign funds (to both parties, of course) who thrive and reinforce their mutual superiority in the tiny enclave found between Manhattan’s Upper West Side and Battery Park below Wall Street. Win them and he has won Washington, it’s as simple as that.
VOLCKER LAUNCHED HIS pianissimo bid in the June 24 issue of the New York Review of Books, a 140,000-circulation periodical that mixes lengthy literary reviews with polemics on politics keyed to its Gothamite constituency. The article was starkly titled “The Time We Have Is Growing Short” and began with a general indictment of the occupants of the White House over the past five years as well as the Democratic-dominated Congress for not doing nearly enough to deal with the long-evident structural flaws in the American economy that popped the bubble and that now thwart recovery.
“Restoring our fiscal position, dealing with Social Security and health care obligations in a responsible way, sorting out a reasonable approach toward limiting carbon emissions, and producing domestic energy without unacceptable environmental risks all take time. We’d better get started,” he argued.
The article came out just two days before the Group of Twenty summit in Toronto, where President Obama was supposed to rally the finance ministers and central bankers of the larger economies into a concerted economic recovery effort. Without citing Mr. Obama by name, Volcker looked at the European leadership in particular and did not hold out much hope of the president fashioning a consensus policy.
“If we need any further illustration of the potential threats to our own economy from uncontrolled borrowing, we have only to look at the struggle to maintain the common European currency, to rebalance the European currency, and to sustain the political cohesion of Europe. Amounts approaching a trillion dollars have been marshaled from national and international resources to deal with those challenges. Financing can buy time, but not indefinite time. The underlying hard fiscal and economic adjustments are necessary,” he said.
But in case it appeared he was giving the president a pass, he then recounted the shopping list of campaign issues Mr. Obama had stressed as the essential parts of the promised “CHANGE” that were left in default in the struggle to construct the Rube Goldberg health care monument to imperial government.
“As we look to the European experience, let’s consider our own situation. We are not a small country highly vulnerable to speculative attack. In an uncertain world, our currency and credit are well established. But there are serious questions, most immediately about the sustainability of our commitment to growing entitlement programs. Looking only a little further ahead, there are even larger questions of critical importance for those of less advanced age than I. The need to achieve a consensus for effective action against global warming, for energy independence, and for protecting the environment is not going to go away. Are we really prepared to meet those problems, and the related fiscal implications? If not, today’s concerns may soon become tomorrow’s existential crises,” he concluded.
As an opening bid to be taken seriously, the article accomplished its objective. It attracted no attention within the mainstream media and was almost surely not read at all by any member or staff of the House or Senate who might be tempted to game it for their own purposes. But for the elite focus group that does read the NYRB, it let them know that one of their most respected icons of financial expertise was alarmed at the intractable nature of the crisis and the president’s failure to act.
AT THE SAME MOMENT, Volcker was fighting what appeared to be a more winnable battle on a different salient of the policy front. He was on the verge of actually getting his way as Congress bickered during the final horse trades of what was advertised as the most significant reform of Wall Street and the financial markets since the Great Depression. It actually looked as if something called the Volcker Rule would be the centerpiece of that reform.
For weeks, the 83-year-old Volcker had been shuttling down from his offices in midtown Manhattan to prowl the congressional corridors where the financial reform legislation was undergoing competing drafts at the hands of lawmakers who had conflicting agendas about what was meaningful reform and what the Wall Street financial houses would hold still for.
To Volcker’s surprise, the Volcker Rule had suddenly taken on a political life of its own in these final days. At its simplest, what the former Fed chairman proposed was a return to a version of the barrier imposed by the Depression-era Glass-Steagall Act that drew a sharp line between commercial banks and investment banks. In Volcker’s version, commercial banks, such as Citigroup or your local bank, would take deposits and make loans to ordinary citizens and be accorded government support (such as FDIC deposit insurance) and, in the case of crisis, government bailouts. For that protection they would give up risky investments such as proprietary trading and operating hedge funds. The purely investment banks, such as Goldman Sachs, would be free to invest their own funds on whatever financial products they fancied, but if they ran the risks they could not expect any rescue from Washington that involved bailouts with taxpayer funds.
About the Author
James Srodes, an author and broadcaster, is a former Washington bureau chief for Forbes and Financial Worldmagazines. His latest book, On Dupont Circle: Franklin and Eleanor Roosevelt and the Progressives Who Shaped Our World, is being published next week. His email address is srodesnews@msn.com.
Letter to the Editor View all comments (14) | Leave a comment
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MoeBlotz| 11.16.10 @ 8:09AM
Mr.Volcker appears to have no firm convictions,but adjusts his position to suit the ruling class rather than the country class. Why else would he have allowed the tricky one to remove the almighty dollar from the gold standard? By doing so Mr.Volcker enabled subsequent presidents to manipulate our money supply to serve their needs.
Bob K.| 11.16.10 @ 9:12AM
I think that one important thing is Mr. Srodes observation that Mr. Volcker's "nose is inside the tent."
Bob K.| 11.16.10 @ 9:28AM
After reading Mr. Srodes' comments about Mr. Volcker's economic philosophies on page 3 above, I am reminded of William F. Buckley Jr's favorite aphorism which he credited to his co-founder of "National Review," Willy Schlam. "The trouble with Socialism is Socialism. The trouble with Capitalism is Capitalists!"
Mr. Volcker appears to be a very practical Conservative and Capitalist.
Gill O’Teen ✝✡$| 11.16.10 @ 10:31AM
It doesn’t matter who’s in or who’s out in dee sea. Unless chopper bennie is stopped cold turkey from buying $600 gigabucks of treasury bonds with abra-cadaver money, OUR Nation is doomed to sink irretrievably under a hyperinflated sea of red ink. The dye for that color will be OUR Blood. Just this morning, I could swear I heard the top-of-the-hour announce that beavisbud’s maladministration has brought the inflation rate under control by no longer using fuel or food in its calculations. Ponder that for a minute, longer if needed for the light bulb to click on. This is the same concept that could bring The Unemployment Rate under control by simply excluding all those out of work. The tip that just maybe the official Unemployment Rate might be inaccurate are the words “seasonally adjusted.” Even if the wizard of worthless cash can avoid the hyperinflation of Zimbabwe, he will increase the National Debt by a like amount. All he’s ultimately doing is using borrowed money to buy borrowed money. If he’s not using borrowed money, he’s radically increasing the money supply without a corresponding increase in OUR Nation’s wealth. This will result in hyperinflation. Always has before. Other than he went to Harvard and Em Eye Tea, whereas I only walked by, just what makes him think he can control the basic law of supply and demand. We are in for a very bad year. The National Inflation Association is projecting that a loaf of bread will cost more than 20 bennie-bucks, about a bennie per slice. The Good news is that the per-slice cost can be decreased by simply cutting thinner slices. Given this, unless Volcker can halt this impending disaster, I’m totally indifferent to his job prospects.
Gill O’Teen ✝✡$
Don’t Tread on Me.
gill.Oteen07041776@gmail.com
“NIA projects that at the average U.S. grocery store it will soon cost $11.43 for one ear of corn, $23.05 for a 24 oz loaf of wheat bread, $62.21 for a 32 oz package of Domino Granulated Sugar, $24.31 for a 32 fl oz container of soy milk, $77.71 for a 11.30 oz container of Folgers Classic Roast Coffee, $45.71 for a 64 fl oz container of Minute Maid Orange Juice, and $15.50 for a Hershey's Milk Chocolate 1.55 oz candy bar. NIA also projects that by the end of this decade, a plain white men's cotton t-shirt at Wal-Mart will cost $55.57.” Stolen directly from National Inflation Association’s November 5th article, “NIA Projects Future U.S. Food Price Increases.” Their special U.S. food price projection report is available to download for free at
http://inflation.us/foodpriceprojections.pdf
Only 796 days to go
Oldefarte| 11.16.10 @ 12:02PM
We most probably will be in desperate need of Volcker' interest rate hike expertise when the inflation explosion resulting from Bernanke's purchasing of government bonds occurs. The problem should not be business regulation, but instead, government regulation. If not for the political correctness of the 1977 CRA and the followup by the GSE's or providing welfare in the form of AFFORDABLE HOMES, then possibly the business excesses relating to Wall Street banking may not have even happened. Without the insanity of governmental political excesses that result from the corrupted/fraudent misuse of taxpayer money, businesses/banks could simply be left on their own to sink or swim on their decisions made [ie bankruptcy]. The only true emergency was/is the TOO BIG TO FAIL banking issue, which was rightfully rescued by the government [since to do otherwise would have destroyed every depositor's funds contained within same and the country's economy as a whole]. All other issues could be cured simply by the American electorite having the intelligence to vote for professionally capable candidates to run their government instead of feel-good morons with Harvard Law degrees, etc!!!!!!!!
J. Brick| 11.16.10 @ 12:06PM
I will never forgive Paul Volcker for allowing himself to be used as a political prop so that the Obama Aministration could gain some credibility on economic matters.
Volcker was absolutely masterful in leading this country through the inflationary minefield of the late 70s and early 80s. As far as I'm concerned his speech on October 6, 1979 laying out a new course for the Fed on monetary policy belongs in the pantheon of historic speeches affecting the monetary system. It is the tonic needed now to bring us out of debt spiral that is choking the economic future of this country. But sadly as Volcker himself has said, it is probably too late to administer such tough medicine that was appropriate 30 years ago as our economy has probablygone too far down the debt addiction road at this point.
My own view on the matter is that Volcker, while not a political animal, was a lifelong Democrat who subordinated his sound economic thinking to Party loyalty. It was an unfortunate choice because he was one of the few people, perhaps the only one, with the clout to change the economic course of this country when it was most needed.
Clinton nee Publius | 11.16.10 @ 12:33PM
I find it interesting that Mr. Volcker now warns us against the dangers that he helped inculcate with our failed Federal Reserve System, failed fiscal appropriations system and failed commercial banking system. We are headed off the precipice and people like Mr. Volcker are perfectly willing to hold open the door and help us over the edge - provided the monopoly our banking industry has enjoyed at our exclusive risk and expense can continue indefinitely.
That's the real poison here. All of this suffering is due to the fact we decided the Federal Reserve System and fractional-reserve banking was the only way to do thing - that is to say the only way to do things that ensures the banking industry monopolizes wealth, credit and money for their exclusive benefit and the benefit of the ruling-class. For those of you who are in denial you need to explain why 10% of households control more than 75% of the wealth in our country and why the average Wall Street banker earns 8 times what the median family earns in the United States. It's time we had the banking, monetary policy and credit system that worked for the rest of us and not just the banking industry and liberal, big-government corruption junkies.
Learn more about it with my FREE white paper on a replacement for our current system called the, "Consumption Banking System":
http://www.capitalismbookstore.....System.pdf
fundamentalist| 11.16.10 @ 1:36PM
“…the former Fed chairman proposed was a return to a version of the barrier imposed by the Depression-era Glass-Steagall Act that drew a sharp line between commercial banks and investment banks.”
Someone should remind Volcker that the financial crisis began with the investment banks, over which Glass-Steagall had no control. And the few commercial banks got into trouble because they held onto home loans instead of selling them. The whole mess began when housing prices collapsed. There would never have been a financial crisis among investment banks had housing prices not collapsed. And housing prices collapsed because they had been blown into a bubble by massive credit expansion by the Fed.
“The purely investment banks, such as Goldman Sachs, would be free to invest their own funds on whatever financial products they fancied, but if they ran the risks they could not expect any rescue from Washington that involved bailouts with taxpayer funds.”
They always say that and then bail them out anyway because the big banks own the regulatory agencies.
“Volcker was credited with steering the Nixon administration through the delicate shoals of cutting loose gold's stranglehold on the dollar and building the new international convertibility regime that exists today.”
He should be in jail for that. Abandoning gold left the Fed with no restraints whatsoever, except massive inflation. So we can thank Volcker for the stagflation of the 1970’s as well as the recent depression.
Dai Alanye | 11.16.10 @ 2:07PM
We seem to be in the position of Lincoln, forced by lack of good candidates to appoint the least worse general. Certainly Volcker's tight money bias seems preferable to Obama's inflation-all-the-time program, but I have severe doubts about government interference in markets such as a Reconstruction Finance Corporation would constitute.
Further, anyone who not only accepts the reality of man-made global warming, much less pontificates upon it, must be considered a doubtful candidate for an influential economic position. To paraphrase Laura Ingraham--Shut up and control the money supply!
As for what should be done, when Sarah Palin becomes President and appoints me as economic adviser, I shall simply determine what policies will be in the interest of Goldman-Sachs... and do the contrary.
Gill O’Teen ✝✡$| 11.16.10 @ 2:51PM
At 16:25 ET yesterday, the National Debt Clock U.S. GDP was $14,612,630,893,004. That 600,000,000,000,000 bennie bucks the whirlybird wizard plans to drop on tax-cheat tiny timmie is a bit more than 41 times greater. In other words, if the gum’mint confiscated 100% of OUR wealth annually, it would take more than 41 years to break even, excluding interest payments. Is there anybody not currently locked away in a padded cell who can explain why this is an excellent idea? Or are such folks the only ones who can?
Gill O’Teen ✝✡$
Don’t Tread on Me.
gill.Oteen07041776@gmail.com
Alice: “But I don't want to go among mad people.”
The Cat: “Oh, you can't help that. We're all mad here. I'm mad. You're mad.”
Alice: “How do you know I'm mad?”
The Cat: “You must be. Or you wouldn't have come here.”
Blatantly stolen from Charles Lutwidge Dodgson’s classic “Alice in Wonderland” which he wrote pretending to be Lewis Carroll.
Only 796 days to go
Gill O’Teen ✝✡$| 11.16.10 @ 8:05PM
With all due respect, Gill. You are an idiot. 600,000,000,000 is a 6 followed by 11 digits. 14,612,630,893,004 is 14 some odd trillion, which, unless my kindergarten math teacher was as foolish as you are, is larger than a mere billion. 600 billion has 12 significant digits; 14 trillion has 14. With these new-to-you facts in mind, you can quickly calculate that your projections are not as dire as you think. Using updated debt clock figures as of 26:26 ET today, OUR GDP was $14,613,828,125,793 (note: trillions). The Gum’mint only need confiscate everything for about 15 days to pay for chopper bennie’s holiday gifts. Now, that I’ve straightened you out, I’m headed to the airport to get a full body massage from TSA. They put the frisk in frisky.
Gill O’Teen ✝✡$
Don’t Tread on Me.
gill.Oteen07041776@gmail.com
“Twelve for 23... It doesn't take a genius to see that's under 50 percent.” - attributed to Dick Vitale at http://www.basicjokes.com/dquotes.php?cid=93
Only 796 days to go
PattyMor| 11.16.10 @ 3:29PM
The big, lumbering Federal oversight and bureaucracy has made things worse. Just where was the Fed, FDIC, SEC, etal. (not to mention the oversight commitees in Congress) during the housing crisis and banking crisis. Wasn't the theory that these agencies would stabilize things? Instead they have had just the opposite results. Failures all. Once business is under the federal thumb, then politics is interjected into the mix. We get such things like the Community Reinvestment Act and concepts like redlining.
Get rid of all the bureaucracy and replace with private sector solutions. Do we need FDIC? How about private insurance for those who want it. Need a mortgage, why not go to a bank--how quaint.
The other thing is, none of these agencies are constitutional. Without a corrupt judiciary these bureaucracies would not pass constitutional muster.
Bill Hussein O'Stalin| 11.16.10 @ 6:11PM
I wonder if Mr. Srodes or anyone else has read the bill? It's laced with poisonous race and gender preferences that will simply lead to more financial disaster for America.
There is no way to stop financial disaster when the financial houses are required to buy into collectivism by hiring people because of their race and gender. In fact, I'm sure many ACORN candidates are slicking their resumes up.
Paul Volcker will be unable to do anything because no one can withstand the tidal wave of disaster waiting as banks become another bank curve in the pool game of collectivism.
There is very little to do now but watch as the ship of state turns over, and the deck chairs which have been arranged over and over, fall off never to return.
On another note all you have to do is look at the phony two year moratorium on earmarks to see what's coming next. There will be no fiscal austerity. The ban on earmarks should be permanent but the ruling class in both parties can't afford that.
On that alone they will find common ground. Screwing the public at every turn, in every way and in any way they can get away with.
The swine!
JLK| 11.18.10 @ 12:33PM
How can we take this guy seriously when he keeps mentioning "AGW" as a serious problem. ( I guess he didn't get the memo about the 2 name changes in 2 years for AGW)
The best he could do for this country is very publically resign from an Administration that will never take his ideas seriously if they conflict with their own blessed ideology.
JLK