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Feature
Ignoring the Tall Man
The Obama administration’s best economic hope remains Paul Volcker.
(Page 3 of 3)
Volcker’s campaign has a certain sharp logic. While it is too much to assert that both the New York Times and the New Yorker are read by the same 1.4 million people, it can be argued that it likely has been a far smaller group of readers who parsed through both lengthy pieces plus Volcker’s own warnings in the New York Review of Books. And while it is likely that very few people outside of midtown Manhattan read any of them, especially within Washington’s chattering community, those currently in the saddle both in the Congress and White House have surely heard reaction from those Ruling Class readers who take Paul Volcker very seriously indeed.
IT’S WORTH TAKING a moment to recall just who and what Paul Adolph Volcker is. At 83, there is not much that he has not done in the world of banking and international finance, with a couple of rescues of the American economy along the way. Trained at Princeton, Harvard, and the London School of Economics, he was presumably totally in sync with the wet Keynesians who have gravitated to Democratic administrations for the past 50 years. His early years were spent advancing through various analysis positions in and out of the New York Federal Reserve Bank, Chase Manhattan, and the U.S. Treasury. Yet when the global currency market collapsed in 1971, 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. His reward for that was the presidency of the New York Fed Bank, a post he held until Jimmy Carter made him chairman of the Federal Reserve.
Time has flattened somewhat our memories of just what a dismal economic pall paralyzed the hapless Carter. Any prospect of renewed growth was being smothered by double digit inflation, that is, until Volcker adopted the decidedly un-Keynesian tactic of choking off the very credit expansion that was fueling the price frenzy. Volcker and his tactics were roundly hated. Farmers used tractors to block the entrance to the Fed headquarters. Home builders flooded the Fed’s mailroom with letter-sized blocks of two-by-fours on which they mailed their protests; Volcker used them in his office fireplace and gleefully pointed out he was following Carter’s pious injunctions about saving energy. Despite that triumph, Volcker’s reappointment by President Reagan in 1983 was done grudgingly and his refusal to endorse an early push to deregulate Wall Street led to his replacement by the doctrinally sound but ill-starred Alan Greenspan four years later.
In the last 20 years Volcker has kept his ticket to the luxury boxes of the Ruling Class by undertaking missions for the United Nations, serving as a personal financial adviser to the Rockefeller family, and being a regular attendee at the sacred rites of such conclaves of the mighty as the Group of Thirty, the Trilateral Commission, and the Bilderberg Group. But Volcker’s influence and reputation comes from his refusal to preach to the lesser choir members of this community — the apparatchiks who burrow within academia and at the foundations of the left. Volcker’s economic philosophy, it turns out, is one of small “c” conservatism when it comes to financial markets in general and Wall Street’s sell-and-be-damned ethos in particular.
To understand Volcker one must go back to Professor Codevilla’s spot-on observation, “Differences between Bushes, Clintons, and Obamas are of degree, not kind.” His proof is that Republicans in power never roll back the very intrusions of big government just installed by the Democrats. In such a world, questions of what is liberal versus what is conservative are not useful. When I say Volcker’s economic philosophy is conservative I mean cautious, imbued with 50 years of experience with how addicted and reckless men can become in the pursuit of money. While Ronald Reagan was sincere in his belief that deregulation of Wall Street would lead to innovative progress, he also was being influenced by Donald Regan, the former bond hustler. And when Bill Clinton finally did ratify the dismemberment of the Depression-era Glass-Steagall barriers between commercial banks and investment banks, he was being nudged along in his ignorance by such water carriers for the investment house churn-and-burn set as his Treasury Secretaries Robert Rubin and Larry Summers.
Volcker responds to the notion that deregulation automatically leads to innovation and healthy growth with a snort of derision, often saying “the only useful banking innovation was the invention of the ATM.” By long experience Volcker also realizes a coherent set of enforceable rules is the only guarantee that Wall Street — or any marketplace — can freely function.
LIKE MOST OF THE AMERICAN Big Business subset of the Ruling Class, the really big shakers on Wall Street have always wanted the kind of government that can be relied on to bail them out but also to impose some kind of certainty as long as those restraints don’t really chafe. The Dodd-Frank bill raises more questions than it answers about either certainty or restraint, and Volcker’s worries are surely being replayed to Mr. Obama by people to whom he must listen if he is not to suffer Jimmy Carter’s fate.
So Volcker has little to fear by way of reprisal by the White House; indeed in the post-election aftermath his influence and his person may be even more visible than before as Mr. Obama realizes his initial in-house team has not done much to improve his prospects for 2012. The departure of such economic advisers as Summers and Christina Romer offers an opportunity for Mr. Obama to appoint advisers who will pursue more than a sham recovery of rising stock prices and bank profits.
But will the president turn to Volcker on Wall Street reform or anything else? It’s a plausible bet. After all, as Professor Codevilla has pointed out about securing membership in the Ruling Class, “Once an official or professional shows that he shares the manners, the tastes, the interests of the class, gives lip service to its ideals and shibboleths, and is willing to accommodate the interests of its senior members, he can move profitably among our establishment’s parts.” Even in opposition.
By way of disclosure, I have been an admirer of Paul Volcker since I first covered him when he returned from Wall Street to become an undersecretary of the treasury for international monetary affairs and to play a key role in the Nixon administration’s shift away from the collapsed Bretton Woods monetary system. Although Federal Reserve chairmen never give press interviews that can be remotely quoted or alluded to, when Volcker took that job he would allow me — under the strictest constraints — to come to him and ask often fairly stupid questions about finance that baffled me. Those tutorials, laced with his profound knowledge and healthy skepticism, are among my prized memories. I would not be alone in rejoicing if I thought Mr. Obama was finally paying attention to his advice.
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.
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