It can't be easy being Paul Volcker. One of the great economists of the modern era, Volcker is best known as the Fed chairman who slayed slagflation in the late 1970s and early 1980s. He was hired by President Obama to provide economic advice and some adult supervision in an administration that featured as other advisers people like the Marxist-sympathizing Van Jones.
But then, when he offered his ideas about regulating the banking industry in a post-bailout era, Volcker was routinely ignored, that is until the president, witnessing the horror (for him and his followers at least) of the election of Scott Brown, a Republican, to fill the Senate seat once held by the late Teddy Kennedy, and the vanishing act of his far left agenda, including socialized medicine.
And just like that, presto, the grumpy old man who refused to lower interest rates 30 years ago -- acts that Obama would presumably oppose given his support for the reappointment of the current, easy-money loving Fed chairman Ben Bernanke -- Volcker is back in vogue. Last week, he was seen alongside the president (with Treasury Secretary Tim Geithner standing warily in the background) as Obama unveiled the broad outlines of a financial plan Volcker has been advocating for months now; something that if Obama lives up to his words would make it difficult if not impossible for government-protected banks to mix their risk taking activities like trading esoteric bonds if they want to be protected by taxpayers as Too Big To Fail.
On the surface, it would seem like a victory for Volcker and a commonsense move by the White House. After being shunned for months, his ideas like calling for the separation of commercial banking (which includes government protected deposits) and risk-taking investment banking activities denigrated by Geithner and Larry Summers, Obama's economic advisers and Wall Street mouthpieces, Volcker had won the day. He finally convinced the president of the mountain of evidence that one of the leading contributing factors to the 2008 financial crisis was the a federal law passed in 1999 that allowed risk taking to be combined with commercial banking activities.
But Obama's last minute conversion to Volckerism is, I suspect, less about commonsense and more about politics. As unemployment remains high and Wall Street is now handing out billions in bonuses just a year after being bailed out, the president can call investment banks "fat cats" all he wants. Obama's policies of the past year: Promised taxes on small businesses to pay for his expansionist government, and protecting banks have led to a dual economy. Unemployment in the construction industry is at around 20% because businesses are hording cash to pay for higher taxes when the financial types who caused the 2008 meltdown and the current Great Recession feast.
And now the president is paying the price.
Volcker, at 82, may feel as though this is his last act in a long and storied career to do something great, but for my money, there is something unctuous about the great Paul Volcker being used by the president as a political prop. This is, of course, the man who refused to bend to political pressure in the early 1980s, when the Federal Reserve, under his rule, jacked up interest rates to nose bleed levels in an effort to squeeze out inflation but squeezing the economy. His rationale was simple: The short term pain was worth the long term gain of lower inflation, which usually benefits lower income people the most by making goods and services they need more affordable. He was right, and for that, we're all thankful.
But this is a crusade where Volcker isn't leading the charge. The final proposal (which could come in days, along with I am told further limits on how much "leverage" or borrowing banks may engage in to trade, and new capital requirements) will be hammered out by Obama's political team, not Volcker. That's probably one reason my sources on Capital Hill tell me there's still a dearth of information on the final product.
In other words, they've been given no guidance as to how these "reforms" will actually work. "We've been directed to a website with a press release covering the president's announcement last week," said one Republican staffer.
For that reason, look for a watered down proposal that does little to address the notion that banks shouldn't be able to take risk on the backs of taxpayers. Already, senior officials at Goldman and JP Morgan are telling analysts and investors that the rules will be easily evaded. They're designed, the Goldman folks assure anyone who asks, to prevent so-called proprietary trading, where Goldman itself comes up with an idea of how to gamble with its own capital, but not trading that begins when a customer makes and order and then the trader follows through with his own bet.
For the life of me, I can't figure out the difference between the two since the firms in both instances are risking their own capital, but Wall Street is making a case that the difference is huge and the firms are flooding Washington as I write this column to influence the legislation.
How much of this jockeying for control of the final product Volcker will stand before just calling it quits, is, of course, a matter of debate. For the past year or so, I've been reporting that Volcker has been ignored by Obama, shunned as the crazy old man with the wild-ass idea of reimposing something like the Depression-era law known as Glass-Steagall, which formally separated commercial banking from risk-taking investment banking ideas.
Ironically, he received a better reception from some of his contacts on Wall Street for this plan, who gave him their ideas on how best to make such a separation of risk taking and commercial work given the realities of the modern financial industry. Goldman Sachs, of course, isn't a commercial bank like Citigroup. It doesn't have branch offices, and it doesn't hold checking accounts, and yet under the president's approach to regulation, the firm is protected like Citigroup as too systemically important to fail even as it trades just about every esoteric bond in creation.
Through it all, Volcker accepted all the snubs, that is, until last week when the president woke up and realized he was right, and there was Volcker standing next to the president getting his due, until, that is, he gets snubbed again.
Time to see if his call to stop putting politics ahead of public policy at the GOP dinner is in itself just another political skit.
It's going to take a million person march on DC and Wall Street to put the fear of pitchforks in these insular stuffed shirts.
Otherwise... we may see more issues to resolve...
1. A housing market that is not worth any more then the real income of middle America. So mortgages need to be written down or modified, and the public needs to quit being sold the lie of real-estate a economic engine and used as a { mini wall st.]
2. Our Health care should not be for profit. Our countries health and prosperity is tied to it, so the more you dont fix it, the worse it will get. putting financial pressure on the country..
3. Jobs, if we don.t get them back from China and the middle East, we cant grow as a country.
4. We have the know how, why cant it be implemented? BIG OIL...WAll ST. Unions. if they cant figure out a way of getting a slice of the pie, nobody is getting it.
Yeah, Volcker was brought on board to provide balance to all the MARXISTS in the Obama cabinet!!! Too funny. Obama is a corporatist and he's surrounded by corporatists. THAT'S who Volcker might provide some balance to.
We now have the exact opposite problem --- historically very, very low interest rates coupled with a massive recession, and no "normal" to revert to. Please tell me how Volcker's experience at repairing an entirely different kind of economic problem --- at great cost to the middle class --- will help us resolve this one?
If the author thinks Obama far left, he should expect to have seen in Obama's first year:
-Nationalized the banks (Should really be called "bankruptcy", because that's what it is)
- Health care reform with a single-payer, or, at a minimum, a public option
- A strong infrastructure program for jobs (we got a weak one, with a bunch of pork)
- Bush and Cheney on trial for violating the constitution on eavesdropping and torture, etc
- Gay marriage
- to name a few
To mention infrastructure, history shows that WWII truly ended the Great Depression. WWII was the largest infrastructure and public works program known up to that time. (Although Reagan's later military buildup was also a pretty big government stimulus program - it is conveniently never labelled as so by "conservatives"). WWII ran up a huge debt, compared to GDP, which was quickly paid down. All these things refute the deficit-hawks scare tactics, but don't often get mentioned.
Interesting Fact: Volcker and Reagan actually raised taxes, and grew government. Clinton reduced gov't employment and Greenspan increased the monetary supply, but conservatives don't want to admit it just as much Progressives won't admit regulation scares banks.
Clinton, on the other hand, created way more jobs, and left us a balanced budget.
Volcker did indeed save the dollar. After Nixon closed the Gold window in 1973, Volcker was the only thing that kept the dollar from going up in smoke. Post-1973, no one knew if a de-linked dollar would survive. Inflation was raging, with no sign of stopping. Volcker did what was necessary. (Carter appointed Volcker) Reagan benefitted from Volcker saving the dollar, which eventually brought in huge investment money, due to increased confidence, higher rates, and strong dollar. Everyone gave (and still gives) credit to trickle-down Reaganomics for the ensuing recovery, but it was really the investment money, combined with pent-up demand for that investment, which caused that recovery.
Here is a totally refutable statement: "Unemployment in construction is at 20% because businesses are hoarding cash to pay for taxes". This is ridiculous. The reason Businesses are not building real estate, is because there is a huge glut, end of story.
As further refutation of the supply-side tone of the article, the '90's Clinton boom (with massive job and wage growth) occurred along with Clinton's tax raises for the rich, which is conveniently forgotten by supply-siders.
And claiming that Obama has a far left agenda is like claiming that Bush is a Marx*st. Oh, wait, Bush was a Marx*st: he socialized the losses of Wall Street billionaires and left tax payers holding the bag. Since Obama is eagerly continuing this policy, I suppose you could define him as "far left" in that respect.
Obama should have repudiated Bush's policies and let the entire incompetent, greedy Wall Street establishment that is sucking the rest of us dry burn down to the ground. But I guess that was too much to hope for from the likes of a financial right winger elitist like Obama.
And my understanding is that this policy also dovetailed neatly with Reagan's plans for getting Globalism started in earnest. Those high rates spurred American companies to begin relocating their manufacturing off shore where labor was indeed cheaper. The prices Volcker saw as the benefit of his tight policy came at the cost of an exodus of industry that continues to this day.
Whether this was a part of the Reagan revolution or just a very destructive by product of the interest rates themselves, we are left with the destruction of the middle class as the most obvious victim.
Maybe we should start a T-Shirt Party. Membership open to everyone who lost their shirt in the free-trade, capitalist-thug market.
Our uniform would be t-shirts that say, "Wall Street: Been There, Done That, Had My T-Shirt Stolen Off My Back.”
Other big bailouts also occurred in that era when go-go bank earnings were vastly increased by self dealing and by reducing safety margins, including taking on risky loans and speculating in the securities markets. When First Pennsylvania Bank required bailout in 1980, Fed Chair Volcker said he planned to continue funding indefinitely until we…work out a merger or a bailout… [Irvine H. Sprague, “Bailout: An Insider’s Account of Bank Failures and Rescues” 1986]
The New York Times, on the appointment of Volcker as Carter’s chairman of the Federal Reserve Board, wrote on July 26, 1979, that Volcker learned “the business” from Robert Roosa, a partner in Brown Brothers Harriman, and that Volcker had been part of the Roosa Brain Trust at the Federal Reserve Bank of New York, and, later, at the treasury in the Kennedy administration. “David Rockefeller, the chairman of Chase (now JPMorgan Chase), and Mr. Roosa were strong influences in the Carter decision to name Mr. Volcker for the Reserve Board chairmanship.” Robert Roosa was Carter’s secretary of the Treasury. He also was a trustee of the Rockefeller Foundation and a director of Texaco and American Express companies.