We're in Trouble When the Radical Is Paul Volcker
Co-Founder and Co-Editor of The American Prospect
Posted: March 7, 2010 10:30 PM
You couldn't blame Paul Volcker for feeling ill-used. He was one of the first of the financial Brahmins to endorse Barack Obama, back when Hillary Clinton was a sure thing for the nomination. Volcker was an earlier adviser to Obama than Larry Summers, Tim Geithner, Bob Rubin, or the rest of the Wall Street gang. Then, after Obama became the Democratic nominee, Volcker was trotted out as a senior advisor and his prestigious name was dropped for a top administration post.
But then the dust settled, Volcker was given a largely ceremonial position as head of an advisory committee that didn't even meet until May, and his advice was largely ignored. Volcker's wise counsel was for much tougher regulation, including the restoration of the Glass-Steagall wall between commercial banking and more speculative activities such as securities underwriting and proprietary trading -- a wall whose dismantling in 1999 laid the groundwork for many of the abuses that led to the great financial collapse.
This counsel ran counter to the views of Larry Summers and Tim Geithner. Only when Obama found himself in political trouble in December and January, as a president who seemed hopelessly in bed with Wall Street, did the administration turn to Volcker.
Volcker is no radical. He is the former Fed chairman who raised short term interest rates to 21.5 percent as a cold-bath cure for inflation. He has a tightwad's view of monetary policy, even in a severe recession. But he has been around long enough to know that Wall Street speculators are capable of terrible mischief when regulations are dismantled. When the most radical person on the scene is Paul Volcker, it tells you just how politics have moved to the right. more