{"id":3584,"date":"2009-10-21T08:00:21","date_gmt":"2009-10-21T12:00:21","guid":{"rendered":"http:\/\/1boringoldman.com\/?p=3584"},"modified":"2009-10-21T10:13:07","modified_gmt":"2009-10-21T14:13:07","slug":"obama-is-wrong-volcker-is-right","status":"publish","type":"post","link":"https:\/\/1boringoldman.com\/index.php\/2009\/10\/21\/obama-is-wrong-volcker-is-right\/","title":{"rendered":"

Obama is wrong. Volcker is right…<\/h1>"},"content":{"rendered":"
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Volcker’s Voice Fails to Sell a Bank Strategy<\/a>
New York Times<\/strong>
By LOUIS UCHITELLE
October 20, 2009<\/div>\n

Listen to a top economist in the Obama administration describe Paul A. Volcker, the former Federal Reserve chairman who endorsed Mr. Obama early in his election campaign and who stood by his side during the financial crisis. “The guy’s a giant, he’s a genius, he is a great human being,” said Austan D. Goolsbee, counselor to Mr. Obama since their Chicago days. “Whenever he has advice, the administration is very interested.” Well, not lately. The aging Mr. Volcker has some advice, deeply felt. He has been offering it in speeches and Congressional testimony, and repeating it to those around the president, most of them young enough to be his children. <\/p>\n

He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations. “I am not pounding the desk all the time, but I am making my point,” Mr. Volcker said in one of his infrequent on-the-record interviews. “I have talked to some senators who asked me to talk to them, and if people want to talk to me, I talk to them. But I am not going around knocking on doors.”<\/p>\n

Still, he does head the president’s Economic Recovery Advisory Board, which makes him the administration’s most prominent outside economic adviser. As Fed chairman from 1979 to 1987, he helped the country weather more than one crisis. And in the campaign last year, he appeared occasionally with Mr. Obama, including a town hall meeting in Florida last fall. His towering presence [he is 6-foot-8] offered reassurance that the candidate’s economic policies, in the midst of a crisis, were trustworthy. <\/p>\n

More subtly, Mr. Obama has in Mr. Volcker an adviser perceived as standing apart from Wall Street, and critical of its ways, some administration officials say, while Timothy F. Geithner, the Treasury secretary, and Lawrence H. Summers, chief of the National Economic Council, are seen, rightly or wrongly, as more sympathetic to the concerns of investment bankers. For all these reasons, Mr. Volcker’s approach to financial regulation cannot be just brushed off — and Mr. Goolsbee, speaking for the administration, is careful not to do so. “We have discussed these issues with Paul Volcker extensively,” he said. Mr. Volcker’s proposal would roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities… <\/p>\n

The Obama team, in contrast, would let the giants survive, but would regulate them extensively, so they could not get themselves and the nation into trouble again. While the administration’s proposal languishes, giants like Goldman Sachs have re-engaged in old trading practices, once again earning big profits and planning big bonuses. Mr. Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street’s wild ways…<\/div>\n<\/blockquote>\n
Background<\/u><\/strong>: from<\/em> the Depression IV<\/strong><\/a>:<\/div>\n
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Over the period between the Crash and the 1932 election, there had been recurrent runs on various Banks around the country, and a number of Banks had gone under. In the "lame duck" period between F.D.R.’s election and his inauguration, there was a big run on the Bank in Detroit in anticipation of his inauguration. Bank Runs were the target of his famous inaugural quote, "We have nothing to fear but fear itself.<\/strong><\/font>" On the day after his Inauguration, he declared a Bank Holiday, shutting down the runs on Banks in their tracks and putting some teeth into his inspiring words.<\/div>\n

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Banking Regulations<\/strong><\/font><\/u>: Within three months, Congress passed the Glass-Stegall Act<\/strong><\/a> [which became known as The Banking Act of 1933<\/strong>]. This reform legislation had two parts:<\/div>\n