Bloomberg has a welcome, long profile of Paul Volcker, the legendary former Fed chairman who’s been shouldered to the background as an Obama adviser by Larry Summers, who got F’s on his elementary school report cards in “plays well with others.”
Reporter Yalman Onaran has a perfect lede here illustrating how much of an outsider this “insider” is in the Obama White House:
Obama sat at the head of the table, administration insiders arrayed along one side to his right. To his left, facing a French marble fireplace, were some of his harshest critics: Nobel laureates Joseph Stiglitz and Paul Krugman, Harvard University professor Kenneth Rogoff and former Federal Reserve Vice Chairman Alan Blinder.
One chair on the insiders’ side was empty, according to attendees. It was reserved for Paul Volcker, the 81-year-old former chairman of the Fed, who was an adviser to Obama during the campaign and now heads the President’s Economic Recovery Advisory Board, or PERAB. He was stuck at the White House gate, trying to convince guards that he was expected for dinner. His plane from New York had been delayed by a storm, and his security clearance to enter the building that day had expired.
That may have been an accident, but it was emblematic of the machinations to push the old man—who of course, is the administration member most willing to be tough on Wall Street—out of the way:
After the inauguration and Geithner’s confirmation, Volcker was elbowed aside, White House insiders say. His economic recovery board took weeks to get off the ground — a delay people close to Volcker say he blames on Summers. And Volcker’s access to the president was limited.
Happily, Bloomberg reports that things have begun to turn around for Volcker in the past couple of months, as Obama has met with him a dozen times and his advisory board has finally gotten off the ground. But I wonder if Bloomberg is too sanguine about his renewed influence—this certainly is what the administration’s spinners would like you to believe:
Volcker’s influence can be seen in the proposals for regulatory change offered by Obama on June 17. While there’s no mention of separating banking and proprietary risk taking, the administration is proposing to set higher capital requirements for trading positions and equity investments. Volcker also pushed for better coordination among banking regulators, an idea that was adopted in the Obama blueprint.
If Obama’s easy-on-Wall Street plan reflects Volcker’s influence, I’d have hated to see it when he was still on the outs and it was wholly written by those “captured” inside the financial-industry’s bubble like Geithner and Summers.
But Bloomberg is good to qualify the Volcker-back-in-the-fold line with evidence that he’s not exactly getting his way, including on common sense issues like putting derivatives on exchanges and preventing banks from getting Too Big to Fail:
The reform proposals presented by the Obama administration, crafted largely by Summers and Geithner, fall short of what Volcker wants. The derivatives regulation calls for a central clearinghouse to handle trades rather than an exchange, which would provide more information to investors.
Geithner, 47, and Summers, 54, have also put forward a mechanism for dismantling large banks that fail. It doesn’t include rules for preventing them from getting too big, as Volcker urged.
And this is just a perfect quote (emphasis mine):
“While Summers and Geithner worry about not antagonizing the banks, Volcker is the only one who can say loudly what needs to be done,” says Timur Gok, who teaches finance at Northern Illinois University in DeKalb, Illinois. “The Summers-Geithner stamp is clear in this framework because it’s not very radical. We’ll see whether Volcker’s views are heeded more in Congress.”
Bloomberg goes into some history to give readers context for Volcker’s stances:
Volcker, who grew up in Teaneck, New Jersey, during the Great Depression, has never shied away from confronting powerful interests.
As Fed chairman during the Latin American debt crisis in the 1980s, he arm-twisted the largest U.S. banks to restructure their loans, says Gerald Corrigan, head of the New York Fed at the time. Volcker brought the chief executives of the 25 largest banks to the Fed and told them nobody could leave until an agreement on the debt issues was reached, Corrigan says.
When Continental Illinois National Bank & Trust Co. failed in 1984, Volcker forced other banks to contribute $500 million to the government’s emergency package to backstop the deposits…
And Bloomberg personalizes him here. What might be useless color in another profile, is eye-opening when talking about Volcker, who’s austerity measures broke the back of inflation in the early 1980’s when many thought it was impossible and more fought him tooth and nail.
When he was Fed chairman in the 1980s, Volcker lived in a one-bedroom apartment in Washington, shunned chauffeured limousines and bought his suits at Goodwill stores. He did his laundry at his daughter’s house in the suburbs and returned to New York on weekends to be with his wife, Barbara, who suffered from diabetes and rheumatoid arthritis.
Even now, his tastes are modest. When he ran out of handkerchiefs on a trip to Washington this spring, his daughter, Janice Volcker Zima, says she took him to Macy’s, where he bought the cheapest brand he could find — at three for $11.
I’ve been predisposed to like Volcker from what I’ve read of him over the years and especially over the last couple of years. This profile makes me like him even more. See for example this quote:
Volcker has long been suspicious of financial products that most people can’t understand. One of his four grandchildren, Colin Zima, heard about it a lot when he studied financial engineering.
“He would constantly joke about me studying to be a crook,” says Zima, 25, who worked at UBS for a year before taking a job in 2007 as a statistician at Google Inc. in San Francisco.
Would that this guy were leading the charge in the administration. Terrific reporting by Bloomberg and it’s well-edited by the news service’s usual standards for long-form stuff.
Well done.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.