Friday, March 6, 2009

New York Post: Where is Paul Volcker

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For those not in the know - Paul Volcker was the Fed head before Alan Greenspan. He dosed out some very serious medicine to the country rather than what we've done the better part of 25 years since (kick the can policies). So the pain was sharp, abrupt, not fun - but he killed inflation (along with other macro economic reasons) and set the stage for a period of growth and rebirth. Since then we've abandoned his policies and every time a recession threatens we flood the world with cheap dollars. That works a few times, until it doesn't. Now you see the "it doesn't" part.

I had high hopes since Volcker was somewhat part of the economic team in the Obama administration but in my readings it appears Larry Summers is freezing out Volcker. Summers is infamous for an ego that makes Donald Trump's look small. Geithner? He walks on water ... well at least until he speaks. CNBC's Charlie Gasparino has this piece in the New York Post. Keep in mind as you read this Gasparino is "right of center" and we can say its some part 'reporting' and some part 'opinion' - where the two cross; I'll leave up to the reader.
  • ON Wall Street, they're call ing the Obama economic team "the gang that couldn't shoot straight," after Jimmy Breslin's novel about a bunch of moronic mobsters. If you really want to understand why the markets have been tanking, why the smart money is sitting in cash and gold - well, just study the policy, or lack of it, that these guys have come up with to address economic ills not seen since the Great Depression.
  • The sad thing is, the "gang" took office with high hopes on Wall Street. Treasury Secretary Tim Geithner, the former New York Fed chief, was supposed to have the experience needed to handle the banking crisis. Larry Summers, the head of the president's National Economic Council, was part of the brains behind the Clinton-era recovery.
  • And Paul Volcker, chairman of Obama's Economic Recovery Advisory Board, helped save the free world back in the late 1970s and early '80s as chairman of the Federal Reserve when he squeezed inflation out of the economy and (along with President Ronald Reagan) helped return us to prosperity.
  • Wall Street loved this team. That's why the market rallied around the time Obama took office, even as he was promising tax hikes for "the wealthy." But what looks good on paper doesn't always translate into success .
  • The disappointment on Geithner starts with the fact that, since taking the job at Treasury, he's failed to articulate a way to bail out the imploding banking system - even though knowledge of the banking system's ills was supposed to be his strong suit. Worse, the word is that Geithner is still having trouble putting together a senior staff so he can come up with a bailout plan.
  • Thanks to all the class warfare produced by his boss, I'm told, Geithner can't find qualified people from Wall Street (the folks who know markets better than anyone else) to help solve the crisis. Instead, one saddened Obama supporter from Wall Street told me, "He's looking at a combination of bureaucrats and academics for these jobs."
  • Larry Summers? Everyone knows he's smart, but the word from Wall Streeters who are trying to pass him ideas for solving the banking crisis is that his ego's as large as his intellect. That is, they're finding him impossible to deal with.
  • Perhaps the biggest disappointment is Volcker, a true American hero who as Fed chairman tamed the stagflation of the '70s - but seems to be muzzled at a time when the country needs him most. Volcker, possibly the world's most experienced economist, is being treated like the crazy aunt in the attic. He's around, wandering the halls - but no one in the administration seems to care what he thinks.
  • He's said almost nothing publicly about how to solve the current economic crisis. Worse, people with knowledge of the Obama economic team say Volcker's been blunted behind the scenes - caught in the dysfunction between Geithner and Summers.
  • Here's how one top Wall Street exec, who has tried passing along ideas to the Obama team, put it: "Geithner thinks he's in charge, but he has no staff to get anything done. Summers sits there and likes to remind everyone he's in charge - and Volcker, probably the only adult in the room, has his nose out of joint because no one is listening to him." (wonderful - welcome to the brain trust that is saving your world)
  • It all has Wall Street's collective head spinning - and Obama's most ardent financial-industry fans deserting him. During the campaign, Obama won over the street even as he was bashing the financiers who'd plunged the country into crisis through their bad bets on risky bonds. Sources tell me Jamie Dimon of JP Morgan, Lloyd Blankfein of Goldman Sachs, John Mack of Morgan Stanley and Dick Fuld of Lehman Bros. (when there was a Lehman Bros.) all became supporters, as did Larry Fink, the head of money-management powerhouse BlackRock, and senior executives at Merrill Lynch (though then-CEO John Thain supported John McCain).
  • I've been doing some unofficial polling of these same people in the last couple of weeks, and the sentiment has shifted dramatically.

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