Thursday, January 6, 2011

Paul Volcker Gives Up, Resigning as Obama Advisor

I originally had high hopes when the news broke that Paul Volcker would work as an advisor for the Obama administration.  This was a no nonsense, tell it like it is guy who actually has the 'people's' interest in mind.  But hope goes to Washington D.C. only to die.  The man was marginalized dramatically by Larry Summers, and any impact he had on financial "regulation" was effectively loop holed to death by the banking lobbyists.  [Jun 26, 2009: Bloomberg - Paul Volcker Marginalized; Major Push Back on Curbing Excess. Our Life of Financial Oligarchy Does not Change] [Feb 23, 2010: Watered Down Volcker Rules, to be Watered Down Even Further] [Feb 2, 2010: Senator Shelby - We Don't Need no Stinkin' Volcker Rules]  I give him credit for hanging in there for 2 years - I would have thrown my hands up in disgust by day 2.

Lobbyist dollars by top 10 banks 1st half 2010 (representing perhaps 300K Americans): $16.3M
Lobbyist dollar by consumer protection groups (representing 300M+ Americans): $0.8M


Charlie Gasparino, formerly of CNBC, wrote a nice summary of the situation in The Daily Beast: Volcker Rule is a Sad End to a Brilliant Career.

He's one of the greatest economists of our time and tamed inflation as Fed chief, but when Paul Volcker resigns as Obama's adviser, he'll be forever tied to a watered-down financial reform that won't prevent another collapse.

One of the saddest things about Paul Volcker’s probable resignation as one of President Obama’s top economic advisers is how he will be remembered. He won’t just be the Fed chairman who decades earlier performed a national service by defeating the economic evil known as inflation, but the bureaucrat who helped craft a convoluted financial “reform” law that has done little in the way of reforming activities that caused the 2008 financial collapse.

Volcker spent much of his first year in the administration with very little influence on economic policy. The White House and its economic brain trust of Treasury Secretary Tim Geithner, chief economist Larry Summers, and senior adviser Valerie Jarrett were still cozying up to bankers and campaign contributors like JPMorgan Chase’s Jamie Dimon and Goldman Sachs’ Lloyd Blankfein. They didn’t want to hear advice from the crazy old man who showed up occasionally at economic policy meetings and groused about putting an end to Wall Street risk-taking once and for all.

Volcker didn’t seem to care. He spent long hours devising his plan to take Wall Street out of the risk-taking business, meeting occasionally with bankers he knew and trusted from his days as Fed chairman and later as a chief economist for an independent investment firm. These people said he spent most of his time listening to how Wall Street changed over the past three decades leading to the financial collapse, how it became less of a business that was paid to give advice and more of a gambling den that rolled the dice with shareholders' money with little accountability from regulators.

Volcker, of course, had never really liked the big banks. He once quipped that the greatest innovation coming from the men of high finance was the ATM. He didn’t like the banks when he was Fed chairman, certainly not when he was out of government (just check some of his speeches), and certainly not now. And because of that, the bankers’ friends in high places, namely Geithner and Summers and ultimately the president himself, marginalized Volcker’s plan to make Wall Street a safer place.

[Apr 9, 2008: Paul Volcker Speaks]
[Mar 6, 2009: Where is Paul Volcker?]
 [Oct 15, 2009: All of Tim Geithner's (Wall Street) Men]  
[Jun 18, 2010: Gamling With Other People's Money]
[Sep 10, 2009: Goldman Sachs CEO - "Ok I Admit It, Some of our Financial Innovations are Socially Useless"]

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