Paul Volcker: The Voice in the Wilderness

Let me preface this piece by saying (a) it's long but hopefully educational and (b) I am not picking political sides; both major parties are complete poison to the US and really not very different at all once you strip them down to the base. With that....

Some say we romanticize Paul Volcker - the last Federal Reserve Chief who apparently has an idea that money does not grow on trees - and he is not "all that". I don't know - everything I've seen from him the past year, and much of my reading of him in the past comes from a place of common sense, yet in a very capitalistic sense. He cannot be accused of being "one of those Europeans!" (codeword for socialist), yet believes in a firm regulatory stance that is based on common sense. Back in April 2008 in [Apr 9, 2008: Paul Volcker Speaks]

In a speech on Tuesday, Paul A. Volcker, the imposing former Fed chief who felled the runaway inflation of the 1980s, chided the current chairman, Ben S. Bernanke, for toeing “the very edge” of the bank’s legal authority in orchestrating last month’s bailout of the beleaguered investment bank Bear Stearns.

“Out of perceived necessity, sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank,” Mr. Volcker told members of the Economic Club of New York.

His remarks came on the same day that Alan Greenspan, Mr. Bernanke’s immediate predecessor as chairman, deflected criticism of his tenure in an interview with The Wall Street Journal, dismissing as “unfair” claims that his policies stoked an untenable housing bubble.

That was ironic timing indeed! Volcker continued

Indeed, Mr. Volcker also implicitly questioned Mr. Greenspan’s cheerleading of the “bright new financial system,” that “for all its talented participants, for all its rich rewards, has failed the test of the marketplaceMr. Volcker also argued Tuesday that the Fed's strenuous efforts on behalf of the housing market risked looking "biased to favor particular institutions or politically sensitive constituencies," in this case the housing industry.

But the Fed has a particular duty to defend the integrity of the "fiat currency" in its charge. And exchanging dollars for "mortgage-backed securities of questionable pedigree" both raises the specter of moral hazard and potentially undermines the world's faith in the integrity of the Fed's balance sheet.

Straight talk. Something I admire... keep in mind all that was said after Bear Stearns but before all the rest of the interventions and government/Fed handouts. I really had high hopes when Volcker was included in Obama's team. Unfortunately we quickly discovered Volcker is more like the 25th man on a baseball team. Eye candy really.

We quickly found out Summers was freezing out Volcker - heck Volcker was already lost at sea by March!

Summers isn’t regularly inviting Volcker to White House meetings and hasn’t shown interest in collaborating on policy or sharing potential solutions to the economic crisis, they said.

We weren't the only ones to notice [Mar 6, 2009: Where is Paul Volcker?] By April we found out Volcker had not even met once with Obama in the past month [Apr 11, 2009: Paul Volcker Assumes Smaller than Expected Role with Obama]

********************************

The real powerhouse in this administration is Larry Summers. After his stint in the Clinton White House, off he went to Harvard where "foot in mouth" disease caused an early exit, and then off to hedge fund DE Shaw [Apr 9, 2009: Larry Summers - No Conflict of Interest; He Pinkie Swears] to learn how the markets really work from the computerized, dark pool side of things. It's almost like working at Goldman Sachs but without the very obvious connection.

Oh, did I mention that for a Democrat he once sounded "GOPish!" when it came to regulation - in fact he was one of the primary cheerleaders for the deregulation of the financial industry in the 90s, including the (now obvious in retrospect) disaster that was the harpooning of the Glass Steagall Act (which at its heart was a bill that separated plain vanilla commercial banking from "innovative" investment banking).

Along with Robert Rubin, our Secretary Treasury in the mid 90s (where from? 26 years at Goldman Sachs). Rubin of course went on to preside at the Board of Citigroup (C) - collecting in excess of $100M. Whatever happened to Citi?

Point is folks - this is all connected, and the same bad actors are here. Like roaches they never really can be eradicated - its now embedded in the system; the financial oligarch system. Do you know who opposed any repeal of any part of Glass Steagall? Paul Volcker. Want to know who along with Rubin & Summers was for the harpooning of this "slowing down our financial innovation" law? Alan Greenspan. Rubin was so anxious to help out his friends back in investment banking he was pushing for the repeal not 2 months into his term as Secretary of Treasury.

• (Feb 1995) The Clinton Administration plans to call this week for legislation that would allow commercial banks, securities firms and insurance companies to merge, forming giant financial services companies that would offer everything from checking accounts to mutual funds and life insurance, Federal officials say.
• In a speech prepared for delivery in New York on Monday and in Congressional testimony scheduled for Wednesday, Treasury Secretary Robert E. Rubin will urge Congress to repeal the Depression-era Glass-Steagall Act, the officials said. For more than 60 years, the law has forced financial concerns to choose between owning commercial banks or owning securities companies like brokerage firms and investment banks, but not both.
• Mr. Rubin also plans to call for broad changes in the Bank Holding Company Act of 1956, which has effectively barred most financial concerns from owning both commercial banks and insurance companies, said the Federal officials, who spoke on condition of anonymity. Mr. Rubin's speech will represent the first time that the Administration has taken a position on eliminating the legal and regulatory barriers among financial industries.

This initial push in the mid 90s failed, but Citigroup (C) was allowed to merge with Travelers (TRV)[insurance] in 1998. How was that possible? Oh, they got a waiver - heck its against the rules, but we're good - go ahead and merge. The waiver was for 2 years, and they were supposed to expunge part of their business. Instead? Citigroup alone spent $100M in lobbying in 1 year (1998) to get the most important portions of Glass Steagel REALLY repealed. (if you fail at first, lobby lobby again!) Forget that divestiture stuff!!

And so it was in 1999 when Phil Gramm, Rubin, Summers, Greenspan, Goldman Sachs, Citigroup and the financial oligarch cabal got their victory. Setting us up for the biggest financial disaster in America within a decade. If you want the dirty details the "repeal" bill passed in the House May 6, 1999. In the Senate July 1, 1999. Robert Rubin's work was done. He resigned. July 2, 1999. (1 day after the Senate passed the bill) He went off to work for Citigroup, collecting well over $100M in compensation in the coming decade. Yes the same Robert Rubin lauded as one of our best Secretary Treasuries and a great steward for Citigroup. He's got Goldman blood in him! Must be brilliant!

And you know who was the named the next US Treasury Secretary:Larry Summers.

******************

So yes, I'm going to be a fanboy to Volcker, the one prominent guy who vocally was against this repeal (which can be counted as one of the few root causes of our disaster today) along with espousing straight talk and common sense in many other spots. The problem is, like many things now, it doesn't matter. Political and financial power dominates and what is right is tossed on the backburner. You can believe everything above and since is all "happenstance" or "blind chance" and some firms win and some win, "randomly" - but really, if you do - I have some bridges in Florida up for sale.

Let me give credit to a handful of Senators who voted against this repeal as well: Byron Dorgan, Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Russ Feingold and Richard Bryan. A fascinating short interview with Senator Dorgan a decade later for "calling it" back in the late 90s - almost exactly.

Popout

Meanwhile, back to Larry. He is a brilliant mind from all accounts - but very ambitious. He wants the ultimate job - the one I've called the 2nd most powerful in the world after US President. The one with almost no oversight and the power to create money from thin air - Federal Reserve Chief. Only one problem - that job is occupied. But lo and behold, you can almost hear Larry smacking his hands together in glee as Mr. Bernanke roasts on an open fire.

Comments

[wg:]

Trust me. When you hear somebody start out by saying stuff like "both major parties are poison to the U.S." and there is really no major difference between them, etc. etc....

That somebody voted for Obama. Just so you'll know where he's coming from.

Jun 29 09:34 AM

[karu46:]

Very good post.
Hope pres Obama gets to read this.

Jun 29 09:34 AM

[ATLBob:]

On Jun 29 07:41 AM Alan Young wrote:

> Mark, you've got to stop with the "money doesn't grow on trees" line.
> We all know that money grows in Fed computers, which require much
> less input (land, water, energy) than trees.
>
> Aside from that, thanks for another powerful piece of history.

Yes: the money does 'grow' from the Fed and is not harvested from trees: however, one can safely say that this particular crop of money has been highly fertilized by the legislative and executive branches.

Nice article, by the way.

Jun 29 09:48 AM

[simplesimon:]

T.Mark is developing quite a following, and for good reason. Knows history, and speaks plainly..with more than a little whimsey to keep a faint smile twinkling in our minds...meaning fun, and certainly enlightening at the same time.
Lots of us recall Paul Volcker...many of us were lithe and eager youths then...but a little alarmed at his, Volcker's, setting in place a staggering prime interest rate. It was the bullet that shot Pres. Carter in the foot. We also recall what seemed an endless round of hostile takeovers and greenmail mergers following Carter's demise and the 'deregulating GOP's' rise to stardom... the term "hostile" not nearly the melifluous sound of "mergers and acquisitions".
The picture is becoming more clear. Write on, Trader....
( hmm...sounds almost like (shudder ) "Right On"!

Jun 29 09:50 AM

[swaps:]

As devil's advocate in the Volcker canonization process for sainthood, I recall two anecdotes.
Recent holocaust center visitor von Brunn was apparently set off years ago when he attended a national real estate broker convention in Washington DC At the brokers meet it was Volcker who callously told the crowd that they would hate him because tomorrow he was going to bankrupt them.
What kind of enlightened 21st century nation gives a privat bank the power to periodically bankrupt businesses and people through artificial manipulations?
Secondly when George Green was being unsuccessfully recruited to be Jimmy Carter's finance chairman for the 1976 campaign, Green said he was a Republican. Volcker, at the meeting with Ted Kennedy and the Canadian prime minister, told Green his party affiliation was irrelevant because "we control both political parties."
We can see the mess that a one-party banking industry governance has created.

Jun 29 11:08 AM

[conceptwizard:]

The minute that Larry Summers controlled Obama's ear was the turning point for the demise of America. There will be more FED control and power to the financials.
Summers, Greenspan and Clinton are responsible for the repeal of Glass-Steagall and the policy changes in 1999. That brought us where we are today. The lessons were not learned and Summers is copulating more of the same.
The "Volker" voice in the woods is the voice of reason.
The banks have paid more fees to Larry Summers to rally their teams than you can imagine, right up to the time he took the frontline, he is bought and paid for and will not forsake his loyalities in their time of need.

Jun 29 12:16 PM

[Carlos Lam:]

Mark, before you propose Paul Volcker for canonization, let me point out the elephant in the room: he's not publicly chastising Pres. Obama for all the printing, borrowing, and spending that's going on in Washington right now. He's not appearing on shows to note how unsustainable new programs are when added to the existing and new debt and unfunded SS/Medicare obligations. To be blunt, Paul Volcker is a coward. It seems he prefers the warm glow that the media gives him because of his connection to the President than the specter of telling America the truth about reckless borrowing and spending.

To be fair, perhaps Paul Volcker is biding his time and using private, low-key channels to explain to Pres. Obama just how wrong-headed current fiscal and monetary policy are. If that was the case, however, I doubt that Larry Summers would've frozen him out of meetings as has been widely reported.

I too expect to see Larry Summers nominated for Fed Chairman when Mr. Bernanke's term ends in 2010. While I'm no Summers fan, it will be very difficult to top Mr. Bernanke's "facilities" and "quantitative easing" acts. Simply put, at this point I can't fathom how monetary policy can get much worse, but maybe I'll be surprised on that point as well.

Jun 29 12:37 PM

[WS1835:]

Until, of course, the current administration.......


On Jun 29 08:03 AM Consumer Banker wrote:

> Robert Rubin wow and he ended up at Citi and Citi is a shell of its
> former self hmmmmmmmmmmm go figure. The Clinton administration has
> single handedly been the most destructive administration in this
> country's history.

Jun 29 12:52 PM

[Whippet:]

I give Leisure Suit Larry credit for one noble act- booby-trapping the Harvard Endowment. He had that baby wrapped up in derivatives after he bailed like a suicide bomber in C4. It couldn't be disarmed before the building came down around it...

Jun 29 01:30 PM

[mikesa69:]

No, I won't trust you. I did not vote for the usurper, yet I also share the viewpoint that both major parties are poison. You're conclusion from Mark's statement is erroneous and illogical.

Disclosure: I voted for Ron Paul


On Jun 29 09:34 AM wg wrote:

> Trust me. When you hear somebody start out by saying stuff like "both
> major parties are poison to the U.S." and there is really no major
> difference between them, etc. etc....
>
> That somebody voted for Obama. Just so you'll know where he's coming
> from.

Jun 29 02:49 PM

[AdamSmith37:]

This article is brilliant, astute, brave and courageous! Maybe the more things change, the more they do stay the same -- A bright mind once observed: "History teaches us that man learns nothing from history". Hate to lend credence to conspiracy theorists, but each and every major economic debacle such as the recent "intentionally calculated/created" bubble derailments are meant to focus the masses of "sheeple" in the wrong direction, just as other bright minds such as Thomas Jefferson and Andrew Jackson had previously forecast. These trying times are merely the inherent characteristics of immensely perpetuated fiat currencies which have now been foisted onto the world-wide theater. Conspiracy theorists would reckon that "hidden agenda" powers behind such perpetration know full well the significance and the end results, and that is ultimately their stated and/or implied "long term" goals. Jefferson contended that not one in ten thousand will be able to figure this situation out until it is too late to reverse, correct, or rectify -- unfortunately that time is now at hand. If Jefferson was the original conspiracy theorist, then he might surmise that the next major project will likely be to establish a one-world electronic fiat currency thus allowing for simultaneous world-wide devaluation, monetary and sheeple control, personal numbered identification, elimination of nearly all individual freedoms and free enterprise, and rationing of practically everything. Apparently China is now proposing the creation of such a super-currency to the IMF in order to replace the US dollar as the reserve currency and maybe protect their investments here by fixing the value of such -- they might be likened to an agitated pawn in this and not the cause but the effect, of prior unscrupulous "aggressive paper peddling" which has exposed our nation to such vulnerabilities through both democrat and republican political administrations. The stage is being set for a gathering "universal perfect storm" to occur within perhaps the next five years, not completely unlike that which generated the 30's style Great Depression -- view that experience along with such events as the Weimar Republic and other economic crashes, as small test-pilot operations, the details of which now allow for the fine-tuning of global efforts. Technological solutions abound that could solve the vast majority of today's problems here and abroad, but only if people/sheeple can exert a unified approach to achieve such. It is an uphill battle against the formidable "power and greed" Machiavellian "divide and conquer" super-power elitists who already envision global mass-media and monetary control of virtually all "big brother" aspects of human-kind. Their only shortfalls might include the inability to effectively control loose cannons such as North Korea (China's favorite son??) and Iran (Al Qaida's favorite son??), the weather, attacks from outer space such as asteroids or solar flares, natural disasters, etc. Nevertheless, the comprehensive machinations are strategically being formulated and except for the dissenting few, our supposed leadership, regardless of political affiliations have collectively resorted to achieving positions of the "dumb and dumber" with regards to understanding and implementation of constitutional mandates or opening any inroads to attempt meaningful solutions. In short, the entire system is basically corrupted and badly in need of a major, miraculous Act of God. In 1776, this kind of idiocy precipitated the American Revolution, but today such an effort would be suicidal and nearly impossible because the enemy and their auspiciously devious activities are vast and largely faceless except in the effects and results of the incomprehensible gradual deterioration of our few remaining remnants of freedom and liberty, which have heretofore been relentlessly bought and preserved through years and years of American bloodshed. Assimilate now the vanity of ten lines from Shakespeare's Macbeth beginning with "Tomorrow and Tomorrow and Tomorrow" and ending with "Tis a tale told by an idiot, full of sound and fury, signifying nothing" ....... or everything???

Jun 29 03:10 PM

[White Shield:]

Great article "TM" - and very brave of you to put this down on record. And btw...just in "Madoff Gets 150 Years!"

Know what the equals? About "Three years per billion of stolen money."

The challenge now, will be to get these "GS" phukks, masquerading as "civil servants" (past AND present - RUBIN, PAULSON! THIS MEANS YOU TOO) into a courtroom, tried, convicted and sentenced.

How many life sentences is one hundred trillion dollars? Like the perverbial licking of the tootsie pop - we'll never know.

Anyway, "TraderMark" your inspiring me to begin writing. How 'bout this for a psuedo-name: "PHUKK - The Other Guy"?

Jun 29 04:19 PM

[joebhed:]

I can't criticize Volcker for acknowledging out loud that "we" own both parties. Whether he said it or not.

The most honest statement that I ever heard him make, among many, was back in January when, in modest support of the Obamadollar Stimulii proposal, he clarified what no other politician or economist has dared to say, before or since.
"The problem" said Volcker, "is that we do not have the money to make the debt-service payments on the debts that are out there".

It was an admission that the nature of the so-called credit crisis was in fact that the debt-money system of fractional-reserve banking was insolvent. (ALL we create is debts.)

To me, Volcker's problem is exactly the same as every dickhead mentioned in this article, and on SA generally.
They went to different schools with the same curriculum.
How can any of them have any idea for solving the problem caused by the debt-money system being insolvent?
THAT was clearly not in the curriculum.
"How Debt Money Goes Broke".
www.financialsense.com...

While reading that, keep in mind Paulson dragging the heads of the largest bankcorps into the anteroom, threatening their existence if they did not accept the excess reserves he was shoving down their throats.
For good reason, by the way.

Jun 29 06:25 PM

[Long Silver...:]

Mr. Volcker should resign from the non-position he holds in the Administration (probably intended only to control him) and take a candid, hard leadership stance against the excesses of both political parties... time is running out. Speak up Mr. Volcker!!!

Jun 29 09:22 PM

[realold:]

You are absolutely right, sort of. A conservative would never say that stuff. A liberal would.


On Jun 29 09:34 AM wg wrote:

> Trust me. When you hear somebody start out by saying stuff like "both
> major parties are poison to the U.S." and there is really no major
> difference between them, etc. etc....
>
> That somebody voted for Obama. Just so you'll know where he's coming
> from.

Jun 29 11:18 PM

[umuculus:]

CONCERNING NATIONAL DEBT

Long ago during the Sixties,I posed a Question to an older Worker
during a Lunch Break: "I'm really worried about our National Debt",
I said," It's heading into Trillions of Dollars!"

"Umuculus", he said, "IT DOESN"T MAKE A DIT OF BIFFERENCE
how much we owe the World, even if our Debt was Quadrillions of
Dollars or Godzillions of Dollars; as long as the rest of the World
continues to maintain Faith in the American Greenback.
But someday nations will start to Question us. Then all Hell will
break loose! I hope I'm GONE BY THEN."

Jun 30 01:35 AM

[Wisdom vs. ...:]

Volcker is one of the few trustworthy people in Washington; common sense is not rewarded, because you cannot use it to dazzle the sheeple.

Dazzling the sheeple: there would have been a real estate/ consumer spending bubble, and mortgage sellers would have hedged themselves against economic change, regardless of Glass-Steagall, because of the CRA quotas. So, you are arguing about the effect, not the cause.

Jun 30 10:44 AM

[wongcy:]

First, facts show that both political parties caused the crisis. I am a foreigner who does not have love for either party, so I am more neutral than those who think it matters to pin the blame on a particular party. Second, for argument's sake, if Volcker did not raise interest rate so high in his days, then perhaps foreign central banks would have lost faith in the dollars earlier, and would not have helped US accumulate so much debt. The US would have grown slower, would experience interest rate of around 4 to 10%, life would have been less colorful and exciting, and the current crisis would not have happened. Which would the US voters have chosen if they knew?

Jul 01 01:10 AM

[diogeron:]

How could any educated person vote for a candidate who has a medical degree but refuses to accept evolution? www.youtube.com/result...

It would be like voting for a person who insisted that the earth is the center of the universe.


On Jun 29 02:49 PM mikesa69 wrote:

> No, I won't trust you. I did not vote for the usurper, yet I also
> share the viewpoint that both major parties are poison. You're conclusion
> from Mark's statement is erroneous and illogical.
>
> Disclosure: I voted for Ron Paul

Jul 02 08:48 AM

[Carlos Lam:]

On Jul 02 08:48 AM diogeron wrote:

> How could any educated person vote for a candidate who has a medical
> degree but refuses to accept evolution? www.youtube.com/result...;search_query=ron+paul...

Dr. Ron Paul accepts MICROevolution (i.e. natural selection) but not necessarily MACROevolution. This is a sensible position inasmuch as microevolution can be observed, whereas macroevolution cannot. Simply put, an adherent of macroevolution is placing faith in the existence of common descent between man and other animals; there is no way of duplicating the macroevolution "experiment" just as there is no way of duplicating the global warming...er...climate change theory.

Jul 03 04:53 PM