Why Is Paul Volcker Being Ignored?

I remember being greatly heartened before the election when I heard that Paul Volcker would be part of the Obama financial team. I was equally disheartened later to learn that he was given second tier status to the likes of Geithner, Summers, Bernanke and others. Well, I think Paul is a bit tired of the Administration not hearing his voice, so he is letting the public hear it.

If you are unfamiliar with Volcker, he saved this country's collect arse from financial ruin in the 1980s by being willing to tell people where to stick it and being willing to have faith in his policies against the head winds of political pundits looking to do whatever is popular at the moment. He raised interest rates to outrageous levels and controlled runaway inflation. He is now largely being ignored despite his fancy title. And I suspect he does not like it one bit.

You go Paul!!!

Hitting the Nail on the Head!

I have said many times how outraged I am at the money going to the banks that got us into this mess and how fueling more debt is not the best way to end a debt created crisis. This linked piece puts the point much more eloquently than I can. It points out the fatal flaw in the neoclassical economists, you know like Summers, approach to the situation, which unfortunately is the exact approach we have taken. As the link very aptly points out the best way to deal with a debt driven recession is to funnel the money to the debtors so they can pay down their debt and not give it to the lenders so they can create even more debt.

The link points out a speech by Obama wherein he noted that giving the money to banks has a multiplier effect as they lend to others. The problem being it multiplies debt, not equity. We are a nation of debtors that need less credit not more. We need debt reduction, less spending and a renewed sense of fiscal conservatism. We are getting there but no thank to the Administration's approach, which if it worked would only build a new and bigger bubble. This is what keeps me up at nights.

It is About Time!

Congress created a commission to study our current financial crisis. They cleverly call it the Financial Crisis Inquiry Committee. Gee, wish I had thought of that. What strikes me is that we are at least two years into this crisis and the committee is just getting started. Perhaps that is a hint on how this all happened. Hmm?

Disclosures: none.

Comments

[Dave Wrixon:]

Because the truth in rather inconvenient.

Sep 21 07:16 AM

[W.E. Heasley:]

Beyond the great information about the multiplier effect argument, in a recession, loan activity always falls.

It may be that the re-finance activity is the major area of concern. Re-fi likely has little multiplier effect, but many, many, many loans were apparently structured in a way that "re-fi" was a component of the loan. That is to say, the loan was taken/given based on the anticipation of rolling the loan over in the very short run or medium run. The market to roll over loans has mostly disappeared. Its clearly nonexistent for marginal credit.

Those loans that can't be rolled then cause default and eventual foreclosure for consumers and businesses.

Sep 21 09:42 AM

[Graham and ...:]

Paul Volcker laid the foundation for two decades of gain in the 1980s and 1990s.

This, at the cost of two years of heavy pain, from 1979-1981. He's clearly of the (old) "no pain, no gain" school.

As such, he is a "dinosaur," in the Obama Administration.

Sep 21 09:54 AM

[Erick Tippett:]

I have wondered about Mr. Volker and was quite amazed to see
him sit around in the present administration having to wait on
queue to see the president! In my opinion he is the only person
in anyway connected to the present administration who could
possibly offer substantive policy conerning the economy based
upon both his performance in the Carter and Reagan administra-
tions and his background.

My question is why he has waited so long to speak up concerning
economic issues. What does he have to loose? His 'job', his
popularity. I don't think so.

Erick Tippett
Chicago, Illinois

Sep 21 11:51 AM

[Tony Petroski:]

Why did Volcker (and for that matter, Buffett) allow himself to be trotted out as an "advisor" by Obama, providing Obama cover against the charge that he was a radical leftist? One more day in the sunshine?

Sep 21 03:26 PM

[Tony Daltorio:]

Volcker is being ignored because he wants to curb the powers of the Banksters on Wall Street. Their acolytes in Washington will not permit that to happen.

Sep 21 03:34 PM

[flow5:]

Volcker is the worst FED Chairman ever. Worse than even Greenspan. The moron targeted non-borrowed reserves when 10% of all reserves were borrowed. He didn't abandon interest rate targets but just widened the band. At the onset of the DIDMCA he ratcheted up the growth rate of total reserves at a 14% annual rate (from its implementation until the end of the year). All of that is very stupid

Sep 21 03:43 PM

[Socialism c...:]

Tell me why a Fed chairman should be able to influence interest rates on the upside? Why at all? It runs both ways, people. Let the markets decide what rates are -- KILL THE FED!!

Sep 21 05:06 PM

[CES:]

People who had money back in Volcker's day loved the high, 15 or 18%-I forget which, interest rate on savings and they thought he was fine. He put untold number of businesses out of business, the unemployment rate skyrocketed and it was a hard time. He broke inflation and nearly broke the economy doing so.

Sep 21 08:24 PM

[Old Trader:]

Tony,

Obviously, I'm just guessing, since I have neither gentleman on my speed dial, but regardless of what one may think about Obama's positions, it can't be denied that he's smart, articulate, and charismatic.

Who wouldn't be flattered to be asked to provide input on weighty economic matters by a sitting PotUS? Of course, there's a BIG difference between "consulting" with somebody, and actually FOLLOWING the advice...imho, the two elderly gents were snookered.


On Sep 21 03:26 PM Tony Petroski wrote:

> Why did Volcker (and for that matter, Buffett) allow himself to be
> trotted out as an "advisor" by Obama, providing Obama cover against
> the charge that he was a radical leftist? One more day in the sunshine?

Sep 21 08:39 PM

[Craig Brown:]

No pain no gain. We need to take our pain today and get it over with. I am not saying all at once as that would be way too much, but we need to over the next 5 years or so take down some soured banks, allow (encourage) consumers and commercial entities to reduce debt and hope to get on with it on a much lower but economically sustainable level. I say endure the pain now.


On Sep 21 08:24 PM CES wrote:

> People who had money back in Volcker's day loved the high, 15 or
> 18%-I forget which, interest rate on savings and they thought he
> was fine. He put untold number of businesses out of business, the
> unemployment rate skyrocketed and it was a hard time. He broke inflation
> and nearly broke the economy doing so.

Sep 21 10:10 PM

[ebworthen:]

They should not have bailed out the banks period.

Bailing them out was a clear signal to the opportunists that the game was still on.

Now they are securituzing life insurance and other policies, as well as bad credit card debt (commercial real estate anyone?).

I'd bet that Volker is telling them the FED should raise rates to stop the nonsense but that would rain on the "buy a house you can't afford today" plan being pushed via Fannie/Freddie, tax credit, and FHA.

The powers that be (and it isn't "We the People") have a complicit or owned media (GE) that will not allow any rain on the parade.

The current "recovery" is a confidence game, one where losses were privatized, the savings and retirement of millions of hard working citizens cashed out, and the losses socialized to the same citizens and those yet to earn a dime.

If they are willing to do all that, I see it hard for a traditionalist or other moral and ethical person to stand in their way. The ends justify the means. Whether it is Volker or Greenspan or Buffet, they will nod and smile but not be listening to them; their purpose is to serve as signposts of security for those who still believe in the system.

Greenspan said that he was "shocked" by the excesses and the over-leveraging and outright lack of ethics at high levels of Wall Street, and I believe him. Low interest rates themselves don't cause collapses, unless you have lenders willing to push them on people who shouldn't take out the loan, borrowers willing to enter into something they can't afford, and investment and insurance companies willing to leverage up the bad debt at 30 to 1.

Our problem is a lack of individual and institutional ethics and morality, not one of capitalism or policy or regulation.

Sep 21 11:07 PM

[Michael Clark:]

Perfect answer. The truth doesn't fit in with the strategy of denial.

Volker saved the country from inflation in the early 80's. No one in the current administration apparently understands that we need salvation from inflation today also -- inflation of the bubble economy since 1983.


On Sep 21 07:16 AM Dave Wrixon wrote:

> Because the truth is rather inconvenient.

Sep 22 04:51 AM