Wall Street WARZONE

Volcker’s “Secret Plan,” Selling Glass-Steagall … to Europe? But Is the New “Volcker Rule” For Real or Just a Token?

by Paul B Farrell, JD, PhD
| | 2/25/2010

“Keep your friends close, and your enemies closer.” That thought crossed my mind while reading about the bizarre dance between Obama and Paul Volcker before the President announced the “Volcker Rule.” The 82-year-old former Fed Chairman just keeps fighting for what’s right, no matter the odds. PBS host Charlie Rose captured it all in Volcker’s Manhattan apartment while interviewing the head of Obama’s Economic Advisory Board for BusinessWeek. Rose says rumors are flying that Volcker’s been “muffled by the Administration—especially when it comes to his views on bank regulation,” namely the Glass-Steagall act and “separating commercial and investment banking.” Wall Street hates the idea, forcing Obama to sideline Volcker. But he’s still on the payroll. Just a “friend” from the ol’ “team of rivals?” Or do they have a secret game plan for re-enacting Glass-Steagall?

The big guy was touring Europe chastizing bankers and politicians: “This is no time for a return to business as usual.” Maybe Wall Street’s back to its ol’ tricks. But the “invisible hand” of foreign governments may eventually work, putting pressure on Wall Street and Obama. Here are some of the comments that pushed Volcker off the starting lineup, before the token “Volcker Rule:”

At one point, Wall Street had almost 40% of all the profits in the country. And, you know, its contribution to the welfare of the country does not approach 40%. Something’s out of line here. [Wall Street] collapsed on us. … it’s had a breakdown at great risk to the economy. It became dysfunctional, and it is still largely dependent upon government assistance … if they fail, let ‘em fail.

The core of the system remains commercial banking. If that breaks down then you have an enormous crisis. And commercial banks have expanded into areas I don’t think are so central. I would cut back their so-called capital market activities—hedge funds, equity funds, commodities trading, trading in derivatives. … I don’t want [them] doing a lot of speculative trading …

The American political process is about as broken as the financial system. … People have lost confidence in government, they’ve lost trust in government, and it shows. This isn’t a question just of this Administration. It’s been kind of a steady, downhill path. … it’s not that easy to change.

But it is easy to see why Volcker’s been sidelined: Wall Street loves their free-market casino, hates Volcker’s plan, no wonder Wall Street lobbying bucks are now shifting to the GOP. So for now, politics, greed and derivatives trading are winning. But against all odds, Volcker keeps fighting for what he knows is right for America. Secret plan? Yes, 82-year-old giant plans to stick around long enough to clean up when Wall Street melts down a third time this century. When we finally see the wisdom of Glass-Steagall. (For more, see: “Volcker Fails to Sell a Bank Strategy,” NYTimes; “Volcker: Think More Boldly,” WStJ; and “Regulators Resist Volcker Wandering Warning of Too-Big-To-Fail,” Bloomberg.)

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