At least for the day, the most powerful man in the U.S. financial industry and for equities markets is 82 years old, a man who ended his leadership of the Federal Reserve more than 20 years ago.
But Paul Volcker is back. Big time. Reportedly on the margins of the Obama administration even in his current role as an adviser, “the tall guy behind me,” in the words today of President Barack Obama, is back on stage figuratively and literally.
As the president announced two major initiatives that would radically change the world of America’s big banks, he was flanked by the Treasury Secretary, Tim Geithner, and economic adviser Larry Summers. He had with him two key Congressional leaders, Rep. Barney Frank, D-Mass., and Sen. Christopher Dodd, D- Conn. Importantly, he had Volcker and he had another regulatory veteran who’s been a straight shooter unbound by ideological restraints or misplaced party fealty. That’s William Donaldson, former head of the Securities and Exchange Commission.
Obama thanked both Volcker and Donaldson for their counsel, which, given the nature of the Obama proposals, was “old school” in more senses than simply a reference to the vast combined experience of both men.
Agree with it or not, the “Volcker Rule,” enunciated by the president earlier today that would keep a bank from having anything to do with investment vehicles such as hedge or private equity funds, certainly signals Volcker’s return.
It is a fascinating resurrection. Volcker himself hasn’t changed his thinking. In fact, the consistency, strength and clarity of his convictions is what sets Volcker apart from so many other financial leaders inside or outside government. He tells it like he sees it and always has.
Just last month Volcker was pushing the essence of what’s now the “Volcker Rule” to a group of European bankers gathered at a Wall Street Journal conference in Horsham, England. I wrote then that he sounded like a disappointed and tough school master as he dismissed the bankers’ ideas for regulatory reform as “inadequate.”
What has changed is the environment. The heavy, popular furor as big bank profits and big bonuses are rolled out likely played a role in the new Obama plan. That plan includes flat-out limits on bank size and restrictions on industry consolidation.
The election of a Republican as U.S. senator in Massachusetts, marking a power shift in the Senate, might also have influenced Volcker’s rise and today’s program. Maybe the populist move is an attempt to get back on the favorable side of American voters.
Obama seemed a man trying to pick a fight with the banking industry. He used the word “obscene” again to talk about bonuses. He referred to a “binge of irresponsibility” by bankers that helped bring us last year to the edge of a second Great Depression. He scored bank industry lobbyists.
If enacted by Congress, these two points really do change the banking industry. Government involvement is significant. Bank freedom is clipped. Participants in the stock market know it and they don’t like it. The Dow Jones Industrial Average is down more than 200 points.