Credit Herald

Paul Volcker didn’t lose confidence when the Obama administration initially cast aside his argument to separate banking from trading in its plan for a new financial-regulatory system.

“I’m sure he’ll recognize the wisdom of my view sooner or later,” Volcker said an interview with Bloomberg Television last April, referring to Lawrence Summers, President Barack Obama’s chief economic adviser.

Volcker was vindicated yesterday when Obama proposed limiting trading activities of financial institutions to prevent another crisis, adopting recommendations of the 82- year-old former Federal Reserve chairman. Obama called it the “Volcker Rule.”

“This represents somewhat of a shift from the positions of those in the administration in favor of deregulation,” said Joseph Stiglitz, a Nobel laureate and frequent critic of the administration. “Volcker has been pushing for this for a year, and it was one of my biggest disappointments that his idea wasn’t picked up by decision-makers until now.”

As recently as last month, Volcker was still telling friends that he couldn’t get the White House to come around to his view, said two people who have discussed the matter with him. Then in late December Obama decided to take his advice, even with continued opposition from some within the administration, the two people said.

The 6-foot, 7-inch Volcker has always been sure of himself because “he’s a man of utter conviction and absolute integrity,” said Gerald Corrigan, a former Fed colleague and longtime friend. Even as he lost some of his sway, Volcker pressed on, imploring members of the Economic Club of New York last week to help overcome “heavy lobbying on the other side.”

Hunger for Reform

“Volcker has prevailed because there’s still hunger for some sort of reform,” said Marina Whitman, a member of the Group of 30 chaired by Volcker, which made the original recommendation in 2008.

Although Volcker was in Obama’s circle of economic advisers early on during the election campaign, he lost much of his influence when the newly elected president chose Summers as the head of his National Economic Council. Summers was Treasury secretary in President Bill Clinton’s administration when the Glass-Steagall Act requiring the separation of consumer banking and institutions involved in capital markets was repealed.

Volcker was asked to head the President’s Economic Recovery Advisory Board, which brought together business executives to come up with solutions to the economic crisis.

Pushing His Ideas

He pushed for his ideas, complaining when the startup of the advisory board was delayed and getting face-to-face meetings with Obama more than a dozen times to make his case in areas ranging from financial regulation to tax reform fast cash now.

A senior administration official briefing reporters yesterday said Volcker had discussions with Obama, Summers and Treasury Secretary Timothy Geithner. While acknowledging Volcker’s key role in the president’s proposal, the official said all the administration officials were in agreement on the plan the president announced yesterday.

Volcker grew up in Teaneck, New Jersey, during the Great Depression and adopted his parents’ frugality. Last spring, when he ran out of handkerchiefs on a trip to Washington, he bought the cheapest brand he could find at Macy’s — at three for $11, his daughter, Janice Volcker Zima, said in a June interview with Bloomberg News.

Inflation Fighter

His six-decade career included a stint at the U.S. Treasury, where in 1973 he witnessed the collapse of the Bretton Woods System that governed financial relations among nations. Yet he’s best known for his fight against inflation. When he was Fed chairman from 1979 to 1987, he forced inflation down to 1 percent from 15 percent by pushing the fed funds rate up to 20 percent.

He also stood up to Wall Street then. During the Latin American debt crisis, the then Fed chairman arm-twisted the largest U.S. banks to restructure their loans.

After leading the Fed, his roles included digging into Swiss bank accounts in the late 1990s to find the money owed to thousands of Holocaust victims. He tried to save Arthur Andersen LLP from collapsing with a restructuring plan in 2002. And he exposed corruption in the United Nations oil-for-food program in 2005.

Criticizing the Administration

In his current role, after the presidential advisory board got on track and he felt he was being heard, Volcker remained out of the limelight for four months.

That changed in September, when he began a series of public appearances where he criticized the administration’s and Congress’s proposed regulatory changes for financial institutions as too soft, labeling them “reform light.”

In his Jan. 14 speech to the Economic Club of New York, Volcker called for those in attendance to help him fight for stronger regulation.

“If you agree, make your voices heard somehow or another,” he told more than 500 people gathered for lunch at the ballroom of the Grand Hyatt Hotel.

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