The Global Economy in Turbulent Times

CHAPTER 80 Whatever Volcker Wants, Volcker Gets?¹

I first met Paul Volcker, 82, in the summer of 1986. He was then chairman, US Federal Reserve System (Fed). I was a rookie Fellow of the Eisenhower Exchange Program, the chairman of which was President Gerald Ford. Volcker was well known to me as the towering central banker (at 6 feet 7 inches, I’m not sure if he is the tallest economist around; late Harvard Professor Ken Galbraith was about there). He was better known as the daring but brutal inflation fighter of the late 1970s and early 1980s, at great cost in lost output and jobs. He was kind to me when I visited him in his office; he even gave me lunch. He was impressive and friendly and had time for a visitor (and fellow Harvard alumnus) who was completely at awe with what he does. We spent four hours together. We have since been in contact, off and on.

The Volcker Rule

Volcker is now back at center stage, after retiring from the Fed for some 20 years (me, for 16 years as I write). This time, introduced as the “tall guy behind me,” President Barack Obama proposed a “simple and commonsense reform, which we are calling the ‘Volcker Rule.’” Essentially, the new bank reforms would ban proprietary trading and prevent banks from “owning, investing in and sponsoring” hedge funds or private equity ventures. The proposals are intended to curb the size and spread of the biggest US banks. Volcker had pushed hard for such a version of the separation between commercial and investment ...