Why the Obama White House Cannot Reform Wall Street

“The guy’s a giant, he’s a genius, he is a great human being.Whenever he has advice, the administration is very interested.”

-Austan D. Goolsbee, counselor to President Obama


Let us stop to ask ourselves a simple question: Can the Obama White House reform Wall Street ?

Its hard to see how when key presidential advisers are Wall Street creatures. When the post-mortem gets written on the current administration, it likely will reflect the President taking advice from the wrong advisers: Timothy Geithner and Lawrence Summers.

Who should he be listening to?

There are lots of other people whose advice the President should consider, but I am thinking about one in particular.

Who is he? Well, I’ll describe him:

• Chairman, president’s Economic Recovery Advisory Board
• Co-Campaigner with Mr. Obama
• Trusted adviser, widely perceived as standing apart from Wall Street, and critical of its ways
• Fed Chair, 1979 to 1987

I am obviously referring to Paul Volcker:

“Mr. Volcker’s proposal would roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities.

The Obama team, in contrast, would let the giants survive, but would regulate them extensively, so they could not get themselves and the nation into trouble again. While the administration’s proposal languishes, giants like Goldman Sachs have re-engaged in old trading practices, once again earning big profits and planning big bonuses.

Mr. Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street’s wild ways.

“The banks are there to serve the public,” Mr. Volcker said, “and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties” and ultimately fails.

The only viable solution, in the Volcker view, is to break up the giants. JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. Goldman Sachs could no longer be a bank holding company. It’s a tall order, and to achieve it Congress would have to enact a modern-day version of the 1933 Glass-Steagall Act, which mandated separation.”

The sooner team O starts listening to Tall Paul, the better off they — and the country — will be . . .


Volcker Has Obama’s Ear, but Not on Banks
NYT October 20, 2009

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