A Thin “Veneer of Volckerism”

I found myself in an interesting debate this week after reading Noam Scheiber’s Is Obama Really Breaking up the Banks?:

“Many of the press accounts describe how Volcker persuaded members of the Obama economic team to back his approach-most famously during a two-hour Christmas Eve lunch with Treasury Secretary Tim Geithner. There’s an element of truth to this. But when you ask administration officials exactly what they were persuaded of, it’s not that their theory of reform was wrong–that, say, bank size was a major cause of the financial crisis, or that proprietary trading did the banks in. They were mostly persuaded that they could append Volcker’s ideas to their original approach while keeping its essence intact. “Our view is it’s not counterproductive,” says an official.

Ironically, then, the practical upshot of the Volcker rule may be to advance the administration’s original reform agenda.”

Maybe it was wishful thinking on my part, but I hoped that wasn’t the case.

I pinged Scheiber back: “Adjustment at the margins? Have been living in a cave for the past year the “status quo duo” has been in charge? The Summers/Geithner policy has been dominant, and Volcker was banished from the White House grounds. Sorry, this is a FAIL — You are rationalizing a year of bad policy decisions.

To his credit, Scheiber patiently walked me through his thinking: He suggests the people in the White House and Treasury have no intention of making the Volcker plan — or any other structural change — the centerpiece of their regulatory reform effort. Its not that Volcker has triumphed over Geithner and Summers; rather, this is a thin coating of Volckerism stained over their original proposal.

This makes me wonder:  Has Volcker been coopted?

Scheiber argues that Tall Paul is not suddenly at the center of administration conversations over economic policy. Volcker was a periodic visitor to the White House and Treasury before December — but with the exception of the one or two presentations he made about spinning off proprietary trading, he’s still not a regular participant in high-level meetings of the administration’s economic team or the president’s senior aides.

And, he believes Geithner’s safe at least through the midterms; that Obama likes him personally, and thinks he’s gotten a bad rap after pulling the financial system back from the brink. Also, it’s not Obama’s style to give critics someone’s head.

If that is the case, color me hugely disappointed . . .

UPDATE 10:17am:

Noam adds the following:

I did go back and forth with Barry about this, and I think his description of our back-and-forth is generally accurate, but it slightly mischaracterizes my take in spots. My view on this is four-fold:

1) While the administration economic team has embraced Volcker’s proprietary trading idea, they haven’t abandoned their original approach to reg reform, and don’t plan on it.
2) They still don’t think proprietary trading was a major cause of the crisis, and don’t think it’s central to preventing the next one.
3) Having said that, as I write in my piece, they were largely persuaded that the *principle* the idea represents is sound, so it’s worth doing anyway in some form.
4) Volcker has not become a central player in administration internal debates about economic policy, although he is respected by the president, vice president, and many senior officials in the administration.


Is Obama Really Breaking up the Banks?
Noam Scheiber
TNR, January 27, 2010

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