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Photo Illustration The person who really turned around the economy wasnâ??t Ben Bernanke. Charlie Gasparino on the man who really deserved the honor.
As Time magazine anoints Federal Reserve Chairman Ben Bernanke as its â??Person of the Year,â? I am reminded of the contributions of another economist, Paul Volcker.
Bernanke, for my money, doesnâ??t hold a candle to the grumpy old man. Volcker, the former Fed chairman and current economic adviser to President Obama, defeated inflation, while Bernanke, by keeping interest rates at near zero, may be setting the stage for its return. More than that, Bernanke watched silently as Wall Street risk-taking grew to immense proportions, first as a Fed governor and then as its chairman, appointed to that position by President George W. Bush to succeed another enabler of Wall Street risk, former Fed Chairman Alan Greenspan.
Volcker worried that by mixing traders with commercial bankers, unfettered risk would infect savings and checking accounts. And he was right, as weâ??re all painfully aware.
Volcker met recently with an old source of mine, a former banker at Goldman Sachs. The meeting, I am told, focused on Volckerâ??s belief that last yearâ??s financial meltdown can be traced back to a decision back in 1999, to allow banks that hold customer deposits to merge with investment banks that take risk on their trading desks
It was, of course, Volcker who helped save the nation from the hyperinflation of the 1970s and early 1980s, when he was Fed chairman, withstanding political pressure to keep pumping free money into the system, because he knew thereâ??s no such thing as free money. Volckerâ??s legendary styleâ??analytical brilliance combined with his gruff demeanor, as he smoked one of his cheap cigars when questioned about his policies during congressional hearingsâ??made him a legend.
More than that, without Paul Volcker there would be no economic recovery that began under President Reagan and continued, save for a few bumps in the road, until relatively recently. For that, he is a national hero. But you wouldnâ??t know it by the way heâ??s now treated inside the Obama White House. Volcker, according to the former investment banker, all but conceded he has no stroke inside the White House, particularly for his current pet project: bringing back the law known as Glass-Steagall, which made it illegal to create firms that mixed risk-taking with plain-vanilla commercial-banking activities, like holding checking and savings accounts and making small business loans.
Glass-Steagall would have prevented the creation of Citigroup, which cost taxpayers billions of dollars in bailout money. Allowing nearly $1 trillion in deposits to be flushed down the drain because of the bankâ??s excessive risk-taking on its bond desk would have been unthinkable. It also would have prevented the massive bailout that followed Bank of Americaâ??s ill-fated purchase of money-losing Merrill Lynch last year.
â??Volcker is very passionate about bringing back Glass-Steagall,â? this banker told me, â??but no one on the inside is listening.â?
Obama, of course, inherited an economic mess of immense proportions, but in many ways heâ??s taken a bad hand and made it even worse, promising to raise taxes when the economy remains soft and wasting time and energy on a health-care debate as unemployment hovers at 10 percent, thus ignoring the simple reality that when people are working, they generally get health-care coverage.
Add one more economic miscue to Obamaâ??s list: marginalizing Volcker, one of the nationâ??s great economic minds, who joined the administration to provide guidance to an economically unsophisticated president, only to find himself ignored, particularly as a debate rages about how to prevent the financial catastrophe that occurred last year from ever happening again.
View as Single Page 12 Back to Top December 16, 2009 | 8:20pm Facebook | Twitter | Digg | | Emails | print Time Person Of The Year, Paul Volcker, Ben Bernanke, Business, Obama Adviser, Glass Steagall, Bob Rubin, Sandy Weill, Jpmorgan Chase, Bank Of America, Alan Greenspan, George W Bush, Time Magazine, Federal Reserve, Ronald Reagan, Barack Obama, Jamie Dimon, Merrill Lynch (â??) Show Replies Collapse Replies Sort Up Sort Down sort by date: attilathehunny
ok, finally someone with some sense of reality. Glass-Steagall was started after the crash of '29 to prevent all these risks. So interesting that T.Geithner was a protege of Robert Rubin, who was one of the most instrumental figures of dismantling this act under Clinton. But we can just blame Bush because that is so much easier than knowing the facts.
I see I'm not the only one who believes the facts your comment represents are the reality of the situation. Volcker deserves more credit than he is getting and may I also say that I wish that he had been given more of the reigns.
But you can thank Rahm Emanuel for the White House's ignoring of Volcker. Poetic justice would be dumping Rahm and Timmy and putting Volcker in Treasury.
Apologies for not truly reading the entire article. I echoed some of the points Gasparino made and sorry for the repeats. However, this is a discussion that has been ongoing among myself, my investment banker husband and many of our friends of all political persuasions. Suffice it to say, there is plenty of blame to go around. But, Paul Volcker has tenacity and the history to prove what an amazing man he has been. No one has proven more worthy of the position he held then how he helped this nation after Jimmy Carter. May we please have his wisdom to help us recover from Obama.
Carter hired him, give credit where it's due
Hate to agree with you, Charlie, but I do this time. The biggest problem at the White house is Summers. He's turning this administration into a bad imitation of Louis XVI's court at Versailles just before the French revolution.
Except of course that this administration is trying to spread the wealth among the peasants instead of letting them starve. Oh and the United States isn't a monarchy with absolute power vested in the King. Oh and the fact that if this were anything like pre-revolution France, Obama would shoot every single Republican member of congress, instead of trying to appease them and work with them. But other than the fact that Obama's administration is nothing like pre-revolutionary France, I am sure you are right... about ... something, maybe.
Time ragmag is deep in the WH pocket. Picking Bernake is just a left-handed slap on the back for Obama and Co.
Bernanke is just an "errand boy" for The Bilderberg Group, do you really think he makes these decisions...? The same goes for Geithner...! Obama should never have tuned Volcker out...!
Should have been " Team Of The Year " . . . Wall Street & Washington. The Two Institutions who no longer seem to think of The United States Of America as a Country . . . but merely a Marketplace, where Citizenship no longer means anything . . . but we are thought of as merely CONSUMERS. Is there ANY ???? Patriotism on Wall Street or Washington ? If NOT . . . WE ARE FINISHED AS A COUNTRY.
Yes, Obama looks pretty bad to me right now, but imagine the mess we'd be in with McCain/Palin. Obama was called pragmatic a year ago and in reality he's a politician. At least he's got brains, unlike most Republicans.
brains.... yep worked for carter, mondale, dukakis, gore, kerry. what a bunch of douches. i will take common sense.
Try mastering the Queen's English first.
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Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.
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Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.
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Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.
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