Volcker Rule Is a Sad End to a Brilliant Career by Charlie Gasparino The Daily Beast
I must agree that Paul Volcker's achievement from 1979 onwards as Fed Chairman until he left the Fed will stand as a beacon which will eclipse anything to do with the watered down Volcker Rule. I happened to be in a central pension fund management position during the period and had a front row seat as it were to what happened. I constructed the pension fund's asset allocation based upon what was happening. You can see some of the bits and pieces of this at http://www.garydchance.com.
I credit Paul Volcker with single handedly saving the western world by adopting at the right time a monetary policy where the money supply increase was set while the price of money was allowed to find its own level. The size of the US in the world made this all important for the western economies. Margaret Thatcher had been elected to power in May 1979 three months before his appointment and pursued the same monetary policy in the UK, but its size in terms of global impact was not as significant as the US. Also, she had enormous ffscal changes to make that are long forgotten now. She saved the UK.
I carefuilly tracked monetary policy through the St Louis Fed's reports commenting on what was happening through that double dip recession and extremely difficult effort to keep the money supply increase from leaking into assets rather than economic activity. It's possible to see what happened through the election of 1980 and its aftermath. Finally, in August 1982 Mexico presented the world with a sovereign debt crisis of some $60 billion that led to the Fed easing money to avoid a disaster, and the recovery was off and running. Paul Volcker was a pragmatist as well as a sound policy manager.
What always over hung his staying on as Fed Chairman was his wife's health. Everyone was afraid he would go because of her. Just after Reagan's inauguration in 1981, I attended a meeting in Washington where Beryl Sprinkle, the Treasury's Undersecretary for Monetary Affairs, spoke about their agreement with what the Fed was doing and how they were going to work in concert. Everyone knew that Paul Volcker was doing exactly right and didn't want to see the newly elected government going in a different direction.
Ronald Reagan had a difficult fiscal policy problem to solve as well just as Margaret Thatcher had, and his administration did an excellent job of getting that right too. The economic success of the following decades resulted from both fiscal and monetary policy of this period which included tax cuts based upon the notion of the Laffer Curve.
I don't know why Paul Volcker eventually left as Fed Chairman, but in the early years with the Reagan administration there was, I believe, rapport, and I always assumed that he left because of his wife's health and because it was time for him to get into the private sector after his long tenure in government which included President of the NY Federal Reserve Bank before becoming Fed Chairman.
In no way can what followed in Wall Street be attributed to him. Wall Street had its propensity already to create products that would sell rather than serve the client's interests. In early 1983 I said in an Institute of Chartered Financial Analysts Seminar speech held in New York and San Francisco:
"It is up to the investment community to lead the owner of funds to rewarding managing techniques -- and eschew trying to devise faulty products designed only to be sold, not managed effectively." I had just made negative statements about these products before this remark. The room was absolutely silent. I was the last speaker before fielding some questions. When the seminar was held next in San Francisco they asked me to be the first speaker on our panel so I would not be the last. They did not like what I said. Look at what has happened.
My whole activity was centred around risk management which is documented in the link provided above. Paul Volcker sought to make his contribution to risk management as well with the Volcker Rule. I also agree that he will not be remembered for what turned out as managing the risk in Wall Street by the Volcker Rule given all that is known about what has happened to that law.
I want to say thank you to Paul Volcker for what he has done for which he gets full credit by making possible what was good in the past three decades. He like everyone else tried to make a contribution at a time when catastrophe was threatening. The next debacle will not come from Wall Street risk or something similar to Toxic Debt there. It will come from Toxic Surveillance for which I've had a front row seat these past ten years as I did some 30 years ago for what was developing in Wall Street. The human failings will be the same, but the playing field will be different. This time it will be the government itself and come from what the Washington Post has called Top Secret America where there is no regulation.
The context for this comment can be found here
