WASHINGTON – The crackdown on US banks announced by President Barack Obama marks a comeback for Paul Volcker, the economic adviser whose ideas forged the battle plan.
Though Volcker a few weeks ago murmured that his opinions were only "one voice," Obama put him front and center for praise as he announced the plan Thursday, flanked by the former central bank chief.
"I'm proposing a simple and common sense reform, which we're calling the 'Volcker Rule' -- after this tall guy behind me," the president said.
The "Volcker Rule" limits the size and scope of financial institutions and prohibits banks that engage in commercial activities, such as holding customer savings and deposits, from proprietary trading -- making investments on their own behalf.
The 82-year-old former Federal Reserve chairman (1979-1987) supported Obama during his Democratic bid for the presidency and subsequently was tapped to head the President's Economic Recovery Advisory Board, an independent, nonpartisan body created to tackle the worst recession in decades.
But Volcker, who tamed soaring inflation in the 1980s, had pleaded in vain for months for government action to stop commercial banks from engaging in so-called "prop trading."
In an interview published Friday on a Wall Street Journal blog, Volcker said he was not surprised by the president's choice.
"We've discussed this proposal for a year," Volcker said, adding that he always believed that Obama was "sympathetic" to his point of view, the online article said.
"He could have fooled us," the report said.
In October, The New York Times dedicated a lengthy article to his failure to capture Obama's ear, which inclined toward the White House's official teams of advisers and particularly listened to his top economic adviser, Larry Summers.
Along with then-Treasury secretary Robert Rubin, whose deputy he was in 1995-1999 before succeeding him, Summers is one of the architects of financial deregulation under former Democratic president Bill Clinton.
That deregulation was capped in 1999 with the congressional repeal of a Depression-era law to accommodate banking giant Citigroup, born of the merger of the bank Citicorp and insurance titan Travelers in the prior year.
Rubin, who advised Obama during his White House campaign, for many years had been a Travelers special advisor and board member.
The 1933 Glass-Steagall Act prohibited commercial banks from underwriting corporate securities, or acting as brokerages.
Volcker is seeking a new version of the law but, until just recently, he had seemed to be a voice in the desert facing countervailing winds from Summers, his former protege, Treasury Secretary Timothy Geithner, and other Obama economic counselors.
The New York Times article highlighted that Volcker's "disagreement with the Obama people on whether to restore some version of Glass-Steagall appears to have contributed to published reports that his influence in the administration is fading and that he is rarely if ever in the small Washington office assigned to him."
As recently as a few weeks ago, Volcker said in a BusinessWeek interview: "The president has heard my arguments a number of times" but he added: "I am one voice in the conversation, and there are others."
Ultimately, he told the magazine, "He's the president. He decides."
Obama finally listened.
Some observers, like economist Peter Morici, a University of Maryland professor, said that Obama's change of heart appeared to occur amid falling public approval ratings as Americans grow more critical about his handling of economic policy.
© AFP 2013