Tags: obama | volcker

Report: Obama Ignoring Paul Volcker

By Julie Crawshaw   |   Thursday, 22 Oct 2009 11:18 AM

President Obama appears to be ignoring the counsel of Paul Volcker, the economist and former Federal Reserve chairman the president himself appointed to head his Economic Recovery and Advisory Board.

Volcker served under President Reagan and is widely credited for staving off the disastrous bout of inflation after the Carter years by raising interest rates rapidly.

Volcker wants the White House to break up banking giants like JP Morgan Chase and Goldman Sachs.

By separating investment banking from commercial banking, Volcker contends, regulators can stop banks from owning and trading risky securities.

“The banks are there to serve the public, and that is what they should concentrate on,” Volcker told The New York Times.

“People say I’m old-fashioned and banks can no longer be separated from non-bank activity. That argument brought us to where we are today.”

However, the Obama administration, which includes several officials with exceptionally strong ties to Wall Street, wants to keep the big banks intact and regulate them.

Volcker, a Democrat, was an early Obama supporter who stood by the White House during the financial crisis. He believes regulation will not work.

“These other activities create conflicts of interest,” he says.

“They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties and ultimately fails.”

Government regulators should reinstate the Glass-Steagall Act of 1933 that established the Federal Deposit Insurance Corporation and separated commercial banks from investment banks, says political journalist Stephen Fleischman.

“Like church and state, commercial and investment banks don’t go together unless you want a gambling casino,” Fleischman writes in Counter Punch.

“Glass-Steagall staunched the bleeding and was pivotal in saving the financial system after the Great Depression.”

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