HERO CULTUS: PAUL VOLCKER OF BANKING AND FINANCE

 Like many giants, Paul Volcker (U.S. 1927-2019) changed the landscape in his wake. He reshaped the financial sector of the United States. In 1979, as the Chair of the Federal Reserve (Note 1), Volcker initiated the “Volcker Shock,” thereby taming rampant inflation. His actions instituted forty years of low inflation in America.

 

Later at 82 years old, Volcker was asked by President Barack Obama to resolve the collapse of U.S. banking. This had resulted in the 2008 Financial Collapse, which paralyzed the economy. Volcker established the Volcker Rule, which was enacted in 2015, to govern investment banking.

 

A very tall man (6 feet 7 inches), Volcker said that as a teenager, he was “big, tall, and gangly.” He was so tall that the U.S. Army rejected him when he was drafted in 1945. A quiet man, he preferred to listen since everyone usually just stared at him. Throughout his life, Volcker was known as “Tall Paul” or “The Tall Man.” Walking down the street, he stood head and shoulders above everyone else. Since he was always noticed, Volcker decided to live life on his own terms. Therefore, he stood tall, smoked cheap cigars, and scrunched up his socks. Coming to terms with his size freed Volcker from conforming to the expectations of others. He would forge his own path doing what he thought was right and good.

 

Many people admired Volcker for his independence. Ben Bernake, Chair of the Federal Reserve (2006- 2014), said of him, “Volcker came to represent independence. He personified the idea of doing something politically unpopular but economically necessary.” Alan Blinder, Former Vice-Chair of the Federal Reserve (1994-96), said “I would describe him as having the integrity and will of 10 men.”

 

While Undersecretary of the Treasury, Volcker had advised President Richard Nixon to go off the Gold Standard. During the 1970s, the Bretton Woods System, set-up in 1944 to stabilize global exchange rates, fell apart. World currencies were pegged to the U.S. dollar since the U.S. had the gold to back its dollar. However, the dramatic increase in printed money brought about by the Vietnam War, could not be backed in gold. Therefore, Nixon took the U.S. off of the Gold Standard. Now that the dollar was not pegged to anything, prices rose until inflation was ten percent.

 

Appointed by President Jimmy Carter in 1979 to be the Chair of the Federal Reserve, Volcker had to stop the rampant inflation. To do this, he raised interest rates to twenty percent. The Volcker Shock shut down the economy. People were in deep pain. Farmers surrounded the Board Building (Note 2) with their tractors. Realtors sent in wood blocks addressed to Volcker complaining that mortgage rates were too high. Car dealers sent in keys of unsold cars. When Volcker left the Federal Reserve in 1987, inflation had fallen to 3.4 percent, which became the norm for the next forty years.

 

After leaving the Federal Reserve, Volcker continued to serve the public interest as a private citizen. For example, the Volcker Commission (Independent Committee of Eminent Persons (ICEP)) was established in 1996 to examine the accounts of Holocaust victims in Swiss banks. He had been asked by both the Swiss bankers and Jewish organizations to head the Commission. In an interview recalling this, Volcker said that the two groups trusted him to deal fairly with this explosive and delicate situation. The Commission examined over six million accounts from 1933 to 1945. In 1999, the Commission reached a settlement of $U.S.1.25 billion dollars to be paid by the banks to the survivors and their families.

 

In 2009, Volcker was asked by President Barack Obama to resolve the collapse of U.S. banking. At a news conference introducing him as the head of his new Board (Note 3), President Obama referred to Volcker as “the tall guy behind me.” According to Volcker, the termination of the Glass-Steagall Act (enacted in 1933 to govern banking) in 1999 allowed the American banks to co-mingle their commercial and investment banking. He concluded that banks should not be allowed to engage in speculation especially with customers’ deposits. Therefore, he wrote The Volcker Rule to ban banks from using customers’ money for their own profits (proprietary trading). Banks could not become involved high-risk investments. In 2015, the Volcker Rule went into effect as part of the Dodd-Frank Act.

 

Because of his size, Volcker also had the force of personality. Testifying before the U.S. Congress about implementing his Rule, he told Congress, “I may not live long enough to see the crisis end. But my soul is going to come back and haunt you.”

 

When asked about Paul Volcker, Anne-Marie Slaughter, former Dean of the Wilson School, said, “He was refreshingly blunt. He said what he thought whether you were going to like it or not. He really did represent an ideal of public service that he took very seriously in his lifestyle as well as his career.” About his death, she observed, “It is really as if a giant tree has fallen in the forest.”

 

Notes:

Note 1. Volcker’s full title was Chairman of the Board of Governors of the Federal Reserve System.

Note 2. This building housed the offices of the Chairman and the Governors.

Note 3. The President’s Economic Recovery Advisory Board (PERAB).

 

Works Used:

Amadeo, Kimberly, “The 6’7″ Giant Who Ended Stagflation and Has His Own Rule,” The Balance: Money, 30 October 2021. Web. https://www.thebalancemoney.com/who-is-paul-volcker-3306157.

—-, “The Volcker Rule and How It Protects You,” The Balance: Money, 4 March, 2021. Web. https://www.thebalancemoney.com/volcker-rule-summary-3305905.

Bohan, Caren and Kristina Cooke, “Cheap cigars, politics and the Volcker Rule,” Reuters: Business News, 12 March 2010. Web. https://www.reuters.com/article/idUSTRE62B2YN20100312?type=politicsNews.

Federal Reserve Bank of St. Louis, “Paul A. Volcker”, Federal Reserve History, 2013. Web. https://www.federalreservehistory.org/people/paul-a-volcker.

Federal Reserve Board of Governors, “Federal Reserve Oral History Interviews.” 2013. Web. https://www.federalreserve.gov/aboutthefed/centennial/federal-reserve-oral-history-interviews.htm.

Gelinas, Nicole, “The Tall Man,” The City Journal, 10 December 2019. Web.https://www.city-journal.org/paul-volcker.

Shen, Allen, “‘The Integrity and Will of Ten Men’: the Life of Paul Volcker ’49,” Daily Princetonian, 9 January 2020. Web. https://www.dailyprincetonian.com/article/2020/01/the-integrity-and-will-of-ten-men-the-life-of-paul-volcker-49-obit.