After Paul Volcker left the New York Fed in 1987, he faded into obscurity. Compared to the similarly jowled but far more charismatic Alan Greenspan, his ideas seemed outmoded. No one wanted to hear how banks needed to be reined in, not when they were making so much money! But after the financial crisis in 2008 threw cold water on his successor's legacy, Volcker got to experience something that many men dream of but few actually realize: recognition. Redemption. The president asked him to be a part of his economic council. People invited him on TV. He even got married again, at 82! As if all that wasn't heady enough, after he conceived of a rule that banned proprietary trading at large financial institutions, the president named it after him, as a man might name a star for his lover.
Of course, the rule would be subject to the political process, Volcker knew that. But as recently as June, it seemed like a version of the rule that he approved of would pass. That his name would live on through something good and true that he believed in! Then, one night, Volcker went out to the Harvard Club for dinner. When he came back, the rule was ruined. Barney Frank and Chris Dodd had had their way with it, and his rule was a husk of its former self. "'Shock' is too strong a word" for what he felt, Volcker recalled to The New Yorker's John Cassidy. “But I was disappointed.” Thank God, Cassidy was there to provide a shoulder for him to cry on.
Volcker, after a weekend of conspicuous silence, fell in line and issued a statement that the package “provides a constructive legal framework for reform of the financial system.” When I talked to him a day later, however, he said that he had mixed feelings, adding, “We could have done better.” Although the final bill contained many things that he supported, the last-minute weakening of the Volcker rule had confirmed some of his fears about the political process and the power of lobbyists. “The ban on proprietary trading is still there,” he said. “But I’m sorry we lost the tighter limitations on hedge funds and private equity.” He went on, “I’m a little pained that it doesn’t have the purity I was searching for.”
The Volcker Rule [NYer]