So for the time being, those responsible for pushing through Volcker’s reforms are going to be the very guys who, for many months, steadfastly kept Obama from embracing them. That’s not unprecedented in politics, of course, but this is no mere difference of opinion. It’s a philosophical divide between those who think banking regulations should merely be improved and those who think the whole nature of the business must be overhauled. It will be interesting to see the extent to which Volcker himself, now suddenly swimming with the tide of popular sentiment, is involved. Thirty years ago, as Fed chairman under Carter and Reagan, he was the apolitical “hard-money guy” who hiked interest rates up to 20 percent to squelch inflation, a move that, by today’s standards, seems unimaginably courageous. But even Volcker doesn’t see government as an equal match for the banks. In a Business Week interview in December, when he was still very much on the outskirts of administration policymaking, he said of the banks, “They will continue to try to get around all these restrictions. You have to have a much stronger supervisory and regulatory apparatus to have any chance of keeping up with that.”
They certainly will try—and may well succeed. Volcker has become an idealist in his old age. And idealists, he should know from his lifetime of Washington experience, don’t usually last long in that town.