Former Fed Chair Paul Volcker isn’t satisfied with just the Volcker rule, which will limit banks’ ability to make risky bets. “Financial reform is work half-done,” growled the six foot eight retired central banker on Wednesday. But thats not what keeps him up at night. “Income distribution has not been so top-heavy since 1929,” warned the 85-year-old economist in a pessimistic speech that only occasionally glimmered with a hint of hope.
Speaking at an Atlantic conference on the economy, the man who Jimmy Carter and other Democrats despised for his recession-causing efforts to fight inflation in the early 1970s and 1980s continued his re-emergence as an idiosyncratic hero of the left. “1% of us are doing OK,” he said over lunch, sounding entirely comfortable with the rhetoric of not just President Obama but also Occupy Wall Street, as the conference guests — bankers, journalists, diplomats — munched on frisee lettuce and chicken.
He warned that he was representing a profession that wasn’t especially accountable, but was still haunted by its failure to predict or prevent the financial crises and grinding economic pain. “The world of political economists has lost the sense of self-confidence it once had,” he added as leaned over the podium, saying there were no “silver bullets” for growth while recommending a mix of stimulus now and deficit reduction later. He supported reforming the tax code — and raising rates on the wealthy — so there was “clarity and consistency.”
Robert Rubin, the former Goldman Sachs head and risk-arbitrage trader who is also the king of Wall Street Democrats, followed Volcker — he also warned about deficits and inflation, while worrying that the Federal Reserve could stimulate the economy. But he had little of note to say about his old employer, on a day when everyone was discussing the resignation letter/New York Times op-ed of former trader Greg Smith, who accused the firm of losing it’s soul in the past decade. This meant Volcker’s cultural analysis — instead of his relatively conventional economic advice — seemed to have extra salience. “[Trading for an investment bank] is a business that leads to a lot of conflicts of interest. You’re promised compensation when you’re doing well, and that’s very attractive to young people. All these firms can attract the best of American graduates, whether they’re philosophy majors or financial engineers, it didn’t make any difference,” Volcker said in low mumble that was sometimes hard to discern.
The financial regulation rule named after him, which has thrown Wall Street into a tizzy as it tries to craft loopholes and re-arrange its offices so the easy-money spigot won’t dry up, will go into effect on July 21. “We are in an environment of well-financed resistance to change,” Volcker warned, adding that an opaque derivatives market, a failure to crack down on basic accounting lies, and the looming presence of limping banks like Citigroup meant that work still needed to be done to protect the rest of the economy from the financial sector’s boom-bust approach to the economy. “Important parts of the Dodd-Frank legislation need to be nailed down ,” he said, unclear whether he believed that could actually happen.