You couldn't blame Paul Volcker for feeling ill-used. He was one of the first of the financial Brahmins to endorse Barack Obama, back when Hillary Clinton was a sure thing for the nomination. Volcker was an earlier adviser to Obama than Larry Summers, Tim Geithner, Bob Rubin, or the rest of the Wall Street gang. Then, after Obama became the Democratic nominee, Volcker was trotted out as a senior advisor and his prestigious name was dropped for a top administration post.
But then the dust settled, Volcker was given a largely ceremonial position as head of an advisory committee that didn't even meet until May, and his advice was largely ignored. Volcker's wise counsel was for much tougher regulation, including the restoration of the Glass-Steagall wall between commercial banking and more speculative activities such as securities underwriting and proprietary trading -- a wall whose dismantling in 1999 laid the groundwork for many of the abuses that led to the great financial collapse.
This counsel ran counter to the views of Larry Summers and Tim Geithner. Only when Obama found himself in political trouble in December and January, as a president who seemed hopelessly in bed with Wall Street, did the administration turn to Volcker.
Volcker is no radical. He is the former Fed chairman who raised short term interest rates to 21.5 percent as a cold-bath cure for inflation. He has a tightwad's view of monetary policy, even in a severe recession. But he has been around long enough to know that Wall Street speculators are capable of terrible mischief when regulations are dismantled. When the most radical person on the scene is Paul Volcker, it tells you just how politics have moved to the right.
During the months of his internal exile in the Obama administration, the old lion hadn't been just licking his wounds. Volcker turned out to be a better organizer than Obama. He organized several other senior eminences to support his call to restore Glass-Steagall, including Nicholas Brady, treasury secretary under Bush I, Bill Donaldson, SEC chair under Bush II, and Roger Altman, Robert Rubin's former deputy. Volcker testified. He gave tough speeches -- of the kind President Obama should have been giving.
On January 21, right after the Massachusetts senate debacle, President Obama held a carefully staged East Room event dusting off Paul Volcker, in which Obama belatedly and ardently embraced what he termed "The Volcker Rule" -- a restoration of the Glass-Steagall wall. Messrs Geithner and Summers made like they had supported the idea all along (though it was mysteriously absent from all preceding administration legislation.)
That same January week, as the administration was scrambling to appear anti-Wall Street, Obama expressed his strong support for a consumer financial protection agency and for a tax on the profits of the largest banks. And then ... nothing happened. The president's attention was focused elsewhere, mainly on the death-from-a-thousand-cuts known as health care reform.
To Senator Chris Dodd, the whole thing looked fishy. Dodd, the lame-duck Banking Committee Chairman, was called to the White House to lend his support to the "Volcker Rule." Dodd initially played along, but quietly steamed. Later, Dodd said that the whole maneuver looked like a "political ploy."
Since then, Dodd has seemed determined to repeat the exercise in feckless bipartisanship in the area of financial reform that the White House is finally abandoning when it comes to health reform. First, Dodd tried to write a bipartisan bill with his Republican counterpart, Sen. Richard Shelby of Alabama. In late February, it finally became clear to Dodd that he and Shelby shared little in common other than criticism of the Federal Reserve.
Dodd then turned to another Committee Republican, Senator Bob Corker of Tennessee, who is fairly critical of Wall Street for a Republican. But in working with Corker, Dodd did a 180 when it came to the Fed. Their working draft legislation proposes more power for the Federal Reserve, not less, and proposes lodging the proposed independent Consumer Financial Protection Agency (CFPA) in the Fed. Barney Frank, Dodd's counterpart in the House, which has already approved a free-standing CFPA, said of Dodd's proposal, "When I first heard it, I thought it was a joke."
No financial reform worth having will come out of the Senate if the price is a bipartisan bill. Chris Dodd is retiring, mainly because he'd have a hard time winning re-election. He might have chosen, as a final act of statesmanship, to hold out for tough reforms. Instead, he is behaving like a legislator looking forward to his next job on Wall Street.
Finally, last week, on March 3, the White House sent Congress its own version of a financial reform package. It included a version of the "Volcker Rule" -- limits on securities trading by commercial banks, and also limits on how big any bank can grow. The bill would also limit interlocks between banks and hedge funds and private equity funds. But an exception is carved out for "banks in default or in danger of default." In other words, Geithner, Summers and Bernanke can go right on creating behemoth, too-big-to-fail banks through emergency mergers backed by taxpayer money and credit from the Fed.
The wise guys on Wall Street are already saying that the tougher parts of this belated reform package haven't got a prayer. Neither Corker not Shelby is a fan of Volcker. But the larger moral of the story is that no serious change in our corrupted financial system is possible without hands-on presidential leadership. It's not enough to keep Paul Volcker in a glass case to be taken out in case of political emergencies.
If Obama is serious about financial reform, he needs to fight for it -- against corporate Democrats as well as Republicans, and against his chums on Wall Street. It's the same lesson that Obama is belatedly learning on health care. Radical reform is impossible without presidential leadership. Paul Volcker deserves better than intermittent gestures. So do the American people.
Robert Kuttner's forthcoming book is A Presidency in Peril. He is co-editor of The American Prospect and a senior fellow at Demos.