Paul Volcker: The Last Great FedRes Chairman

Volcker publishes some confidence today here.

Greenspan took all of Volcker's good (and hard) work and abused it. Volcker had tough decisions to make and Greenspan inherited the largess. But, before Volcker left, Greenspan led a movement which even resulted in overruling Chairman Volcker while he was still chairman. This goes all the way back to 1987 when the banking class of America was trying to gut Glass-Stegal regulations. Greenspan led the way on behalf of the banks.

" In the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act, overriding the opposition of Chairman Paul Volcker. The vote comes after the Fed Board hears proposals from Citicorp, J.P. Morgan and Bankers Trust advocating the loosening of Glass-Steagall restrictions to allow banks to handle several underwriting businesses, including commercial paper, municipal revenue bonds, and mortgage-backed securities. Thomas Theobald, then vice chairman of Citicorp, argues that three "outside checks" on corporate misbehavior had emerged since 1933: "a very effective" SEC; knowledgeable investors, and "very sophisticated" rating agencies. Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public. For many critics, it boiled down to the issue of two different cultures - a culture of risk which was the securities business, and a culture of protection of deposits which was the culture of banking."

In August 1987, Alan Greenspan -- formerly a director of J.P. Morgan and a proponent of banking deregulation -- becomes chairman of the Federal Reserve Board. Greenspan wasn't just a man, he was representing a powerful banking movement which beat back Volcker and grabbed the tiller since 1987. Today's crisis is a DIRECT result of the activities of Greenspan representing the interest of investment bank's executives by not regulating them, whatsoever.

One the best histories of this period is recounted here.