Media Responds to Paul Volcker's Support for Glass Steagall Criteria

At least two US publications have given big play in recent days, both to the efforts of Paul Volcker to reintroduce Glass-Steagall criteria and to the rejection thus far of that policy by the Obama administration, dominated by Larry Summers and Timothy Geithner. On Oct. 20, the New York Times ran an article entitled "Volcker Fails to Sell a Bank Strategy," in which it reports that "He wants the nation's banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations."

The Times continues: "Mr. Obama has in Mr. Volcker an adviser perceived as standing apart from Wall Street, and critical of its ways, ... while Timothy F. Geithner, the Treasury secretary, and Lawrence H. Summers, chief of the National Economic Council, are seen, rightly or wrongly, as more sympathetic to the concerns of investment bankers."

Volcker is quoted: "The banks are there to serve the public and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties" and ultimately fails.

The article then reports that in Volcker's view the only viable solution is to break up the giants. Goldman Sachs could no longer be a bank holding company. To achieve this, Congress would have to enact a modern-day version of the 1933 Glass-Steagall Act.

Volcker says: "People say I'm old-fashioned and banks can no longer be separated from non-bank activity. That argument brought us to where we are today."

The other article, which appeared on October 21 in the Huffington Post, is entitled: "Obama Administration Determined to Usher in New Great Depression." In response to the NYT's piece, she makes the point that Obama seems determined to continue the New Deal reversal. She also challenges the NYT's statement that Geithner and Summers are seen "rightly or wrongly" as in the pocket of Wall Street. As she puts it: "No need to step on any toes, right, Larry? As if the man who accepted payments for speaking appearances from financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch (with fees ranging from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs) is going to lead the charge to regulate the banking industry."

She concludes: "Summers and Geithner's various connections to the banking industry have been well documented, but what's outrageous is that they are now shooting down Paul Volcker's correct assessment that only a new Glass-Steagall will prevent future economic catastrophe."