Paul Volcker

Former Chair of the President's Economic Recovery Advisory Board (January 2009-January 2011)

(Marvin Joseph/TWP)

Why He Matters

Volcker brought instant credibility to President Barack Obama's 2008 presidential campaign. His weighty experience helped dispel the notion that Obama lacked the economic credentials to become chief executive during the worst economic crisis since the Great Depression. While he is not taking a full-time job in the administration, as chairman of an economic advisory committee, he will be a critical voice as Obama tries to forge a path out of the recession.

Volcker left the committee in January 2011 and was replaced by GE Chairman Jeffrey Immelt.

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Background

At a Glance

Career History: Chairman, Federal Reserve (1979 to 1987); Undersecretary for Monetary Affairs, Department of the Treasury (1969 to 1974); Deputy Undersecretary for Monetary Affairs, Department of the Treasury (1963 to 1965)
Birthday: Sept. 5, 1927
Hometown: Teaneck, N.J.

Alma Mater: Princeton University, BA, 1949; Harvard University, MPA, 1951
Spouse: Nancy
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Path to Power

Raised in Teaneck, N.J., Volcker learned from an early age how government affects people. He learned this from his father, who worked as a city manager for the Jersey town, and even helped it escape a small financial crisis of its own.

Volcker went to Princeton University, graduating summa cum laude before moving to Harvard to earn a master's in public administration. The 6-foot-7-inch student found himself leaning towards work in government even back then.

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The Issues

Volcker's first meeting with Obama came in June 2007, when Obama was seen as a longshot to win the presidency. Volcker walked away from a dinner with the upstart Democrat, saying he was 'genuinely impressed.' But no one in Obama's campaign thought of asking for Volcker's help. When Obama economic adviser Austan Goolsbee discovered Volcker's comment, he quickly urged the team to get Volcker involved.

"Paul Volcker is a legend! We don't want to use his contacts for money, we want to pick his brain," Goolsbee said. Obama was soon speaking to him regularly for counsel on responding to the burgeoning crisis. Obama's proclamation in September 2007 that the housing market downturn could cause a 'crisis in confidence' in the financial markets originated with Volcker.

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Volcker at first disagreed with the notion that the U.S. needed an economic stimulus package, but recent events changed his mind.

''I've gone through a number of crises, but I've never seen one more complicated or difficult,'' he said.

Volcker expressed some public skepticism of the Federal Reserve's decision to put $29 billion at risk to arrange the sale of investment bank Bear Stearns in March 2008. In an April speech, Volcker said that the Fed took actions that "extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices."

The 'Volcker Rule'

In January 2009, Obama proposed new financial regulations that would attempt to prevent a future economic downturn while also solving the "too-big-to-fail" problem, which forced the government to interve and save collapsing banks. The new rule outlined would limit banks' ability to invest in hedge funds and private equity funds.

If approved by Congress, the rule would revive parts of the Glass-Steagall Act, repealed in 1999, which separated corporate banks from investment banks. Dubbed the "Volcker Rule," Obama's proposal attempts to bring back similar limitations.

Group of 30

In January 2009, the Group of 30 economists and finance experts, chaired by Volcker, issued a report on a global financial regulatory overhaul.

Among other steps, it called for preventing any one financial institution from becoming so large that its failure could bring down the entire financial system. It also calls for money-market mutual funds, which are similar to banks in many ways but are far less regulated, to be overseen more carefully. And the report calls on the U.S. government to clarify the legal status of Fannie Mae and Freddie Mac, the government-sponsored housing finance companies that it took over in 2008 but whose relationship with the government has historically been ambiguous.

Because of Volcker's closeness to Obama, it is widely believed that many of the ideas in the report will be embraced by the new administration.

The Network

Volcker has been around Washington since the 1950s and has amassed an historic reputation. Although shy, he has built a career that had direct dealings with Presidents Carter and Reagan. He went on fishing trips with Gerald Corrigan, ex-CEO of the Federal Reserve and managing director at Goldman Sachs.

In his most recent role with the Obama campaign, he was on the same economic advisery team as former Treasury secretaries Robert Rubin and Larry Summers, as well as Warren Buffett. When he first met Obama, Volcker sat at a table with Goldman Sachs President Gary Cohn and Merrill Lynch President Greg Fleming.

Campaign Contributions

Volcker has given $12,000 to campaigns since 1993. B arack Obama has received the most campaign cash from the former Fed chair; Volcker gave him $2,300 in 2008. Over the years, Volcker has given to nine Democrats and six Republicans and never to the same person during different elections.

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