Former Federal Reserve Chairman Paul Volcker will be leaving his role in the Obama administration, according to a report from CNBC. Volcker became legendary about three decades ago when he successfully crushed high inflation as Fed chief. As the President took office, he included Volcker, an early supporter of Obama's candidacy, as head of his Economic Recovery Advisory Board. This marks another prominent departure from the President's top economic advisors, and in some ways it could be the most significant yet.
Before reflecting on Volcker's role over the past two years, why would he want to leave? He hasn't said. But at 83 years-old, it certainly would be a reasonable time for him to take it easy. It may only be a semi-retirement, however. CNBC reports that he has offered to continue to advise Obama on an informal, by-request basis. So rather than "so long," he's really saying, "keep in touch."
From early-on Volcker was comfortable voicing relatively controversial positions on banking and finance. In 2009, he loudly advocated for reinstating the Glass-Steagall Act, Depression-era legislation that forbid commercial and investment banking activities at the same firm. It was repealed in 1999. Such views resulted in Volcker appearing to be one of the furthest left of Obama's economic advisors. After all, when Glass-Steagall was repealed, Larry Summers, Obama's National Economic Council director, was the Treasury Secretary.
But Volcker had the President's ear. The former Fed chief's most significant moment in the spotlight while under Obama came about a year ago, when the financial reform battle was heating up. At that time, he stood next to President Obama as he revealed what came to be known as the "Volcker Rule." In essence, it was Glass-Steagall, lite. Although it wouldn't break up the banks, it sought to forbid them from using customer deposits for sometimes risky trading activities ("proprietary trading") and to limit their debt concentrations. It essentially sought to curb how much risk depository institutions could take.
Despite having Obama's blessing, the Volcker Rule hit some roadblocks. Senate Banking Committee Chairman Christopher Dodd voiced early opposition. Big banks did too, naturally. A version of the proposal made it into the financial regulation bill that Congress eventually passed, but it was significantly watered down from what Volcker had envisioned. Instead of forbidding banks from proprietary trading outright, it set limits, which wouldn't significantly affect some big banks. Those that it would impact also found wide loopholes to slip through due to how the legislation was written. Still, if you asked Volcker, he would probably say the rule passed was better than nothing, though he would likely have preferred to see something stronger.
Volcker's departure will leave a different sort of hole in President Obama's economic advisory staff. While the departures of Larry Summers, Office of Management and Budget Director Peter Orszag, and Council of Economic Advisors Head Christina Romer were all significant, none of them brought the influence or experience that Volcker did to the team. He is a revered economist, but also sat relatively far to the left and served as a major critic of the big banks. That's a hard formula to replicate, as most economists who are critical of Wall Street aren't as well-respected by the industry and even served under President Reagan.
It's no secret that President Obama has been struggling to find an ideal replacement for Larry Summers, but filling the vacancy left by Volcker will be even more of a challenge. It's simply impossible to find someone with his credentials. But if the President chooses a business leader, centrist, or -- God-forbid -- a former banker, then progressives will get even angrier. Summers was fairly moderate, so replacing him with another Clintonite with Wall Street ties would likely be far more palatable to the left than doing the same for Volcker's job. But if it's any consolation, Volcker will still be on-call if Obama needs his perspective.