Former Federal Reserve Board chief Paul Volcker appeared on “Charlie Rose” last night, a show that airs over more than 200 PBS stations, to reassure viewers that the country is not headed for a repeat of the Great Depression, which he described as years of unemployment of 20 percent of more.
Volcker emphasized the importance of strong leadership during a financial crisis. That leadership is missing today with Treasury Secretary Hank Paulson stacking up as Exhibit A. The former Goldman Sachs CEO, who calls Volcker 'infrequently," is having second thoughts about his once-absolutely-vital-plan to shell out $700B to buy “toxic assets” held by banks. Hank is apparently now leaning toward investing billions directly into banks.
Volcker praised Franklin Delano Roosevelt’s “take-charge” mentality during the Great Depression. FDR significantly expanded the Reconstruction Finance Corp., which was established under Herbert Hoover to restore liquidity and build confidence in the banking system. In a “fireside chat,” FDR told the nation of a “bank holiday” as the Government worked to prop up strong banks and shutter others. The banks, said FDR, would be open for business the following week.
There was no way either FDR or the Government knew how solid the banks actually would be when they reopened, or whether anybody would show up with deposit money. The issue came down to basic trust. People believed the President because he put his reputation on the line, only a short time after he was inaugurated. Volcker credits FDR for helping to change the nation’s attitude. People did show up and put their money into banks.
The 81-year-old Fed chief under Presidents Carter and Reagan sees a silver lining in the chaos. Wall Street will be less of a magnet for the best and the brightest. There are way too many “financial engineers” in this country, said Volcker. The U.S. needs many more civil and electrical engineers to rebuild vital infrastructure that is needed to make the country a better place.
Charlie Rose’s website has 23 responses to the Volcker program, which has not yet been video archived. There is criticism of Volcker as a “financial wise guy” and a “fraternity member of the pass-it-on-to-the-unwashed” crowd. One responder rips FDR’s leadership, saying WWII is what ultimately put the economy back on track.
From a PR standpoint, Volcker turned in a masterful performance. He was calm, collective and upfront about the recession. Governmental action/inaction will determine how long and deep the downturn is/will be.
Volcker’s call for strong leadership resonates. In my view, Volcker probably does not think too highly of the snap press conferences of President Bush, calling for either more patience or less anxiety. We need somebody with the standing of Volcker to quarterback the country out of the turmoil.