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Paul Volcker: The Making of a Financial Legend

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No need to be a bellowing bond trader nor an obsessive and fetishistic day trader taking your market temperature by the minute to appreciate NY Times journalist Joseph B. Treaster's most readable biography, Paul Volcker: The Making of a Financial Legend.

In our age of cooked corporate books and perp-walking CEOs, Treaster shines an admiring and well-deserved light on the former chairman of the Federal Reserve, a man of towering financial and personal integrity. Words like honor, integrity, truth, steadfastness are thrown around like confetti these days in the political and financial world, but as Fed Chairman from 1979 to 1987, Paul Volcker's strong will and good sense were perhaps the major factors in the survival of the nation's economy through the inflationary tsunami of the Carter years and the financial wrecking ball of Reagonomics.

Standing 6'7", physically ungainly and socially reserved and stand-offish, Volcker had a commanding intellect when it came to bigtime economic and financial matters. Born to public service (his father was longtime town manager of Teaneck, NJ), Volcker attended Princeton, Harvard's Littauer School of Public Administration (it eventually became the JFK School of Government) and the London School of Economics. He was a special assistant to David Rockefeller at Chase Bank, served as an undersecretary in Nixon's Treasury Department, ran the New York Bank of the Federal Reserve and became fed chairman in July 1979 while inflation was rocketing and Pres. Carter was bemoaning the national "malaise".

Chairman Volcker was the man with the plan. He turned old economic theory upside down with his idea to drastically cut the money supply as the country's economy sweated and shuddered through the debilitating national fits of inflation and recession. Politicians and businessmen, fearful and shortsighted as usual, whined and squealed that Volcker was Dr Kevorkian or Dr. Demento, putting a noose around the national economic neck. In fact, as history has shown and Treaster explains so even the ordinary Joe can understand, Volcker had applied the ideal tourniquet to stop the bleeding and the poison. The patient lived and by the mid-90s, the country was economically healthy and prospering as never before.

Of course, like the Lone Ranger, Volcker had ridden off into the sunset by that time. Waved good-bye (and good riddance) by Reagan's Treasury Secretary and the GOP's most artful backroom Machievelli, James A. Baker III in 1987, Volcker turned his enormous economic and monetary talents to the private sector. But this principled and unpretentious public servant with his "unshakeable integrity" was not happy in this work.

These days, as the political swamp gases are once again rising and spreading their bad odor, Volcker, even at the age of 76, is being called on once again to perform his public duty.

In recent years, Volcker has admirably and successfully refereed the "battle royal" between the Holocaust survivors and the Swiss banks with their appalling Nazi connections. When Enron, the King Kong of corporate fraud sunk in its own muck, "Mr Incorruptible" Volcker took the job of chairman of an independent oversight board to try to salvage some shred of integrity for the accounting community, which had been badly tainted by Arthur Anderson, the giant accounting firm that was the handmaiden to Enron's tangled scams and schemes. And at this moment, Volcker is heading up the international investigation of the massive corruption between Saddam Hussein, various corporate greedheads and UN officials in the administration of the decade-long Oil For Food program in Iraq.

After reading this worthy biography of Paul Volcker, one can only hope they did not break the mold when they made this honorable man.

This cleverly-constructed biography not only reminds us of Paul Volcker's tough-minded role in taming inflation in the perilous economy of the '80s into the '90s, but it provide potent insights into his personal life--elements that laid the foundation for the clear thinking, determination and honesty that the American economy still benefits from today.

Volcker's city manager/father passed to his son a belief in the worthiness of public service and the need for absolute integrity and perception of integrity. Volcker's public service meant sacrifice for him and his family.

This is not a thick volume (244 pages), but it leaves the reader very satisified that he or she has a clear understanding of what drives Volcker, of the politics that brought him to office and then challenged him, of who he is today. It's no wonder the United Nations has turned to him to help investigate its oil-for-food program in pre-war Iraq.

The fact that so many "heavyweights" (people like David Rockefeller, Marshall Loeb, Bill Bradley, Ed Koch, etc.) were willing to write pre-publication blurbs that spill off the dustcover into the book itself, and that Arthur Levitt wrote the foreword, reflects the respect they have not just for Volcker but for author Joseph Treaster, a business writer for The New York Times.

This book is very readable, well-sourced and documented, and has some delicious photos. As the nation faces the prospect of renewed inflation today, our leaders would do well to read this book and learn its lessons. So would our nation's citizens.

This is an inspirational book. Joseph Treaster's accomplishment is masterful, timely and urgent.

On one level, he presents in disarmingly clear prose compelling new insight and perspective for those who know the tale well along with the essential facts, context, and players from Washington to Wall Street you expect in a first-rate political biography. On another -- and this is the book's true, unexpected gift -- he reconstructs the forging of Volcker's remarkable, civic-minded character. Here are reasons and clues behind the Volcker's commitment to a long career in international economic policy and bank regulation despite considerable personal and family sacrifice until late in life. The source material? Rare interviews with family members, close friends as well as the intensely private, immensely gifted Volcker himself. Treaster devotes one-third of the book to the making of Volcker's character.

Paul Volcker's role in framing monetary policies to crush the inflation of the '70s, then prevailing shrewdly against powerful enemies in both political parties -- in the White House and Congress -- to enable these policies to work, was heroic. I followed it closely as a newly arrived New York Times business reporter in 1979. Occasionally, such as the peaking of the prime rate at 21-1/2% in December 1981, I was assigned to write directly about the impact. Like millions of Americans, mmembers of my own family paid a price, short-term and long-term, for Volcker's convicton. With mortage rates climbing above 16% in the early '80s, my father was unable to market a new condominium project in the Middle West; the condo my wife and I owned in Westchester County stood unsold and vacant for a year after our transfer to the West Coast. My father was furious with Volcker, wary of more financial pain that indeed lay ahead. I was more temperate, aware of Volcker's logic, sensing a steadfast hero in the making (even as my meager savings were depleted), and anticipating economic revival that soon was manifest. Absent the accomplishments of Paul Volcker preceding him, Alan Greenspan never would have had the good fortune to guide the booming economy in the '90s. Treaster makes the case.

Volcker's frugal, stern father was town manager of Teaneck, New Jersey, for 20 years, 1930-1950. During that period, Teaneck became known as a model of small-town America in large part because Paul Volcker Sr. worked to create, sustain and protect the vision and the public policies required to achieve it. His principled practice of standing firm against the narrow interests of town politicians made an impact on Paul Jr. The unemotional, fact-based detachment with which his father engaged his adversaries in public forums played well on Capitol Hill a generation later.

Volcker's legacy at the Fed, his pivotal leadership in brokering the $1.25 billion payment by Swiss banks to Holocaust victims, and his ultimately futile effort to save the Arthur Andersen accountancy from its ethical blunders at Enron are all of a piece. In his gem of a foreward, Arthur Levitt sums it this way: Volcker "has always stood for what he believed was right, regardless of the political consequences."

Leaders in all walks of life -- business, government, non-profit, military, academia, volunteer, and more -- possibly will see parts of themselves reflected in these pages. Courage, commitment, competence and communication are requirements for effective leaders in any situation. Certainly, in Treaster's "Paul Volcker", most readers will recognize and admire an extraordinarly high standard of leadership. Few in public life have exercised it so well and on such a large stage in the past 25 years.

Government leaders need to be reminded of this high standard today. The Chirman of the Federal Reserve is voicing frank warnings against massive federal budget deficits. Interest rates are rising. The moral authority of the U.S. is at risk globally. Remarkably, the wisdom and brilliance of Paul Volcker remains at hand. As The Times's Joe Treaster makes abundantly clear in this convincing work, world leaders should make the most of it.

A huge man like Paul Volcker deserves a giant biography, and that is exactly what Joseph B. Treaster, veteran New York Times reporter, has provided.

Volcker was literally a giant of a man, physically and financially. While he towered over everyone at six feet, seven inches, he also guided the nation's economy through one of its most troubled times.

In 1981, inflation raged and interest rates had soared beyond 20 percent, which some felt bordered on usury. A one-man army, Volcker remained determined to extinguish inflation's fire, so he used the fiscal flame retardant called higher interest rates. Initially, millions hated him, but after his program of tough love worked, they loved him. The economy righted itself, providing the base for the incredible expansion of the 1990s.

Through diligent research and excellent prose, Treaster explains how Volcker performed these economic miracles and what they meant to both the Wall Street financier and Joe Sixpack.

At 76, Volcker is still active, involving himself with noble causes like working on behalf of Holocaust survivors. Here is a man worth knowing, and here is a biographer worth reading.

Students of Paul Volcker and economic history would be well served reading "Secrets of The Temple: How the Federal Reserve Runs the Country" by William Greider, former assistant managing editor of the Washington Post, (and author of The Atlantic Monthly's Dec. 1981 classic article: "The Education of David Stockman", another absolute MUST read, available on the internet) in addition to this current and updated study. "Secrets", published in 1987, fresh on the heels of Volcker's term, is a superb study of Paul Adolph Volcker's time period while at the Fed, from the economic & political context leading to Jimmy Carter's appointment announcement of 51 year old Volcker to the Fed on Tues, July 24th, 1979, (the same day Red Sox's Carl Yastrzemski hit home run #400 off Oakland's Mike Morgan, winning 7-3 ;-) up till Reagan's June 2nd, 1987 announcement that Volcker had "decided" to retire, "wishing to return to private life". (The same day the Seattle Mariners drafted Ken Griffey Jr. #1 ;-) Enter the Greenspan era, five terms running.

Volcker, in my humble opinion, marks a political earthquake and economic turning point in modern history. Volcker's Fed, switching from Keynesian economics to Milton Friedman's Monetarism theory, via much agony, tamed inflation. Taming inflation, among other things, shifted the balance of power back to the lending class, the rich, holders of financial instruments... away from homeowners, hard asset investments, and mortgage borrowers. Despite inflation's other ill effects, inflation in one significant respect was the middle class homeowner's twin friend: home values, equity, and middle class net worth soared with inflation, while at the same time eroding the true cost and burden of fixed mortgage payments. A double win for the middle class homeowners, where the bulk of their net worth was tied to, unlike the wealthy. Inflation was the lending class's Achilles' heel. When the financial markets realized inflation had been whipped and the early 80's recession was ending... the historic bull markets had their launching pad in place August 12th, 1982, when the Dow bottomed at 777. When the Dow hit 10,000 at the end of the 90's, with reinvested dividends, it marked a return of close to 1,900%. The rich got richer. It took interest rates going to 21% and millions of jobs lost to benchmark the shift in the balance of economic power back in 1980, 81, 82 when the Fed was administering its Rx tonic.

Reagan & Thatcher are often attributed "turning economies around", but it was Paul Volcker and the Federal Reserve that should get the bulk credit, imho. Reagan also gets blamed for igniting the widening gulf between rich & poor. But inflation was more a foe of the financial holdings of the rich and friend to the middle class's net worth engine of prosperity, their title to their home's soaring value and month by month cheaper fixed mortgage, via the effects of inflation.

I give 5 stars to the topic. Understand the impact of Paul Volcker, a financial legend indeed, understand the Fed's role in the economy, and you surpass 97% of your fellow citizens in understanding recent economic history. Paul Volcker: The Making of a Financial Legend is an important update to a man and a time period critical understanding the booming 80's & 90's.

This can not be considered a review of the book, but a review of the man, the time period, and "Secrets", a great study of Volcker & his heyday. But this new work is definitely on my reading list... and should be yours. Paul Volcker is a true financial legend. Another financial legend, of the dark kind, but facinating to no end, was Michael Milken, aka "King of the Universe". GREAT bestseller reads on him & his 80's heyday are: "Den of Thieves" by James B. Stewart; "The Predators' Ball: The inside story of Drexel Burnham and the rise of the junk bond raiders" by Connie Bruck; and "A License to Steal: The untold story of Michael Milken and the conspiracy to bilk the nation" by Benjamin J. Stein. All great legend reads.

A big abrazo for Joe Treaster for his wonderful biograph of Paul Volker. He very skillfully brought out the real character of a talented and consciencious individual who dedicated his life to serve the public's interest. Treaster carefully describes what it takes to run this country's financial institutions and, in laymen's language, explains how easily it is to slap our leaders on the wrist, if not the behind, when they don't adhere to good fiscal policies. The book is interesting and thought provoking. You become an admirer of Paul Volker.

Joseph Treaster's lucid, entertaining account of the life and legacy of Paul Volcker reminds you that some people still value-and embody-such virtues as integrity, modesty, steadiness, and public service. I lived through much of the economic history covered in this book but never understood why things happened as they did, or realized how much Volcker's actions in the early 1980's set our nation's financial course for the following fifteen years. Treaster brings an oversized, almost Victorian personality vividly to life, and in the process casts a startling light on our government's current fiscal policies.

I've just finished reading Joseph Treaster's excellent book on Paul Volcker. He has done a superior job of humanizing a stoic economist! I particularly liked the inclusion of his growing up years to show that influence in his decisions later in his career. It is a very readable book for the general public; I thought there was just enough economic theory in it to make Volcker a man of principles, personal and professional. And, I am very glad that I have an autographed copy.

For any person interested in that elusive element of economic policymaking, the personality of the one at the helm, this book will undoubtedly be worth to read. In his "Changing Fortunes" (co-authored with Toyoo Gyohten), Volcker maintained his private life indeed quite private. This book lifts the veil significantly. Even in personality, notably for an amazing austerity and commitment to public service, Volcker emerges as a central banker to emulate. The details on his family, particularly the sufferings of his wife and son, are indeed touching.

The book is relatively short, something to be grateful about. But succinctness meant clear sacrifices. Any person really interested in Volcker's career would need also to read "Changing Fortunes", particularly to know about the fascinating times that Volcker lived in the Treasury Department, and crucially in the process of the collapse of the Bretton Woods system of fixed exchange rates. Even the period of Volcker at the Fed's chief is sparsely covered in some important aspects.

Paul Volcker clearly deserves the many positive things that Treaster says about him. But sometimes one gets the impression that the author became too close to his subject, without even the benefit of getting in return information to clarify some aspects of Volcker's career. Moreover, it is a little tiring to be reminded time and again that Volcker has to be revered because he slay the inflation dragon. Indeed he has to be, but perhaps the author emphasizes the point a little too much.

Even in a text clearly intended for people without any knowledge in economics, some extra details would have added more light to the inflation drama that Treaster tries to build, particularly on why and how it was allowed to increase. The Latin American debt crisis put many big American banks on the verge of an abyss, and Volcker was crucial in the (successful) efforts to avert a disaster, but that international crisis is barely mentioned in one paragraph.

When he was chairman of the Federal Reserve, Paul Volcker was perceived by many as being a villain, a "bankster" dead set on ruthlessly strangling Main Street's households and small businesses. Fast forward thirty years later and he is perceived as a hero, a premier public servant who automatically increases the stature of any cause or organization that ties itself to the man. What is the reason behind this change of heart? Time, for one thing, has let us see that Volcker's inflation-busting crusade helped stabilize the American economy which, in the 1960s and 1970s, had witnessed frequent recessions and surges of inflation. Why was inflation so bad during this period? Treaster's book doesn't tackle this subject as much as I would have liked (he does lay down the basic details, though), but the reasons are simple and important:

Inflation makes it unwise to hold onto cash for long periods of time, as the cash at hand will lose value. This means that Grandma's savings plan goes to pot during periods of high inflation. Inflation, when detected by economic actors, increases prices (duh). These price increases are also directly and indirectly caused and maintained by expectations, demand for higher wages to keep up with costs of living, and costs of doing business. All this is a textbook explanation of inflation---we must look at history to discover why this inflation occurred.

In the postwar years American big business had a free reign over the world economy while European and Japanese industry were in recovery mode. This unique situation allowed big business and government to behave in ways that would have been impossible in less-ideal situations: big business and government had a "social contract" after WWII, where government---supported by confident economists---would control the business cycle while businesses would raise employees' living standards. This noble dream, not Vietnam war spending or OPEC oil shocks, brought about the "Great Inflation", argues Robert Samuelson, author of The Great Inflation and Its Aftermath.

Since recessions were to be avoided at all costs, modest amounts of inflation never had the opportunity to peter out. Businesses responded to modest inflation by raising prices to keep up with rising costs, while labor sought to keep up with rising prices with increased wages. The spiral was kept alive with loose monetary policy: if ever the Fed tried to slow inflation by reducing the money supply, it caused unemployment rates to increase, which caused elected officials to complain loudly (they had a social contract to uphold), which caused the Fed relent to government criticism. Indeed, in the 1950s the money supply grew by 23 percent; in the 1960s by 44 percent; and in the 1970s by 78 percent.

In the 1970s the Federal Reserve constantly mis-estimated economic signs like full employment, potential output, slack, and productivity growth (always erring on the we-need-expansion side), causing it to choose expansionary monetary policies where such policies were actually harmful. It was like Mickey Mouse in The Sorcerer's Apprentice. With inflation spiraling ever more out of control, price controls, used by several presidents, could not stem the tide of inflation, as such controls didn't treat the root cause. In addition to the points listed in the second paragraph, inflation during this period decreased the value of the dollar, making it harder for American's to import goods and making investment unappealing to foreigners.

The Fed had tried to cool down inflation before Volcker was appointed chairman but simply didn't have the backbone necessary to do the job. President Jimmy Carter, willing to try almost anything to shake the nation out of its "malaise", decided after a ten day meditation at Camp David to sack 34 members of his cabinet, among them Treasury Secretary Michael Blumenthal, who had been somewhat of a critic of the administration. Carter filled the vacant position with William Miller, who had days earlier been Fed chairman. Miller's old position was filled by Volcker, who had been serving as the president of the New York Fed. Tellingly, Volcker had warned Carter that if he were to be appointed, he would crusade against rising inflation. Interest rate hikes in early 1980 sparked a recession lasting six months from February to July.

Malaise and stagflation were on the mind of the average voter in November, 1980, and Carter was booted out of office in favor of Ronald Reagan (who famously said "A recession is when your neighbor loses his job. A depression is when you lose yours. And recovery is when Jimmy Carter loses his.") Little did Reagan know that he would be in danger of losing his job, too, as the economy experienced additional interest rate hikes in 1981, causing a severe recession. This second recession, known as the "Volcker Recession", lasted form August 1981 to November 1982; interest rates peaked at around 21 percent, and unemployment rates nearly hit 11 percent. (The 1982 House of Representative elections saw 26 Republican representatives lose their jobs, while Democrats picked up 27 seats.)

Inflation, which was what these ordeals were over, decreased from a high of near 14 percent in 1980 to a negligible 3.2 percent in 1983. I had previously been told (rather, I had previously read) that Reagan stood by and watched as Volcker crusaded against inflation. Treaster's book suggests that this was not the case: Treaster paints Reagan as a somewhat naif concerning monetary affairs. He did essentially let Volcker do his business, but at the same time he contradicted the chairman's efforts by expanding the budget deficit with defense spending (demand-pull inflation, here). Reagan's men did not like Volcker, and by 1987 he had had seen enough writing on the wall. Joseph Stiglitz writes that Volcker "was fired because the Reagan administration didn't believe he was an adequate de-regulator". Probably this is pushing it too far, but in any case he was replaced by Alan Greenspan.

This is the only accessible biography of Volcker that I know of, and it gets the job done. It is a little on the short side; it is not written in chronological order (sometimes it seems like Treaster shuffled the chapters together like a deck of cards); and it is a little too sparse on the economic details (eg., early on Treaster says that some economists have said that inflation could have been defeated with softer policies, but this is never explained in the book).