Adviser loses Obama's ear on bank overhaul

By Louis Uchitelle - New York Times News Service

Listen to a top economist in the Obama administration describe Paul A. Volcker, the former Federal Reserve chairman who endorsed Obama early in his election campaign and who stood by his side during the financial crisis.

"The guy's a giant, he's a genius, he is a great human being," said Austan D. Goolsbee, counselor to Obama since their Chicago days. "Whenever he has advice, the administration is very interested."

Well, not lately. Volcker has some advice, deeply felt. He has been offering it in speeches and congressional testimony, and repeating it to those around the president.

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.

"I am not pounding the desk all the time, but I am making my point," Volcker said in one of his infrequent on-the-record interviews. "I have talked to some senators who asked me to talk to them, and if people want to talk to me, I talk to them. But I am not going around knocking on doors."

Still, he does head the president's Economic Recovery Advisory Board, which makes him the administration's most prominent outside economic adviser. As Fed chairman from 1979 to 1987, he helped the country weather more than one crisis.

Obama has in Volcker an adviser perceived as standing apart from Wall Street, and critical of its ways, some administration officials say, 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's proposal would roll back the nation's commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities.

The Obama team, in contrast, would let the giants survive, but would regulate them extensively, so they could not get themselves and the nation into trouble again.

Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street's wild ways.

"The banks are there to serve the public," Volcker said, "and that is what they should concentrate on."