How Paul Wolcker Helped Obama Foresee the Meltdown
An absolutely fascinating piece in today's Wall Street Journal reveals why Obama was so prescient about the housing crisis. In brief:
When he was still a longshot candidate, long before the first primary, he met and impressed Paul Volcker. Volcker was chief of the Federal Reserve back in Reagan's era. For years Volcker's reputation has been eclipsed by Alan Greenspan's, but now that Greenspan is in disrepute for allowing the deficit to explode and the economy to meltdown, people are remembering Paul Volcker more fondly.
Volcker, in turn, impressed Obama.
The result? Obama foresaw the housing crisis, and spoke with it when the government could have stepped in avert a crisis — back in September of last year, long before the meltdown. The gist:
The bond between Messrs. Obama and Volcker started with a dinner
invitation. In June 2007, Mark Gallogly, co-founder of Centerbridge
Partners, a New York private-investment firm, and an early supporter of
Sen. Obama, invited a dozen financial executives to meet the senator,
including Goldman Sachs Group Inc. President Gary Cohn, Merrill Lynch & Co. President Greg Fleming and Mr. Volcker.
Along with the invitation, Mr. Volcker received from Mr. Gallogly a
"briefing package" containing some speeches by Sen. Obama and news
articles about him. Mr. Volcker also read the two books written by the
In the private dining room at a Capitol Hill restaurant, Mr.
Gallogly seated Mr. Volcker directly across from Sen. Obama, who at the
time was considered a long shot to win the Democratic nomination over
Sen. Hillary Clinton. Returning late that night on a flight to New
York, Mr. Volcker told the group he was "genuinely impressed" with the
That message was eventually passed along to Sen. Obama's advisers in
New York, Michael Froman, a friend from Harvard Law School and a Citigroup
Inc. executive, and Jenny Yeager, a fund-raiser. Ms. Yeager told Obama
headquarters in Chicago that Mr. Volcker seemed "interested" in the
candidate, but in two months no one had followed up with the ex-central
banker for fund raising or anything else.
When Sen. Obama's economics adviser, Mr. Goolsbee, heard about Mr.
Volcker's interest, he immediately got excited. "Paul Volcker is a
legend! We don't want to use his contacts for money, we want to pick
his brain," he recalls saying to a campaign operative.
Starting in late summer 2007, Mr. Goolsbee had regular discussions
with Mr. Volcker. He incorporated Mr. Volcker's ideas, including his
early concern that the housing downturn would snowball into a larger
financial crisis, into Sen. Obama's policy positions. In a September
2007 speech at Nasdaq, Sen. Obama predicted that because of oversight
lapses and abusive practices that cause the public to doubt financial
results, "the markets will be ravaged by a crisis in confidence."
Or, as they say in the Bush administration…something "no one could have imagined."
[pic of Paul Volcker from a few years ago, delivering report to UN on oil-for-food program, via adamroam]