Volcker: Wall St. changing, but not very rapidly

Paul Volcker was the Chairman of the Federal Reserve Board from 1979 to 1987, and he's been an advisor to President Obama. With America's economy still unsettled, Chairman Volcker sat down just a few days ago with Anthony Mason for a Q&A:

In his office in New York's Rockefeller Center, Paul Volcker fills the hallway. He is a towering figure, both in height (he is 6'8") and in reputation. He spent eight years as Chairman of the Federal Reserve.

And these days he is casting a giant shadow over Wall Street.

He says he believes the culture on Wall Street has to change.

In the aftermath of the financial crisis, Volcker has led an outspoken campaign to curb greed and speculation. His concern, he says, is for the health of the banking system.

For nearly two years, the 84-year-old economist chaired President Obama's Economic Recovery Advisory Board, helping to shape the president's banking reforms.

In January 2010, Mr. Obama urged Congress to enact "a simple and common sense reform, which we're calling the Volcker Rule, after this tall guy behind me."

The draft of the president's speech had not included Volcker's name.

"I was absolutely surprised," Volcker said. "I knew nothing about it until the words came out of his mouth."

"How do you feel about having your name on part of this?" Mason asked.

"It's partly fun, partly an annoyance," he said.

The "Volcker Rule," which goes into effect in July, will prevent banks from making speculative bets that could put both themselves and taxpayers at risk.

"I think part of the problem is that that kind of mentality, trading mentality with very high incomes, distorted the culture of traditional banking," Volcker said. "It got out of hand."

He believes soaring salaries and bonuses encouraged bankers to make more risky trades.

"Do you think that's changing?" Mason asked.

"Changing, but not very rapidly," Volcker said. "There's a lot of resistance, for obvious reasons."

Volcker knows about resistance. When he headed the Fed during the Carter and Reagan presidencies, Volcker pushed interest rates above 20 percent to conquer inflation. He succeeded, but he had to take the country into recession to do it.

The move provoked the most widespread protests in the Fed's history: Angry farmers blockaded the Fed with their tractors. "I think it's fair to say it was a difficult time," he said.

Three decades later, he's under attack again - this time from the banks.

"Some CEOs have been particularly critical of you," Mason said. "Jamie Dimon, the head of JP Morgan Chasem, said, 'Volcker by his own admission has said he doesn't understand capital markets. He has proven that to me.'"

"Well, unfortunately, I think that they proved some of that to me, too," Volcker responded. "Their own misunderstanding. How did they get in so much trouble?"

But if Volcker has put himself in the line of fire, the president has been an even bigger target.

"President Obama has taken a lot of heat from Wall Street - he's often accused of being hostile to Wall Street, waging class warfare. Do you think that's true?" asked Mason.

"No, I don't understand the depth of that feeling. I really don't," Volcker said. "This business that he's a great socialist and out to undermine the free enterprise system and so forth, I just think it has no connection with reality.

"How could you have a President of the United States taking office in the midst of a financial crisis and a deep recession and not be critical of the financial system? He would have been deaf, dumb and blind."

Volcker believes the banking system is in better shape now. But while there's more work to be done, he may not be the one to do it.

"Did you think you'd be back in the mix like this at 84?" Mason asked.

"No, no, no. And somehow I'm not so happy about it. I think it's time to get out of here!"

The banks will be glad to see the back of him. On the day we visited, Paul Volcker was thinking about his 65th college reunion next year.

"Are you looking forward to that?" Mason asked.

Volcker said he doesn't care about the reunion: "I was just looking forward to living that long!"