A former Plainfielder, actually.
Paul Volcker, chairman of the Fed under presidents Jimmy Carter and Ronald Reagan wrote a joint OpEd in last Wednesday's Wall Street Journal urging the resurrection of the Resolution Trust Corporation (RTC), used to bail out the savings and loan debacle of the 1980s (see more here).
Paul Volcker lived in Plainfield when he was an executive at Chase Manhattan Bank and, as his daughter Janice noted in a 1987 NY Times article, he was old-fashioned and frugal then -- meaning a banker who believed in sound loans and a dedication to public service as a virtue.
Well, old-fashioned this former Plainfielder may be, but he is remembered for breaking the back of 'staflation' while Fed chair, and is still widely respected. And he is listened to.
Fed chair Bernanke (himself an expert on the Great Depression) and Treasury Secretary Hank Paulson heeded the ex-Plainfielder's advice and made a proposal at the end of last week along the lines Volcker suggested.
But there are thickets to watch out for.
The proposal is to pay a 'fair' price for the distressed assets (the list of which ballooned over the weekend) -- and therein lies the difficulty. Who knows what a 'fair' price is? How does one go about discovering the 'fair' price?
And that is where Volcker's suggestion needs fine tuning -- or maybe even an alternative strategy.
Charles Calomiris, of Columbia's business school, suggests that Volcker's idea is fraught with problems -- how to price the securities, and how to make defensible decisions being chief among them -- that would be avoided by a plan he proposes (see here). His plan is similar to one the Japanese used during their banking industry's crisis (imperfectly, to be sure).
Yesterday, New York Sen. Chuck Schumer told reporters (see here) that stronger oversight is needed than Paulson and Bernanke have proposed.
Tuning in to Bloomberg Radio at 5 AM, I was surprised to learn that the proposal is being broadened from subprime mortgages to just about any debt that the banks speculated in (credit cards, auto and student loans, etc. -- or as the King of Siam would say... etc., etc. etc.).
With everyone piling on and trying to get a piece of the action, Schumer is right to sound a warning.
As Schumer says,
"We understand the need to act and to act quickly. But we feel ... taxpayers have to come first ... They have to come ahead of the bondholders, the shareholders, and the executives."A sentiment former Plainfielder Volcker no doubt concurs with. As well as this current Plainfielder.
But will the taxpayers be put first?
Stay tuned.
- WSJ: Volcker, Brady & Ludwig: "Resurrect the RTC"
- Financial Times: Charles Calomiris: "A Matched Preferred Stock plan for government assistance"
- Reuters: "Schumer: Bailout needs stronger oversight"
-- Dan Damon
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