Outside Looking In
Paul Volcker saw Barack Obama as an "agent for needed change" when the former Federal Reserve chairman endorsed him for president in January 2008. But lately Volcker has been feeling a bit ignored by the White House, and thinks that Obama isn't changing Wall Street enough to avert another subprime disaster. Last week the current Fed chief, Ben Bernanke, came up with a proposal to make big banks behave: he pledged to change the way the nation's top 28 banking companies pay their executives, removing incentives for short-term gains and "working to ensure that compensation packages appropriately tie rewards to longer-term performance."
But Bernanke didn't go nearly as far as Volcker says we should. Volcker wants to keep major commercial banks that enjoy federal-deposit guarantees away from big-time speculative trading. "They shouldn't be doing risky capital-market stuff," Volcker told NEWSWEEK before the Fed announcement. But, he adds, the president "obviously decided not to accept" his recommendations. Volcker says he was used as "some kind of symbol of responsibility and prudence" by the administration during the campaign, and now speaks to Obama only occasionally. A White House official, who didn't want to be named talking about personnel issues, says Obama pays close attention to Volcker—and other dissenters, like Mervyn King, the Bank of England governor who also called last week for substantive structural changes to banks considered "too big to fail." "The president has a great deal of respect for Paul Volcker; he has met with him more than a dozen times in the White House, and seeks his input frequently," the official says.
The Fed's scheme was designed by Fed governor Dan Tarullo, an Obama appointee, but was adopted without administration input, says a Fed official who requested anonymity to discuss internal deliberations. The official adds that Bernanke's proposal is intended to address "the same issues of safety and soundness" that concern Volcker. In addition to the Fed's rollout, last week Treasury official Kenneth Feinberg said the government will restrict compensation of the top 25 employees at bailed-out firms; Obama also urged the Senate to give shareholders "a voice" on executive pay. Volcker says he agrees with "about 80 percent" of Obama's financial proposals, but it's the other 20 percent that has him worried.
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Michael Hirsh covers international affairs for NEWSWEEK reporting on a range of topics from Homeland Security to postwar Iraq. He co-authored the November 3, 2003 cover story, "Bush's $87 Billion Mess," about the Iraq reconstruction plan. The issue was one of three that won the 2004 National Magazine Award for General Excellence.
Hirsh writes a column on Newsweek.com entitled "The World from Washington" focusing on foreign policy issues and serves as Washington Web Editor for Newsweek. He also edited NEWSWEEK's "Issues 2007" special issue, which explores all facets and issues of globalization.
Hirsh was the magazine's Foreign Editor from January 2001 to January 2002, and helped guide Newsweek's award-winning coverage of the September 11 attacks and the war on terror. Before that he was a Senior Editor/Chief Diplomatic Correspondent in the Washington bureau, writing about foreign affairs and international economics. Hirsh was also managing editor for the Newsweek International special issue "ISSUES 2001," the second in a series of three annual reviews of the global economy in the new century.
From September 1998 to December 1999, as Diplomatic Correspondent, Hirsh covered foreign policy, the State Department and the Treasury. He moved to the Washington D.C. bureau in May 1997, previously serving as a senior editor of Newsweek International, covering the same beat.
Prior to joining NEWSWEEK in October 1994 as a New York-based senior writer, Hirsh served as the Tokyo-based Asia Bureau Chief for Institutional Investor from 1992 to 1994. Previously, he was a correspondent for the Associated Press in Tokyo and a National Editor in New York.
Hirsh was co-winner of the 2002 Ed Cunningham Award for best magazine reporting from abroad for Newsweek's terror coverage and contributed to the team of Newsweek reporters who earned the magazine the prestigious 2002 National Magazine Award for General Excellence, also for the magazine's coverage of the war on terror. Hirsh also won a Deadline Club Award in 1997 for investigative reporting on his expose of the IRS's abusive practices, and was one of five finalists for a 1994 Gerald Loeb Award for Distinguished Business and Financial Journalism for his article, "China's Financial Revolutionaries." It profiled the new generation of mainland Chinese businessmen who are striving to build a capitalist financial system from scratch. Hirsh is the author of the nonfiction book "At War with Ourselves" (Oxford University Press, 2003) which explores America's foreign policy and its global role.
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