Volcker's remedy could provide fast, soothing relief

This inattention is unfortunate, for while the wrangling over how to address escalating medical costs engenders political apoplexy and heart burn, rage and recrimination, Volcker's financial remedy could provide fast and soothing relief to our fevered political system — if Congress passes the measure.

The plan, dubbed “Volcker's Rule,” would return the United States to earlier separation between commercial banking, in particular the deposits of individual savers, and the risky activities involving trade in complex financial derivatives. Some exceptions are granted, for instance for banks investing directly on behalf of clients, and in defined forms of hedging.

The initiative is intended to be inserted into more comprehensive consumer protection and financial reform legislation now being considered in Congress. Initial reception has been lukewarm, not surprising given the power of financial lobbies.

During the Great Depression, the path breaking Glass-Steagall Act accomplished what Volcker now proposes. The New Deal reformers also put the credit of the U.S. government behind individual savers by establishing the Federal Deposit Insurance Corporation (FDIC). A strong Washington hand in regulating and underwriting savings was extremely popular in that desperate time.

In 1999, U.S. President Bill Clinton and Federal Reserve Board Chairman Alan Greenspan very blithely presided over Congressional repeal of Glass-Steagall, setting the stage for the devastating excesses of this past decade.

The journalists and others following Volcker's initiative tend to be pessimistic about passage, but this may be a serious misreading. Addressing escalating medical costs is recognized as a very major national challenge. A stable financial system is a necessary condition to reliable public policies in this sector, as in others.

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