Krugman: He’s too big to fail (Volcker)

[ProSense]

April 11, 2009

He’s too big to fail

But not, apparently, too big to ignore.

What’s odd about the marginalization of Paul Volcker is that from what I hear, the Volcker era has become the key inspiration behind the administration’s see-no-evil approach to banks. The arguments goes like this: several money-center banks were probably under water in 1982-3, thanks to Latin loans gone bad — but Volcker helped paper those losses over, and everything worked out OK, and wasn’t that all for the best?

There are a lot of problems with this position. For one thing, we’re not likely to have a recovery like that of 1982-4, because this is a different kind of slump. For another, more transparency in 1983 might have averted most of the S&L crisis, and more broadly stopped the rush to deregulate.

But anyway, it is sad to see one of the policy greats of this era honored but sidelined.