- The Washington Times - Saturday, June 29, 2002

Paul Volcker is an outsized man, basketball-player big, and so you listen when he speaks, and he chuckles and chortles, which makes you feel good, even when he tells you nobody has a magic wand to wave over the stock market and make brokers and accountants stop cheating investors.
At a lively 74, Mr. Volcker has amassed a mountain of honors and accolades, beginning "way back" when he was a student at Harvard and Princeton and the London School of Economics, and continuing through government service capped by containing inflation in the 1980s as Federal Reserve chairman. Now, he is looking back, surveying what has become of the Wall Street he knows so well, and speculating on its future, particularly its further impact on those of us who put up our money to make it all happen.
Mr. Volcker told a breakfast meeting of reporters that "corruption has been widespread since the 1990s" in the stock market, with "huge amounts of money being made by investment bankers pressing the envelope of manipulation." He said the scandalous implosions of Enron, Tyco, Arthur Andersen and other companies have made just about everybody aware that "we have a lot of people trying to figure out how to get around the rules."
The feeding frenzy that has now been well documented and highly publicized was pretty much known to people in the industry all along, he indicated. But nobody seemed able to impose any reforms, he said, because every attempt to tighten the rules was "vigorously resisted" by brokers and accountants through their "potent political force the ability of very strong contributors (to election campaign funds) to do lobbying that resisted reform very successfully."
As to the Federal Reserve Board, which he guided through hectic days of inflation, a stagnant economy and high unemployment in the mid-1980s, he said he disagreed with calls for more transparency in its deliberations. He said the Fed already announces its decisions too quickly today and then hints what its next move would be. That could inspire complaints if the Fed members decided to change their minds, he said, and bring on cries from financiers who act on Fed actions of, "You betrayed us."
Mr. Volcker seemed particularly saddened by the collapse of Arthur Andersen, the accounting firm that once towered over the industry like a moral Colossus. He was called in by the company to study what went wrong and recommend fixing it. He said he was surprised by the request, guessing he was expected to administer "a sprinkling of holy water." In any event, he recommended the obvious split off the accounting activities from the consulting aspects of the business. As everybody now knows, this unholy wedding had accountants from the paragon Andersen on down double-dipping into available funds, to the detriment of investor dividends. "Investment bankers would think up an idea and get their auditors to approve it" was the way Mr. Volcker described the formula.
Mr. Volcker held out little hope that either the House or Senate can come up with legislation that would adequately contain Wall Street's propensity for greed. He said the obvious solution is a tough-minded oversight board, well-financed and independent of pressures from investment houses and auditors. But he said their influence on Capitol Hill makes that unlikely as they seek freedom of operation through "complexities that make it easier, with a lot more room for maneuver."
What is an investor to do, then? He advised the average investor not to trust his or her own judgment in these volatile times but to get expert advice and then follow it warily. He liked mutual funds as a way to go for those with no particular expertise. He did offer a ray of hope, however: "There's still a lot of money to be made."

Warren Rogers has covered the White House and national politics since the Truman administration.

Sign up for Daily Newsletters

Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide