Volcker to the Rescue

A towering moneyman to impress the gnomes of Europe

Despite his brobdingnagian frame (6 ft. 7 in., 240 lbs.), his ever present cigar and his gravelly bass voice, Paul Volcker is a man who likes to keep a low profile, to perform his financial wizardry as a bureaucratic technician rather than as a public figure. But such behind-the-scenes machinations have their frustrations. One night, after an International Monetary Fund meeting in Copenhagen, Volcker was so exasperated with his colleagues that he strode down to the Tivoli Gardens and proceeded to throw wooden balls in a booth full of china plates until he had smashed away his tension.

Volcker's problems in those days, when he was Nixon's Under Secretary of the Treasury for Monetary Affairs, were chiefly with the French. But the French have also found ways to be accommodating. When Volcker stays in Paris, the Crillon Hotel installs the bed that was specially made for a famous 6-ft., 4-in. guest: General Charles de Gaulle. No other will hold the frame of the 51-year-old banker from New Jersey.

Volcker is the only man in history who has officially devalued the U.S. dollar twice. As Under Secretary of the Treasury, he was the technician who hopped from chair to chair around the table negotiating various devaluation figures with the delegates to a 1971 currency conference in Washington. And in 1973 he secretly shuttled among the main industrial nations themselves, flying 31,000 miles in five days, losing his hat in Tokyo and exhausting his supply of cheap cigars and clean shirts before returning with an agreement.

So it was ironic that last week President Carter's appointment of Volcker to replace incoming Treasury Secretary G. William Miller as chairman of the Federal Reserve Bank was generally viewed as a brilliant defense of the dollar. Said usually testy Senate Banking Committee Chairman William Proxmire: "The President has shown outstanding judgment. His appointment will be praised by Congress, by participants in domestic financial markets and by the international monetary community." Added the Brookings Institution's Robert Solomon: "The President couldn't have found a better man." The stock market shot up, bond prices improved, and, despite Carter's lack of new programs to support the dollar, it temporarily recovered slightly on overseas markets, mainly on the basis of Volcker's reputation as a conservative defender of the dollar.

Volcker's years of toil in the world of interest and exchange rates--he is currently president of the New York Federal Reserve Bank--have made him a comfortable member of the international monetary club, unlike Miller, who was little known in the world's money markets when appointed. Financier Robert Roosa says of Volcker, "There's nobody in the world of international finance that he doesn't know." When Volcker used the word discipline a dozen times in his short press conference last week to describe his view of proper Federal Reserve policies, the international banking community knew that his No. 1 concern would be to stabilize the dollar by fighting inflation.

As he said in a speech he gave in England last November: "A stronger and stabler dollar is plainly in the interest of the U.S. and the world. These recent months have been instructive to all--a sliding dollar undercutting our own anti-inflationary effort, generating uncertainty at home and abroad, hurting growth."

In practice, this policy means a dedication to high interest rates, even as the clouds of a recession loom. Said Volcker last week: "I don't think recessions in and of themselves are ever a great thing, but I don't think you just inflate yourself out of a recession either." Twice this spring, at Federal Reserve System policy meetings, Volcker voted in the minority, against Chairman Miller, in favor of raising interest rates. By appointing him, Carter appears to be giving a sign that he will not dilute his anti-inflationary policies in order to stop an election-year recession. Said the President: "He shares my determination to vigorously pursue the battle against inflation at home and to ensure the strength and stability of the dollar abroad."

At least three people turned down the top Fed job: David Rockefeller of the Chase Manhattan Bank, A.W. Clausen of Bank of America and Robert Roosa of Brown Brothers Harriman & Co. investment bankers. The final choice came down to Volcker and Bruce MacLaury, president of Brookings. When Carter phoned Volcker last Tuesday, the banker's main concern was to make sure that he and the President agreed on the independent role of the Federal Reserve. "I am satisfied on the basis of my conversations with the President that he has a good understanding of the problems," Volcker said later. His other consideration: moving from the New York Federal Reserve Bank presidency to the chairmanship of the whole system involves, because of the federal pay structure, taking a salary cut from $110,000 to $57,000. He accepted the next morning.

Volcker, who was graduated summa cum laude from Princeton and took his master's degree in political economy at Harvard, is an avid deep-sea fisherman. Before his two children grew up and he moved with his wife to a co-op on Manhattan's Upper East Side, he was a dedicated gardener at his New Jersey home, and he once tried growing grapes to produce his own wine. His report on Chateau Volcker grand cru: "It came out like shellac." He is from a middle-class family--his father was city manager of Teaneck, N.J.--and is known to be somewhat parsimonious. His cigars, complain his associates, do not carry a banker-like aroma. (One of his first acts, nonetheless, will probably be to remove the NO SMOKING signs Chairman Miller installed in the Fed boardroom.) Volcker's preferred entertainment is watching sports on television with a beer in hand. Once, when meeting a colleague at a Swiss nightspot, he put off the waitress until their conversation was completed. Then, never having ordered a drink, he complained that the prices were unjustifiable, and stalked out. The money world hopes he will be just as frugal with the American dollar.

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