Volcker Said to Lead New White House Economic Panel (Update5)

By Kim Chipman and Vivien Lou Chen

Nov. 26 (Bloomberg) -- Paul Volcker, the former Federal Reserve chairman who throttled the economy to crush inflation in the 1980s, will lead a new White House panel aimed at reviving growth, according transition team spokeswoman Stephanie Cutter.

President-elect Barack Obama will name the 81-year-old Volcker as chairman of the new President’s Economic Recovery Advisory Board today, she said. Austan Goolsbee, a University of Chicago economist, will be the top staff official on the board and a member of Obama’s Council of Economic Advisers. Obama plans a news conference in Chicago today at 10:45 a.m. Washington time.

Volcker was an adviser to Obama during the presidential campaign and was a candidate for Treasury secretary, a job that went to Federal Reserve Bank of New York President Timothy Geithner. The new panel, which will meet about once a month, will give Obama advice on how to shore up financial markets, and Volcker’s position will be a part-time one.

“He is one of the most independent-thinking guys you could find and brings massive reputation,” Ethan Harris, co- head of U.S. economic research at Barclays Capital Inc. in New York, said before the appointment.

Volcker was named Fed Chairman in August 1979 as the U.S. experienced a “crisis of confidence” under President Jimmy Carter. With the president hobbled by a hostage crisis in Iran, long lines at gas stations and inflation of more than 10 percent, Volcker unleashed interest rates and began to clamp down on the quantity of money in the banking system.

Assault on Inflation

Vilified at the time for causing one of the worst recessions since the Great Depression, Volcker was later lauded for his assault on runaway prices and became an icon for a generation of central bankers from New Zealand to South Africa.

Volcker resigned from the Fed chairmanship in 1987, before the stock market crash of that year, saying he hadn’t been fair to his family, could make more money outside public service and didn’t want a third term.

More recently, he headed a panel that probed Swiss banks’ handling of Holocaust victim’s accounts, has been active in the Arthritis Foundation and led the independent committee that investigated the United Nations’ oil-for-food program.

Banks have taken at least $684.7 billion in credit losses and writedowns in a crisis that began with soaring default rates on high-risk mortgages and ended up redrawing the entire U.S. financial landscape. Volcker has already voiced his contempt for Wall Street’s risk management, and is likely to come to the job ready to impose tougher restrictions.

‘Failed’ Test

“The bright new financial system, for all its talented participants, for all its rich rewards, has failed the test of the marketplace,” he said in an April 9 speech to the Economic Club of New York. “It all adds up to a clarion call for an effective response.”

Volcker’s panel will be modeled on the Foreign Intelligence Advisory Board, which was set up in 1956 by then- President Dwight Eisenhower to track spying activities during the Cold War.

Volcker will play a key role in shaping the new economic board, which will report directly to Obama. The aim is to bring in leaders from business, academia and elsewhere to provide an independent perspective on how to handle the economic crisis.

As top staff person, Goolsbee will act as a liaison between the panel and the Council of Economic Advisers. The board’s members and the specific topics it will take on haven’t yet been determined.

To contact the reporter on this story: Kim Chipman in Chicago at kchipman@bloomberg.net ; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

Last Updated: November 26, 2008 10:44 EST

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