An ingenious new Roosevelt Institute study on the influence of money on politics begins with an incredible story about how the world actually works:
In the spring of 1987, Paul Volcker’s second term as chair of the Federal Reserve was running out. Volcker had first been appointed by Jimmy Carter in 1979, and was willing to stay for another four years if President Reagan asked. While Volcker had used high interest rates to engineer a crushing recession at the start of Reagan’s first term, he then allowed the economy to expand rapidly just in time to carry Reagan to a landslide reelection in 1984.
Yet Reagan wanted to replace him. Why?
The study’s authors, Thomas Ferguson, Paul Jorgensen, and Jie Chen, report that they learned the answer from a participant in the key White House meeting on Volcker’s fate.
The main opposition to reappointing Volcker came from Reagan’s treasury secretary James Baker. As the study puts it, Baker did not like Volcker’s “skepticism about financial deregulation,” specifically his opposition to attempts to repeal the Glass-Steagall Act.
Glass-Steagall, passed at the beginning of Franklin D. Roosevelt’s presidency in the depths of the Great Depression, separated commercial and investment banking. Allowing banks to combine the two activities had created enormous conflicts of interests and incentivized manic recklessness that helped cause 1929’s financial Armageddon.
But banks had loathed Glass-Steagall ever since, because the fewer economy-destroying risks they could take, the lower their profits. By 1987 they were making progress in their long war to push Congress to repeal it. And while Fed chairs of course can’t vote themselves, many politicians take their cues from them on complex financial issues.
According to the Roosevelt study, that was why Volcker had to go:
https://theintercept.com/2017/05/04/how-much-does-a-politician-cost-a-groundbreaking-study-reveals-the-influence-of-money-in-politics/