FREE ESSAY ON REVIEW OF WILLIAM GRIEDER

REVIEW OF WILLIAM GRIEDER

Executive Summary:
The Choice of Wall Street
From Secrets of the Temple, by William Greider
"The Choice of Wall Street," is the title of the first chapter in William Greider's 1987
book, "Secrets of The Temple: How the Federal Reserve Runs the Country." This chapter is
basically the story of how and why Paul Volcker was chosen to be the new Federal Reserve
Chairman. It all started in 1979 when President Jimmy Carter took a trip to Camp David
with his most trusted advisers, the purpose of which was to decide on the course of
action that needed to be taken to regain popular support so that he had a chance to win
the upcoming Presidential election. All of his advisers understood that the economy was
his most pressing issue. Inflation was incredibly high and all attempts to curb it had
been useless. The Fed Chairman position was open and Carter needed to find someone strong
to fill it. 
The Fed was supposed to be an entity that was separate from political persuasion.
However, many Presidents select chairmen that they think they will have some control
over. This is what makes Carter's ultimate choice so interesting. After going over all of
the candidates Carter ended up choosing Paul Volcker. Volcker, as most knew was a very
independent person. He would not be the puppet of any President. Carter understood this
quite well, but still thought that Volcker would be able to get a handle on inflation.
Many said that Carter sacrificed his reelection to the Fed. This may or may not be true.
What is true, however, is that Volcker did help to slow down inflation and get the
economy back on track. The problem that the American people saw that President Carter did
not see was that Volcker did this by helping out Wall Street and not Main Street. 
Greider conveys many different points in this first chapter. This paper will analyze
three of the most important.
- The competition between Wall Street, Main Street, and Pennsylvania Avenue.
- The impact of inflation on wealth and income.
- Indecision about the appointment of Paul Volcker.
The interaction between Wall Street, Main Street, and Pennsylvania Avenue can be a
confusing one. Many times Pennsylvania Avenue, The Fed, has to make decisions that will
either have a positive effect on Wall Street, the investment markets and it's wealthy
shareholders, or Main Street, individuals without large market investments. Also, many
times the group that is not positively affected is negatively affected. As Greider stated
they are many times at odds with each other. This occurs, because if The Fed helps out
Wall Street they are only helping out the top 10 percent of the population. This is true
because these people held 86 percent of the financial wealth according to Greider. By
helping out this group The Fed was in effect making it more difficult for the other 90
percent of the people. However, if The Fed only worries about Main Street, Wall Street
will be hurt. It may seem quite simple that The Fed should worry more about Main Street
than Wall Street. The problem that arises is that Wall Street is where most of the money
is and therefore cannot be ignored. Ignoring Wall Street effectively ignores much of the
nations wealth and economic growth sources. As can be seen, the line that The Fed must
walk between watching out for Wall Street and Main Street is a very important one. These
are the reasons that The Fed is shielded so heavily from political influence.
Another point that Greider makes in this chapter pertains to inflation and it's real and
perceived effects on wealth and income. As is stated in the chapter, it is perceived that
inflation hurts everyone in the economy. This, however, is not necessarily true. It can
be said that inflation hurts those who have assets that are tied to interest rates. These
people are hurt greatly when the spread between inflation and the interest rate tightens.
This is why during high inflation times many of these people get out of these types of
investments and go to less interest rate sensitive investments. Some examples of these
are precious metals, real estate, and art. 
On the contrary, those individuals who do not have investments that are tied to interest
rates are generally not hurt very much or at all. The majority of the population does not
have interest sensitive investments. Many times their only investment is their home.
Greider gives the example that generally in inflationary times individual incomes go up
with inflation. Therefore, their spending power is not affected by increases in the
general price level. Most of these people also own their own home and have fixed rate
mortgages. Because of this their payments do not go up. This means that their mortgage
payment, generally one of their largest expenses, goes down in real terms. Most
individuals do not understand this; they only see increases in prices and because things
cost more, they believe that they are worse off. Many times exactly the opposite is
true.
Inflation was one of the main reasons that President Carter found himself with a
lackluster approval rating. He knew that something must be done, and finally made the
choice to appoint Paul Volcker as the Federal Reserve Chairman. By selecting Volcker,
President Carter received a lot of criticism from advisers. Many said that Volcker would
not be a team player the way that Bill Miller, the previous Fed Chairman, had been. This
was very important to these advisers. They saw a Fed Chairman who was a puppet to the
President as being a puppet to them as well. Carter was able to see through this and
understand the big picture. He understood that Paul Volcker was very qualified to take
over the position. After all, he was the President of the New York Federal Reserve and
had served as the Treasury Under Secretary for Monetary Affairs for Richard Nixon.
Volcker was also very strong-willed, as many put it. Most said that other than that he
would be the best choice for the position.
In general Greider makes a lot of good points. His analyzation of the effects of
inflation on the population is very interesting. He looks at it from a standpoint that
many people would not. The idea that inflation has a different effect on different
members of the population also has a profound effect on the division between Wall Street
and Main Street. This further division makes the job of The Fed that much more difficult.
Greider explains this quite well while describing the tightrope that The Fed must walk.
It also seems that only President Carter understood the importance of keeping the Fed
separate from politics. His advisers would have selected a puppet and it is quite
possible they would have been so politically influenced that corrective action would not
have worked. Therefore, I understand Greider saying that this was the most important
appointment of the Carter administration.