Last Bow for the Inflation Tamer

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After the bailout of Mexico, the next major challenge for Volcker came in the summer of 1984, when Continental Illinois, once the seventh largest bank in the U.S., suffered a relentless run on its deposits after word got out about its immense pile of bad loans. To stave off a crisis, Volcker helped assemble a package of $4.5 billion in fresh commercial-bank loans for Continental. "This is a very historic thing," remarked a New York City banker. "This is the first time the Fed has been party to any kind of statement that 'nobody is going to lose.' " While the Federal Deposit Insurance Company had to take over and reorganize the bank, Volcker's eagerness to get involved in the rescue was a confidence-building signal to the public that major U.S. banks would not be allowed to founder.

When inflation-free economic growth returned to the U.S., Volcker's image underwent a transformation. The central banker became a folk hero of sorts. Citizens started approaching Volcker on the street and thanking him for what he had done. Volcker was sitting in a coffee shop during an outing in Montana when a local rancher in a Stetson and faded jeans suddenly recognized him and ( ambled up. It looked as if the cowboy might be aiming to pick a fight over monetary policy, but instead he pulled out a $10 bill and asked Volcker to autograph it.

Volcker's toughest customers in the past year or so have been the Reagan appointees on the Federal Reserve Board. In February 1986 Volcker came up on the losing side when his colleagues voted 4 to 3 to cut the discount rate that the Fed charges on loans to member banks. The chairman likes debate, but was furious to lose a vote and considered quitting. "The second floor ((where Volcker has his office)) was rocking a bit," says a former assistant. Following the episode, the official who resigned was not Volcker but his rival, Vice Chairman Preston Martin.

Volcker's eventual decision to leave must have been at least partly motivated by the financial sacrifices he and his wife Barbara have made during his tenure. When Volcker originally took the post, he accepted a pay cut from $110,000 to $60,000. His salary has since increased to $89,500, but that is still less than many of today's M.B.A.s earn by their late 20s. The Volckers struggled at times to support both a one-bedroom Washington residence for the Fed chairman and the family's larger Manhattan apartment. At one point Volcker's wife, who suffers from diabetes and arthritis, took a job as a bookkeeper to help pay the bills. Volcker's son James now works for a bank in New York City, and his daughter Janice, who lives in Virginia, is a nurse. In a recent interview in the Washingtonian magazine, Volcker admitted, "It ain't quite fair to leave a family sitting out there ((when)) you obviously have the possibility of assuring a little more comfort than I have done so far." One sign that Volcker was ready to make major changes in his life-style came March 18: he gave up his trademark 28 cents Antonio y Cleopatra cigars because both his wife and a close friend had stopped smoking.