Barack Obama spent most of 2009 bailing out banks and placating bankers. But last week, after the embarrassing Massachusetts defeat which saw the Democrats lose their crucial 60-seat senate majority, he finally responded to populist rage and proposed a range of radical policies long advocated by the 82-year-old former Federal Reserve Chairman, Paul Volcker. With Volcker by his side (and top economic Larry Summers and Tim Geithner relegated to the back of the room) Obama announced what he termed the “Volcker rule”: a move to restrict banks’ speculative (and high risk) trading. It is by no means a return to Glass-Steagall—an act introduced in the 1930s in order to restrict speculation—but it is a step in that direction. And, predictably, bankers (used to treasury secretary Geithner’s mollycoddling) reacted with fury.

Volcker, the architect of the right-wing 1980s transformation of our financial world, may now actually be the most leftist economic adviser in Obama’s administration. Let us take a jaunt back to the 1970s, to recollect what Volcker accomplished then. It was a tough decade for business: high inflation, stagnating stock markets, powerful unions, corporations held in scorn. During those years, workers saw their real wages go up, while the holders of wealth took a big hit. With real interest rates negative, putting money into the bank made it evaporate. Bonds lost money, as did shares. Business Week magazine told investors that equities were dead. Inflation became self-perpetuating as workers habitually demanded wage hikes greater than the cost of living. The future seemed anywhere but business. In those days, everybody wanted to be a working-class hero, and even the children of the wealthy dressed down, avoided any bling. Capitalism wasn’t cool. The highest paid executive on Wall Street made $500,000; experienced analysts made $30,000.

Almost single-handedly, Volcker changed all of that. His goal was simple: eradicate inflationary expectations from the economy. His tool: brutally high interest rates. Macroeconomists have long known the trade-off between inflation and unemployment, that raising interest rates would goose unemployment and so lower inflation. The difference was that Volcker was courageous enough to raise rates until the economy screamed. In the 1980s this manufactured the largest recession of the postwar era but, in the process, eradicated inflation for a generation. During that time, Volcker (and his transatlantic counterpart, Margaret Thatcher) also crushed the unions, caused a bull market in shares, and made capitalism hip. In short, Volcker transformed our world.

Unlike Thatcher, or Alan Greenspan (who succeeded him as Fed chairman in 1987), Volcker was no ideologue. Nor was he ever seduced by Wall Street. A spartan man of simple tastes, money didn’t motivate him. Even after he retired, he remained that old fashioned paragon: the dedicated public servant. The world changed all around him, but his understanding of it stayed the same.

Atypically for a man of his power and influence, he continued to be an independent thinker, unswayed by conventional wisdom. In 2004, when the housing bubble was still in its sprightly adolescence, Volcker predicted a financial crisis within the next five years. In 2005, when most economists and central bankers were patting themselves on the back for having engineered the “great moderation,” he wrote: “Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot.”

Volcker, more than most, recognised the danger of debt-fuelled consumption, and saw that its unravelling would probably come through financial crisis. Perhaps that is why, in January 2008, when most pundits gave Hillary Clinton the Democratic nomination, Paul Volcker endorsed Barack Obama, lending the freshman senator much needed gravitas.

After Obama won the election, Volcker was naturally touted as a possible treasury secretary. His advanced age may have worked against him and he was given a largely ineffectual post as an economic adviser. Larry Summers and Tim Geithner, more moderate and more committed to the existing structure on Wall Street, dominated Obama’s economic thinking. Volcker seemed iced out, only occasionally meeting with the president. But as the economy remains weak (even while Goldman Sachs books record profits), a populist backlash is threatening to overwhelm both Geithner and perhaps even Summers. And so Obama has taken the big man off the bench.

The logic behind Volcker’s proposal is that, since banks receive an implicit government guarantee, they should not engage in speculative behaviour. If risky bets pay off, the bankers take the money. If they fail, we, the taxpayers, pay the price, creating moral hazard and impelling bankers towards ever riskier behaviour. The “Volcker rule” now has to make its way through congress, where finance industry lobbyists are sure to try and water it down. But considering what he has already achieved over so many years, combined with his wisdom and his charisma, only a fool would underestimate Paul Volcker. He cannot be dismissed as radical or inexperienced. Bankers, watch out.