Ronald Reagan’s Fed Chairman Paul Volcker is back to bash bankers–and not a moment too soon–as he tells a Senate hearing that the solution for bailouts is “to arrange an orderly liquidation or merger–in other words, euthanasia, not a rescue.”

This drastic solution unnerves outgoing Banking Committee Chairman Chris Dodd into warning that the Obama White House is “getting precariously close” to excessive ambition for regulatory legislation: “I don’t want to be in a position where we end up doing nothing because we tried to do too much.”

Too much? What Volcker, who once cited the ATM as “the most important financial innovation that I have seen,” wants to do is unwind the disastrous novelties–credit-default swaps, collateralized debt obligations et al–which “took us right to the brink of disaster” and go back to separating banks from market gamblers as the Glass-Steagall Act did in 1933 until it was repealed in late 1999.

When Republicans expressed doubt yesterday about how regulators would discern “excessive growth” in a bank’s share of market liabilities, the plain-spoken Volcker told them it’s “like pornography–you know when you see it,” paraphrasing Supreme Court Justice Potter Stewart.

A Democrat and lifelong economist at the intersection of government and private markets, Volcker was appointed Fed Chairman by Jimmy Carter just as Reagan was taking office and reappointed to remain through both his terms until 1987 to be replaced by Alan Greenspan.

What’s notable about his reemergence in the Obama spotlight now after a shaky Geithner-Summers interregnum is that he embodies an ethic of old-fashioned thrift that was lost during the Bush-Cheney years and not found again by their successor.

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