Welcome to DU!
The truly grassroots left-of-center political community where regular people, not algorithms, drive the discussions and set the standards.
Join the community:
Create a free account
Support DU (and get rid of ads!):
Become a Star Member
Latest Breaking News
General Discussion
The DU Lounge
All Forums
Issue Forums
Culture Forums
Alliance Forums
Region Forums
Support Forums
Help & Search
Economy
In reply to the discussion: Weekend Economists and the Accidental President December 13-15, 2013 [View all]xchrom
(108,903 posts)17. The Volcker Rule: Wins, Losses and Toss-ups
http://www.thenation.com/article/177592/volcker-rule-wins-losses-and-toss-ups
After three years, multiple missed deadlines, and at least 111 meetings between regulators and Wall Street groups (versus only twelve meetings with pro-reform groups), we finally have a final version of the Volcker Ruleand if properly enforced, it will change the business of banking for the better.
The Volcker Rule aims to ensure that banks that enjoy the backing of the federal government and the cushion of customer deposits do not get to make risky bets (or, in the language of the rule, proprietary trades). In other words, banks that have a taxpayer-provided parachute dont get to BASE jump off of mountains for the thrill (and profit) of it.
It was a long path to get here: Senators Jeff Merkley and Carl Levin authored the law in 2010, as a part of the Dodd-Frank Act. Financial regulators were responsible for writing the final rule. A draft was published in 2011, and 18,000 comment letters were written, the vast majority by Wall Street interests. But reformers also wrote letters, including Americans for Financial Reform, Better Markets, Public Citizen and a letter from the group Occupy the SEC that I co-authored. Despite being vastly outnumbered, reformers made a real difference: the final rule rejected many of the additional exemptions banks wanted, and it is stronger than the draft in many key places.
Win: No Portfolio Hedging
In the original law, Congress sought to preserve banks ability to trade with clients (called market making on Wall Street), as well as their ability to hedge their risk, which is the way banks try to protect themselves from staggering losses. But many feared these allowances for market making and hedging could be abused. As I previously pointed out in The Nation, the London Whale trading fiasco highlighted an enormous loophole in the rule for portfolio hedging. This blanket loophole could have allowed banks to continue their proprietary trading unimpeded.
After three years, multiple missed deadlines, and at least 111 meetings between regulators and Wall Street groups (versus only twelve meetings with pro-reform groups), we finally have a final version of the Volcker Ruleand if properly enforced, it will change the business of banking for the better.
The Volcker Rule aims to ensure that banks that enjoy the backing of the federal government and the cushion of customer deposits do not get to make risky bets (or, in the language of the rule, proprietary trades). In other words, banks that have a taxpayer-provided parachute dont get to BASE jump off of mountains for the thrill (and profit) of it.
It was a long path to get here: Senators Jeff Merkley and Carl Levin authored the law in 2010, as a part of the Dodd-Frank Act. Financial regulators were responsible for writing the final rule. A draft was published in 2011, and 18,000 comment letters were written, the vast majority by Wall Street interests. But reformers also wrote letters, including Americans for Financial Reform, Better Markets, Public Citizen and a letter from the group Occupy the SEC that I co-authored. Despite being vastly outnumbered, reformers made a real difference: the final rule rejected many of the additional exemptions banks wanted, and it is stronger than the draft in many key places.
Win: No Portfolio Hedging
In the original law, Congress sought to preserve banks ability to trade with clients (called market making on Wall Street), as well as their ability to hedge their risk, which is the way banks try to protect themselves from staggering losses. But many feared these allowances for market making and hedging could be abused. As I previously pointed out in The Nation, the London Whale trading fiasco highlighted an enormous loophole in the rule for portfolio hedging. This blanket loophole could have allowed banks to continue their proprietary trading unimpeded.
Edit history
Please sign in to view edit histories.
65 replies
= new reply since forum marked as read
Highlight:
NoneDon't highlight anything
5 newestHighlight 5 most recent replies
RecommendedHighlight replies with 5 or more recommendations
Five simple steps to financial freedom for women BY [i] Suzanne McGee and Alice Finn [/i]
Demeter
Dec 2013
#5
Hmmm. Jesuits... ¿Has the IMF also gone neo-Franciscan? ... A few recent snippets:
Ghost Dog
Dec 2013
#15
The New Advocates of Inequality want to take us back to the middle of the 19th century
Ghost Dog
Dec 2013
#45
Dent, Faber, Celente, Maloney, Rogers – What Do They Say Is Coming In 2014?
DemReadingDU
Dec 2013
#16
End of US quantitative easing at the beginning of 2014 at the latest (LEAP/E2020 May 2013)
Ghost Dog
Dec 2013
#29
No, the Budget Deal Isn't a "Compromise" (NOT AN EQUITABLE ONE, ANYWAY) By Patrick Caldwell
Demeter
Dec 2013
#26