Word: volckerism
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...keep banks, which hold federally insured deposits, from engaging in such risky businesses as proprietary trading and hedge-fund and private-equity-fund investing (all three activities contain some element of trading or investing for the firm's own account, possibly employing leverage). Many have dismissed the so-called Volcker rule, which Obama named for former Federal Reserve chairman and current presidential adviser Paul Volcker (who has championed the proposal), as unnecessary. They say proprietary trading played a very limited role in causing the financial crisis, that poor lending and underwriting were more to blame...
Indeed, a number of former and current Wall Streeters have come out in favor of limiting proprietary trading by banks. At the Senate hearing on Thursday, former chairman of Citigroup John Reed said he supported a Volcker-rule-like separation of financial firms. "The industry should be compartmentalized so as to limit the propagation of failures and also to preserve cultural boundaries," Reed told Senators...
...Wall Street money manager Jeremy Grantham recently wrote shareholders that he thought the Volcker rule would eliminate conflicts of interest at financial firms. Citigroup's current chief executive Vikram Pandit, too, has said he believes banks need to start curtailing their riskier activities. In November, speaking to business students at Washington University in St. Louis, Mo., Pandit said that unlike with other financial crises, proprietary trading played a much bigger role than underwriting in the recent credit crunch that nearly brought down his firm. "It makes sense to me that you don't take deposits as an institution and turn...
...approach is to lay on a heavy cost of being big. Too-big-to-fail banks should have a capital cost that will make it a disadvantage to compete in the riskiest parts of the financial-services market. I also like President Obama's recent proposal, the so-called Volcker Rule, which would limit proprietary trading and investing. Combining these two regulatory changes ought to encourage big banks to figure out new business strategies, and that would involve selling off some of their riskier businesses...
...problem, as usual, is the Senate - and, in an election year, the calendar. Republicans are already suggesting that Obama's belated push for the Volcker rule and other add-ons will require new hearings and more delay, and that its line-in-the-sand approach to the consumer agency is a formula for gridlock. Meanwhile, in the post-Massachusetts political climate - and with so much industry cash sloshing around in Washington - centrist Democrats seem to fear getting tagged as Obama liberals more than they fear getting tagged as Wall Street water carriers. And the White House would rather see reform...