The Ghetto Economist on the Volcker Rule-part deux
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Being of a basically untrusting nature-at least where politicians are concerned-I’ve been keeping an eye on the financial reform package as it slowly winds it’s way thru the Senate. I’m gonna touch on one aspect which I’d posted on before, the Volcker Rule .
Basically the Volcker Rule prevents a banking institution which accepts deposits (backed by the FDIC) from taking risky positions out of their own portfolio.This is known as Proprietary Trading. Theory is, since they already have the advantage of govt deposit insurance and access to very low interest loans, they should be prevented from taking risks with $ ultimately backed by the taxpayer. It also sets standards to prevent banks becoming so large that they become Too Big To Fail.
Here is where it currently stands in the Dodd Bill (my bold):
1 SEC. 989. GOVERNMENT ACCOUNTABILITY OFFICE STUDY ON PROPRIETARY TRADING….(1) IN GENERAL.—The Comptroller General of the United States shall conduct a study regarding the risks and conflicts associated with proprietary trading by and within covered entities, including an evaluation of (A) whether proprietary trading presents a material systemic risk to the stability of the United States financial system….(c) REPORT TO CONGRESS.—Not later than 15 months after the date of enactment of this Act, the Comptroller General shall submit a report to Congress on the results of the study conducted under subsection (b).
To be fair, I believe the Obama White Paper on financial reform called for a two year transition to the Volcker Rule so this falls within that limit, but it looks to me like Dodd punted on this one.
The administration’s White Paper also pushed for an independent Consumer Financial Protection Agency, with which the redoubtable Elizabeth Warren has been so strongly associated. Well, it’s included in the Dodd Bill. Know where? It’s in the Fed. Housed within the Fed, funded by the Fed.
Independent-and housed within the Fed ? Anyone else besides me see anything wrong with that? One more thing-there’s also a Financial Stability Oversight Council also gonna be housed there-nine people appointed by the Fed with veto power over anything recommended by the CFPA.
Oh yeah, the FSOC would also be tasked with the decision whether or not to enact the Volcker Rule, should it get that far.
just sayin’ is all………
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Thank you, I’ve just been searching for information approximately this topic for a while and yours is the best I’ve discovered so far. However, what about the conclusion? Are you positive in regards to the supply?
Oso, this post was a nice piece of public service.
-SJ
Thanks SJ!
Elizabeth Warren has been campaigning for a Consumer Protection Agency with real teeth for many years. Head of the Oversight on Tarp is all they give her. If she had the power, she would turn the financial sector inside out, in a good way as far as we are concerned, Wall Street wouldn’t like it.
Agreed.
‘Being’ is fine, ‘all’ is ok….what’s that middle bit again?
With new evidence that the S.E.C. needs to also clean up its act, the financial reform bill should also address the enforcement side as well as implementing new rules such as Volcker. With the Stanford Ponzi case, new evidence is coming up that the SEC was possibly intentionally looking the other way for 10 years. Along with the Bernie M. case they seem like the Keystone auditors!
http://dealbook.blogs.nytimes.com/2010/01/21/the-secs-whistle-blower-problem/
Krell,
thanks for the link! SEC should change their logo to those three “see no evil hear no evil speak no evil” monkeys.
Absolutely, financial reform needs to address the enforcement side as well.
Oso this post took off minutes after you put it up. Great stuff and I keep learning and learning…Thanks man.
Thanks Mike!
Ditto what Mike said – I haven’t had time to follow the financial bill, and thanks for following it for me 🙂
Vigil,
I think he oughta go out like a man and really stick it to these bastards. I’d assume there’s pressure on him to water the bill down. Be interesting where he lands after retirement.What board of directors or where’s he might be lobbying from.
Oh yeah. I forgot. There’s life after senate.
My guess is, he’s gonna be coaching third base for the Dodgers next year.But just a guess at this point. If not that, maybe managing a Chik-Fil-A summers’ in Texass
Dodd coaching 3rd base? I thought that was going to be Jamie McCourt’s driver….?
You guys slay me…:-) Great post Oso!
Why would Dodd feel he had to punt on anything? Isn’t he retiring? If he is, he doesn’t have to punt, even on the 40th down!