In retrospect, the banks had a pretty sound strategy with Dodd-Frank: fight it during the legislative process, but not too hard, allowing lawmakers to think they’ve accomplished something. Then, during implementation, bend the regulatory apparatus to your will, gutting the law before having to follow it. That has been extremely successful, especially because Dodd-Frank wasn’t really a law so much as a promise to write a law later.
The latest victim of the finance lobby’s efforts on Dodd-Frank is the Volcker rule.
Banks could be allowed to continue making risky bets with their own capital, according to a draft version of the so-called Volcker rule that dilutes the provision’s original ban on “proprietary trading.”
At issue is how regulators and banks define “hedging,” or trades designed to offset risk taken by a bank, usually on behalf of customers.
Basically, the banks successfully got the regulators to define “hedging” so broadly that virtually any proprietary trade could be seen as a hedge.
The Financial Times report on this says that commodity trading, spot currency trading, securities lending, repurchase agreements and some securitizations would be exempted from the ban on proprietary trading, along with exemptions for “liquidity management.” The sum total of these exemptions is that there’s no effective ban on prop trading at all in the rule.
Americans for Financial Reform, in their statement, links this to the news of the “rogue trader” at UBS:
The Volcker Rule is a crucial part of the Dodd-Frank Act. It is perhaps the clearest attempt to change the culture of our major banks to focus on the needs of their customers, rather than short-term returns driven by irresponsible risk-taking and highlighted by conflicts of interest. This is precisely the kind of “casino” culture that has once again left a major global bank (UBS) with large and unexpected losses. The Volcker Rule statute already contains tailored exemptions for standard capital market activities such as hedging and market making. These exemptions may in and of themselves be challenging for regulators to police.
The UBS case emphasizes how investment banks shouldn’t be trading with depositor funds, which is the Glass-Steagall Act to which the Volcker rule already was a weaker substitute. Now it’s a non-existent substitute.
Bartlett Naylor, Financial Policy Advocate at Public Citizen’s Congress Watch Division, says in a statement, “Public Citizen believes that drilling holes in the Wall Street reform law designed to prevent banks from high-risk trading would erode the ability of regulators to prevent the kind of excesses that led to the financial crash that erupted three years ago this month. Creating a haven where banks can trade without government oversight invites hazard.”
After the next financial crash, perhaps we’ll have lawmakers and regulators willing to actually stop the casino on Wall Street. We don’t right now.




24 Comments

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Freedom’s just another word for financial malpractice.
The exemptions swallowed the rule.
These guys are already undercapitalized, so `risky bets with their own capital’ needs to be rephrased as `risky bets with taxpayer funds’. Hardwiring moral hazard into the system would be an understatement.
Are we really surprised?
I’m shocked at this but I’m sure what ever is left in this bill will gutted later.
Yep, this plan worked so well the first time the criminals are back for more with their friends in the beltway.
Breaking up the TBTF banks and nationalizing the true banking functions has to be the number one priority for progressives when the next bust occurs — that is, soon.
There can be no progress whatsoever unless the financial class is made to pay for the destruction it has caused. They are the enemy of democracy, labor, and real growth.
You keep saying this, econobuzz …
And you are correct … every single time.
DW
it’s almost as if they WANT another bubble
nah, that couldn’t be it
The country is run by idiots making the same mistakes over and over again. It’s insane, when will it stop?
No bubble … this is another shakedown, wbgonne.
DW
When the cupboard is completely bare … or when what econobuzz recommends … is accepted.
There are NO other possibilities, skepticdog, NONE.
DW
Austerity is the new negative bumble.
The commodities bubble is in full force.
Low interest rates drive capital into wall street stock risks.
New fears have investors stuffing mattresses.
Political climate not conducive to recovery.
Until the two laws that resulted from the unholy union of Clinton and the Gramms are repealed, there will be no “financial reform” that merits that designation.
Repeal: 1) The Financial Services Modernization Act and 2) The Commodities Futures Modernization Act.
Free market rules caviat emptor. When the market is bear so is the cupboard. Faire des economies. The storm is brewing with $70 trillion in bets in secondary markets and gambling addiction is out of control by investors.
Volcker cost me my home.
The way forward is to starve the beast. State-owned banks are the clear answer, and legislation is moving forward in some of our progressive states, where intelligent people are in the majority.
Following the example of North Dakota, Washington state, California and other states are moving to state owned banks. The math is simple, why send your tax revenues, pension contributions, etc. to Wall Street where they’re used to gamble, incur loses, pay massive salaries, etc….. when you can keep your own state revenues in your state and use the money to make loans to your businesses and networks of community banks.
In North Dakota, a state that has not entered recession, the state owned central bank is credited with keeping the state economy moving right along, while the bank itself makes excellent, significant profits which are returned to the state’s general fund. Even excluding all revenues from oil royalties, North Dakota is thriving because they have their own bank. Intelligent states are making the transition, certainly to be challenged, but like I said, these are states with a majority of intelligent voters.
That’s how you nationalize the banks. Trying to nationalize the casinos in New York is a wasted effort, will not happen. The casino banks are the Frankenstein that Rubin, Greenspan, Summers and Geither created, and now no one knows how to kill the damn thing. The creature took a private jet down to DC and started kicking in doors and eating all the food in everyone’s fridge, and then it shits in the middle of the living room, and then it waddles over to the White House and pukes all over that place. It’s really quite disgusting.
Like HCR, Dodd Frank was not thought out very well. As you note, it wasn’t even a law, just a promise to write a law.
Then, they all danced on their merry way taking credit for “reforming” the system.
I love your imagery.
Agree. No public option, cave to insurance companies and pharma. We have been taken over by rogues and pirates, and they are proud of it.
This p!sses me off. TooBigTooFail banks, sucking up ca$h from the Fed, practically for free, and taking in deposits, then flinging that “free” ca$sh into whatever asset class is the flavor of the week.
Disagree,this was well thought out this was what they wanted.
They passed something ineffectual but went on TV pretending
that they had reformed the system,they even got their touts(Maddow,Shultz) on MSBCS to sing praises,DODD-FRANK reformed WALL ST.
It’s just like the Health Care they did…pass any junk % pretend
it’s significant….then he,Obama can get his touts in the Corporate media to list his many accomplishments…It’s like me donating a penny everyday & then strut around saying look,you see I donate everyday,quite an accomplishment eh.
Remember HAMP…..
Two sides of the same mirror.
A law that is written to depend on the Obama administration to act in a progressive way – or even to just not act like they are republicans – will always result in a far right GOP result.
So what was that reason for re-electing Obama again?
Actually it is run by a criminal sydicate that knows exactly what it is doing. There is still wealth to be looted so we can’t have regulations getting in the way quite yet.
More banana republic governance.