Volcker Rule Would Make Banks Be Banks
01/27/10 - 09:12 AM ESTStock quotes in this article: GS , C
NEW YORK (TheStreet) -- The proposed "Volcker Rule" isn't about being anti-business, it's about letting market actors do what they're best at.
Let banks bank, and let hedge funds trade. When either one does a poor job, let it go under and not pull the rest of the system with it. That's capitalism.If bankers want to throw their own profits down a rat-hole with poor risk management, that's their right. Just don't do it with depositors' money
Last week, President Obama announced a series of planned reforms for the financial industry to prevent "too-big-to-fail" bank failures.
The centerpiece of these reforms was the so-called Volcker Rule, which restricts banks from getting into proprietary trading and owning, investing or sponsoring hedge funds or private-equity funds.
There has been much concern and hand-wringing about the long-term impact of these proposed changes since the announcement. The market -- and especially large bank stocks -- took a major hit following the announcement. The fears expressed were that Obama is anti-business and his misguided policies were going to kill off a nascent recovery just as it is starting to gain strength.
Hang on. First, we blame Obama that he, Treasury Secretary Tim Geithner, and Fed Chairman Ben Bernanke are too cozy with Wall Street, and no rules have been changed since the economic crisis began. Now, he's anti-business and his moves to reform the system to prevent systemwide risks are going too far.
Obama, generally regarded as a master communicator, did a horrendous job announcing the Volcker Rule. He came out, made an eight-minute speech, had no documentation to back it up and left after taking no questions.
Worse, his language was imprecise. The vacuum of information has directly led to the gnashing of teeth we've heard since then. Even now, a week later, we don't have further clarification. It's allowed pundits to surmise that the announcement was a knee-jerk reaction to last Tuesday's Massachusetts Senate loss. According to them, he's trying to be the left's populist version of Glenn Beck.
[This post is an excerpt of the full article, which available on TheStreet.com by clicking here.]
