U.S. reveals Volcker rule's murky ban on Wall St. bets … U.S. regulators unveiled a ban on Wall Street banks' trading for their own profit, but the long-awaited Volcker rule proposal was so complex that banks blasted it as unworkable and consumer groups dismissed it as too weak. The rule, required by last year's Dodd-Frank financial oversight law, is aimed at avoiding a repeat of the 2007-2009 financial crisis by curbing excessive risk-taking. It has been difficult for the government to craft a rule that reins in Wall Street while protecting the trades that big banks execute on behalf of clients. Regulators are giving the public until January 13, 2012, to comment on the rule. That is more time than expected, and could result in more pressure to change elements of the rule. – Reuters
Dominant Social Theme: It is very important to separate banking from proprietary trading. Thanks, Tall Paul Volcker! Nancy Pelosi (left) is on the case and getting ready to enforce this much-needed regulation. If it proves too much to handle, Barney Frank will step in to help. These are the best minds of their generation and they will ensure Wall Street is properly rationalized and its corruption halted. Washington, its regulatory agencies like the SEC and FDA and its promising stream of well-thought out laws provide the best remedies for the untrustworthy private sector and greed.
Free-Market Analysis: OK, our elves are very excited. This is our official comment on the Volcker rule, once called Glass-Steagall before it was done away with (by greedy bankers, or so the story goes). Our elves have never commented on anything officially, and we don't have the heart to tell them that this comment is not actually official as it will not be submitted to Washington regulators. Oh, well …
Start with the idea that regulating banks in the context of a modern central banking economy is useless. Of course, that's heresy, as billions of dollars and millions of trees have been expended over the past few years writing regulations that will make sure the economic crisis of 2008 will Never Happen Again.
But of course, as long as there are central banks, it WILL happen again. Central banks steadily inflate the money supply, causing first a boom and then a bust. During the boom phase, business activities advance to an unsustainable level. Later on, the bust phase reveals the ludicrous nature of many of the later activities of the boom phase. As a result, people go to jail and new laws are passed. Mediocre legislative minds are suddenly seen as brilliant.
But they are not. Not even former Federal Reserve Chairman and mainstream media legend Paul Volcker can change the nature of the business cycle, which is an ineluctable part of the economic scenery until central banks are finally kyboshed. However, Volcker is trying. He's lobbied hard to separate banks and trades once again. Here's more from the article:
The proposal includes more than 350 questions that regulators want interested parties to weigh in on, particularly on how the government should write exemptions that allow banks to still make markets for their customers and hedge risk in their portfolios. "Only in today's regulatory climate could such a simple idea become so complex, generating a rule whose preamble alone is 215 pages, with 381 footnotes to boot," American Bankers Association Chief Executive Frank Keating said in a statement …
The Volcker rule, named after former Federal Reserve Chairman Paul Volcker who championed the measure, aims to prevent banks from making risky trades by prohibiting short-term trading for their own profit in securities, derivatives and other financial products. It will also prohibit banks from investing in, or sponsoring, hedge funds or private equity funds. The idea behind the rule is to prevent banks that enjoy some sort of government safety net, such as deposit insurance on customer accounts or access to Fed money, from using that backstop to make money for themselves …
"It calls for some very precise management of that business and some very detailed recordkeeping," said Smith. "It becomes very cumbersome." The impact of the proposed rule will likely be discussed with investors as banks host quarterly earnings calls starting Thursday with JPMorgan. Barclays Capital analyst Jason Goldberg said in an October 7 research report that executives would be well-served to show investors how they will cope with the Volcker rule restrictions, with bank stocks already beaten down this year.
The problem with Volker's plan, which is a reconfiguration of the now defunct Glass-Steagall Act passed in 1933, is the same problem that any regulation has. It's a price fix – transferring wealth from those who create it to those who don't know what to do with it – and thus making the economy even MORE inefficient. Importantly in this case it obscures the fundamental problem, which is the vast centralization of Money Power within the boundaries of Wall Street (electronic and geographical).
Regulations and central bank monetary distortions have created Wall Street and constructed its clout. We liken what has gone on to a mad scientist creating a monstrous beast in his basement and then having second thoughts, seeking to restrain it with chains and locks. The problem to begin with is the beast.
One needs to slay the animal. This must begin with the fundamental recognition that central banking is a ruinously distortive practice that has now bankrupted nations. Unfortunately, the power elite and its enablers have been able to peddle the dominant social theme that Wall Street has grown so big and powerful because of PRIVATE market forces, when it is monetary inflation and regulatory centralization that has caused the problem.
Now to fix the problem we are led to believe that the bifurcation of prop trading and public banking is a necessary one. It's not. In fact, it only leads to people believing that government can provide solutions to private market failures. In fact, free-markets cannot fail.
Competition and failure are PART of free markets. Free markets don't fail. Enterprises do. Markets are self-correcting entities as they must be thanks to the Invisible Hand.
This doesn't stop the globalist powers-that-be from claiming that government can "solve" problems caused by market dysfunction. Glass-Steagall, in fact, addresses marketplace distortions created by regulatory centralization and over-abundant money flows. It will only cause more problems, as it did before, while further centralizing the authority of the powers-that-be.
Fix government over-reaching and you'll fix the REAL problem. The new Glass-Steagall is a phony solution to a dishonestly stated problem.