Volcker Rules OK?
23 January 2010Here’s Charles Dumas of Lombard Street Research with an aggressively “pro” take on the Volcker rule… Paul Murphy, FT Alphaville
Obama-Volcker on target, avoid Glass-Steagall
The furore over bankers’ bonuses illustrates one aspect of current financial market conduct that has wide implications: the casual slippage back to “normalcy”, interpreted as business-as-usual 2007-style. It seems clear to us that normalcy is a long way off (if it has ever existed). Indeed, complacency in many quarters about economic recovery, and the illusion of normalcy, is itself a reason why renewed economic and financial trouble, probably crisis, is likely. The drop in bank shares yesterday on the announcement of new regulatory plans by Mr Obama, originated by former Fed governor Volcker, is a classic case of blinkers falling from the eyes of financial markets that have been amazingly credulous of delusions in recent years (if not always). One thinks of the Latino debt farrago (“countries can’t go bankrupt”), the high-leverage, saving-andloans bubble, the tech bubble, as much as the recent alphabet-soup mortgage bubble. These were obvious cases where a little scepticism, and willingness to look at situations from multiple perspectives, seemed to be beyond the reach of market participants, or their educators.
http://ftalphaville.ft.com/blog/2010/01/22/132991/dumas-on-volcker/
This doesn’t seem too aggressive to me, just a spot on common sense take on the way forward. But from Felix Salmon at Reuters:
[Mark Thoma is as pessimistic as I’ve seen him] [WP strikethrough not working?]
Economics of Contempt is pessimistic when it comes to the chances that the Democrats will line up behind Obama on this one:
I don’t even know why I took the time to write about this, because there’s zero chance the proposals Obama announced today will ever be law. This was a fairly transparent political stunt — the White House needed to do something to take the media’s focus off of health care 24/7, so they flew in Volcker and announced some proposals that sound good to the media. The two Senate staffers I talk to regularly both said their offices were basically ignoring Obama’s proposals, because even if the White House fights for them (which they won’t), Chris Dodd has no intention of inserting them into his committee’s bill.
http://blogs.reuters.com/felix-salmon/2010/01/22/a-closer-look-at-the-volcker-rule/
Back to Dumas, because the “poodles” have in fact been responsible for far more creation of the weapons of choice (Derivatives – running at $600bn per day in early 2008) than Wall Street, an interesting obvservation:
The lack of international coordination has been lamented in some quarters. But it was always a chimera. A strong lead from a man like Volcker is so obviously vastly superior to prolonged negotiations with a bunch of muddle-headed continental Europeans, who do not understand and dislike finance in the first place, that we should all emit a sigh of relief on that point. The British will behave much more justifiably like “poodles” (a much maligned breed, by the way) on this issue than on others in recent years, and the rest can just follow along when they make up their minds to do so.
So:
President Obama probably feels he has had a bad week. But it may prove to have been a good one for world welfare!
Maybe.
5 Responses to “Volcker Rules OK?”
January 23rd, 2010 at 5:35 am
A More hopeful view from Zero Hedge:
The Volcker Revolution – Providing Some Much Needed Answers
by Tyler Durden
Excerpt:
The paper in question is “Financial Reform – A Framework for Financial Stability” and provides for a very insightful read into how regulatory reform will likely look going forward (sorry Barney, another thing that happened this week is that the President in essence said you can take your “sweeping financial overhaul” and shove it). One thing that the paper provides, for example, is much needed clarity, although not the full answer, into the definition of prop trading (are you reading yet Lloyd?):
http://www.zerohedge.com/article/volcker-revolution-providing-some-much-needed-answers
Group of 30 – Reform.pdf 280.92 KB
January 24th, 2010 at 7:32 am
Confusion reigns supreme. More doubt from Simon Johnson, Baseline Scenario.
Is The “Volcker Rule” More Than A Marketing Slogan?
At the broadest level, Thursday’s announcement from the White House was encouraging – for the first time, the president endorsed potential new constraints on the scale and scope of our largest banks, and said he was ready for “a fight”. After a long tough argument, Paul Volcker appeared to have finally persuaded President Obama that the unconditional bailouts of 2008-2009 planted the seeds for another major economic crisis.
But how deep does this conversion go? On the “deep” side is the signal implicit in the fact that Volcker stood behind the president while Tim Geithner was further from the podium than any Treasury Secretary in living memory. Where you stand at major White House announcements is never an accident
read more: http://baselinescenario.com/2010/01/24/is-the-volcker-rule-more-than-a-marketing-slogan/
January 25th, 2010 at 1:09 pm
Whatever happens to these particular proposals, it is great news that the Obama administration is now listening to Paul Volcker. They should also pay careful attention to David Walker, Brooksley Born, and Elizabeth Warren.
January 25th, 2010 at 11:16 pm
I agree and sincerely hope that Obama wins this one. Unfortunately I see the Europeans are backsliding which may make London once again the home of investment scams (usually by americans) because of lax regulation as it was 40 years ago.
Are the G30 intentions not worth the paper they are printed on despite carrying Volcker’s signature?
Download the PDF (284kb) http://gpm.tecsa.com/images/stories/pdfs/group_of_30-reform.pdf
January 25th, 2010 at 11:23 pm
Oh dear. More negative views of Obama’s grasp of economics.
The Second Clinton?
http://baselinescenario.com/2010/01/26/the-second-clinton/