Obama endorse measures proposed by Paul Volcker for 1st time.

BetterThanEver · Jan 20, 2010

Obama is backing Volcker's reforms for the 1st time. Good? Bad? I don't much about Volcker. He's before my time, but he seems to be well respected compared to Bernanke and Timmy.

http://online.wsj.com/article/SB100...15910344117800.html?mod=WSJ_hps_LEFTWhatsNews

Proposal Set to Curb Bank Giants
By DAMIAN PALETTA and JONATHAN WEISMAN

WASHINGTON—President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country's biggest banks, marking the administration's latest assault on Wall Street in what could mark a return, at least in spirit, to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.

The past decade saw widespread consolidation among large financial institutions to create huge banking titans. If Congress approves the proposal, the White House plan could permanently impose government constraints on the size and nature of banking.

Mr. Obama's proposal is expected to include new scale restrictions on the size of the country's largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn't be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.

Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place "firewalls" between different divisions of financial companies to ensure banks don't indirectly subsidize "speculative" trading through other subsidiaries that hold federally insured deposits.

The proposal could have the biggest effect on Bank of America Corp., Wells Fargo & Co., and J.P. Morgan Chase & Co., which control a large amount of U.S. deposits, as well as Goldman Sachs, Morgan Stanley and Citigroup Inc., which have a large presence on Wall Street.

If the proposal took effect, big banks could be forced to wall off certain activities in their investing banking units—which trade and underwrite securities and make their own bets on markets—from their traditional businesses, which make loans and take deposits.

The investing banking units have grown dramatically in recent years, were far more profitable than the banking operations and were at the heart of the financial crisis.

The industry has undergone a major consolidation during the financial crisis, leaving the top four banks with an unprecedented market share in businesses such as deposit taking, credit cards and mortgages.

The rules could also keep banks out of the business of running hedge funds, investing in real estate or private equity, all businesses that have become important, profitable parts of these banks. The collapse of two highly leveraged hedge funds began the process that led to the collapse of Bear Stearns.

If investors believe the new rules could take effect, they could sell off the shares of most of the big financial stocks in the belief these companies would be facing years of turmoil and potentially lower profits.

Messrs. Obama and Volcker are scheduled to meet tomorrow in advance of the White House announcement.

The White House's proposal, one aide said, wouldn't resurrect the exact limits put in place by the Depression-era Glass Steagall Act, which essentially walled off commercial banks from investment banks and was repealed in 1999. Instead, the White House proposal would seek to return the "spirit of Glass Steagall," meant to limit large banks from becoming too big and complex that create enormous risk.
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ChrisBosh · Jan 20, 2010

I've read Greenspan's "The Age of Turbulence", he b*tched throughout his book about Volcker, as they both usually butted heads about policy. That in itself is a good vote of confidence in Volcker's favor

Invisible Fan · Jan 21, 2010

If he had his Fed powers, I think Volcker would make the government accounting books look much better.

I don't think the American public or Obama & co. will endure the pain that will set us in that direction.

I wonder if Obama has read some books on Carter in the past months.

Dairy Ashford · Jan 21, 2010

Our country needs a Council of Elders or something. Paul Volcker, George Mitchell, Robert Morgenthau and Colin Powell.

dback816 · Jan 21, 2010

Paul Volcker did okay during his time

That's what all my case studies taught me in college

SamFisher · Jan 21, 2010

I wish he would have done this earlier.

B-Bob · Jan 21, 2010

pouhe said:

Our country needs a Council of Elders or something. Paul Volcker, George Mitchell, Robert Morgenthau and Colin Powell.
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Add Moses Malone and Hakeem Olajuwon, and I would support this.

BetterThanEver · Jan 21, 2010

Summers or Geithner usually flank Obama on major annoucements regarding banks and regulation. Neither of them were in attendance, but Obama was flanked by Bill Donaldson and Paul Volcker.

This could be a sign that Geithner and Summers are on their way out. Will there be a change in the Treasury in the near future?

SamFisher · Jan 21, 2010

BetterThanEver said:

Summers or Geithner usually flank Obama on major annoucements regarding banks and regulation. Neither of them were in attendance, but Obama was flanked by Bill Donaldson and Paul Volcker.

This could be a sign that Geithner and Summers are on their way out. Will there be a change in the Treasury in the near future?
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Geithner is gone late this year. Summers has academia background so will probably survive.

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Obama endorse measures proposed by Paul Volcker for 1st time.

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