President Obama seems positively peevish in the aftermath of the MA Senate results. As predicted, the wrath of his anger will now be directed towards Wall Street. The timing was great--hours after Goldman announces boffo earnings, the President slaps Wall Street with the "Volcker Rule". Suddenly media outlets are scrambling to define "Glass-Steagall" and make sense of the potential changes for banking.
According to the White House Statement, the proposal would:
1. Limit the Scope-The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.
2. Limit the Size- The President also announced a new proposal to limit the consolidation of our financial sector. The President's proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.
#1 is now being called the "Volcker Rule," after the "tall guy" and legendary former Fed Chairman Paul Volcker--you know the one the Administration has been hiding in a closet for a year.
#2 is unclear at this point. The background briefing said that banks would be frozen at today's size, or "as is", which implies that we're still going to have a handful of companies that are "too big too fail".
I was never a fan of dismantling Glass-Steagall, but I have to admit that neither Bear Stearns nor Lehman Brothers was a "financial supermarket" -- both were straight up investment banks which never operated as commercial banks. We can't simply return to Glass-Steagall and everything will be honky-dory. We need to update the rules and regulations to fit the environment seventy years after the legislation was originally enacted. I'm hopeful that when the smoke clears, this could be a step in the right direction.
Image by Flickr User World Economic Forum, CC 2.0Obama Slaps Banks With Volcker Rule