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Sen. Jeff Merkley Headshot

We Need a Strong Volcker Rule

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Three years ago we experienced the greatest financial implosion since 1929. High stakes gambling and risky bets gone bad on Wall Street left our financial system near collapse and our economy in shambles. This crisis had many causes -- all man-made.

And it affected every last one of us, not just the gamblers on Wall Street: $17 trillion in lost wealth, continued high unemployment nationwide, and one in four of America's mortgages still underwater, three years after the crisis.

The Volcker Rule, as embodied in Merkley-Levin provisions of the Dodd-Frank Act, is a critical part of the effort to put in place financial rules of the road that will prevent another crisis like the one we experienced in 2008.

Put simply, the Volcker Rule takes deposit-taking, loan-making banks out of the business of high-risk, conflict-ridden trading -- leaving that to the hedge funds, if they choose to do it. The reason is simple: our banking system and our economy do better if bad bets blow up only those who make the bets and not the entire banking system that fuels economic growth and job creation.

The regulators tasked with implementing the rule came out with a proposal on October. That proposal was a step in the right direction, but far too timid. The Merkley-Levin provisions set out to fundamentally reshape our financial system, creating a strong wall around basic, low-risk financial services that serve customers and grow the economy. The proposed rule creates unneeded complexity and confusion, tying itself in knots trying to protect nearly everything the banks can do today. The rule should not be as vague or complex as the regulators are making it. And it should be implemented now.

Yesterday, the big banks on Wall Street weighed in, and their response is all too familiar. They want big loopholes in the rule that can be exploited to continue business as usual. The problem is that business as usual may be good for big traders on Wall Street raking in big bonuses in good times and bad, but it is decidedly bad for folks in Oregon and across the country that are still struggling due to the financial crisis.

We need a system that lays out clear rules of the road, one that will implement bright lines separating old-fashioned banking -- making loans to businesses and families -- from high-risk trading. "Financial innovation" is all well and good, and people should be free to place big bets on Wall Street. But those bets shouldn't imperil the real economy on Main Street when they go bad, and that's what the Merkley-Levin provisions are supposed to protect against.

Nobody wants to repeat the financial collapse, the bailouts, and the economic hangover we continue to suffer. So we can't afford to repeat the unfettered risky betting that contributed so much to them. The American people have weighed in on the Volcker Rule, and now the regulators must do their jobs -- implement the law to ensure that we have the proper rules and limits in place so that our financial system can once again be an engine for real prosperity.

Around the Web

Volcker Rule Faces Harsh Critics as Effective Date Nears - Bloomberg

The Volcker Rule and the Costs of Good Intentions - NYTimes.com

Volcker rule definition from Financial Times Lexicon

U.S. Volcker Rule to Increase Financial Risk, Critics Say ...