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Raymond J. Learsy Headshot

The Volcker Rule and Wall Street's Pliant Media Plant

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There he goes again. Wall Street is fighting tooth and nail to emasculate the Dodd-Frank Bill, focusing its artillery on the Volcker Rule, namely those sections calling for the elimination of proprietary trading by banking institutions. In case you may have forgotten, it was the unbridled proprietary trading bundled with sham housing instruments and derivatives and out right speculation that brought us to the near collapse of the financial system in 2008.

According to yesterday's The New York Times, Wall Street made its broadest assault yet against new regulation on Monday, taking aim at a rule that has come to define the battle over how to police banks in the aftermath of the financial crisis. And there, joining the fray was that forever pliant Wall Street apologist, New York Times columnist and CNBC talking head, Andrew Ross Sorkin, weighing in with a less than feeble endorsement of the Volcker Rule ("in the long term it makes a lot of sense") while impugning it in the length and breadth of his column.

To underscore the downside of adopting the Volcker Rule he cites that paragon of banking virtue and responsible husbanding of a banking charter, Jamie Dimon, Chairman of JPMorgan Chase. Dimon, the very epitome of the type of banker the Volcker rule is meant to protect us, the public, from. With Dimon at its helm, proprietary trading, and all it embodies with its casino mentality, has become perhaps the key aspirational profit center and motivator of his institution (please see "Is JPMorgan a Bank or a Government Funded Casino? 06.09.09).

Sorkin goes on to enlist comments of critics of the Volcker Rule, highlighting their argumentation that removing big banks from making their own bets will remove liquidity from the system, thereby driving up costs. He then brushes aside Volcker's defense "The restrictions on proprietary trading by commercial banks legislated by the Dodd Frank Act are not likely to have an effect on liquidity inconsistent with the public interest." Volcker's comments continue to say that there should not be a presumption that "ever more liquidity brings a public benefit."

Then Sorkin goes on to dismissively counter Volcker's position, "Yet Mr. Volcker doesn't offer any explanation for why it won't, except to argue that less liquidity might tamp down speculative trading."

One would think that Mr. Sorkin, with his extensive CV and daily exposure to the workings of the market needn't have had to dig very deeply to cite the extensive proprietary trading banks the likes of JPMorgan, Morgan Stanley, and Goldman Sachs have undertaken, speculating in a vast range of commodities such as crude oil, copper etc. and financial instruments.

In crude oil alone their proprietary trading has helped bring about ever higher gasoline and heating oil prices at the public's cost and to the banks' benefit. A feat achieved by chartering massive VLCC crude oil tankers (200,000 Dead weight Tons or more), filling them with millions of barrels of oil at a cost of hundreds of millions if not billions of dollars. Then keeping the tankers at sea for months at a time to speculate on the prospect of ever higher oil prices yet. In doing so, by taking oil off the market in the front months, they cause the spot price of oil to rise, and for all of us to pay more for petroleum based products such as gasoline, diesel fuel, heating oil, etc.

As "banks", they have access to the Fed Window and its diminutive interest rates. Money lent to banks as banks, with an implied responsibility to use those funds to assist the economy by lending to businesses and householders, perhaps even renegotiating mortgages, and generally being agents of economic growth. Certainly not taking money out of the system, to speculate on oil and other commodities while simultaneously having their speculative initiatives result in ever higher prices to be paid for by the consuming public. And why not, if their speculative positions blow up, there is the government and the ole boys club at the Treasury and the Fed to bail them out.

But then again this is not the first time, among other issues, that Mr. Sorkin has come to the defense of Wall Street interests in the guise of knowledgeable commentator. There was also the paean to Goldman Sachs(please see "One Crowd Still Loyal To Goldman Sachs" NYTimes 06.18.10).

To put the icing on the cake, Sorkin in yesterday's column, quotes Jamie Dimon, "Paul Volcker, by his own admission has said he doesn't understand capital markets. He has proven that to me." Spoken like a veritable croupier angered by a paying house guest who doesn't want to play at his gaming table.