To understand why there is so much anger directed at Wall Street and Washington, you need only look at the evolution of the Volcker rule. Named for past Fed Chair Paul Volcker, the rule was a compromise he developed last year to deal with a major problem exposed by the financial meltdown. Banks with deposits guaranteed by the federal government were using those deposits to participate in high-risk investments for their own account -- so-called proprietary trading. The Volcker Rule started out with some tough restrictions on that and other high-risk activities.
At the time, many of us pointed out that the solution to the problem was in plain sight and had already proved its effectiveness. The Glass Steagall Act was passed in 1933 after the Pecora Commission investigated the reasons for the 1929 stock market crash and the subsequent failure of many banks. The Commission found that the country had from its inception endured periodic bank runs or bank panics because, in times of financial troubles, depositors preferred putting their money in their mattresses rather than keeping it in risky banks. To correct that, the Act set up the Federal Deposit Insurance Commission, guaranteeing the safety of deposits up to a certain amount. Just as important, it divided financial institutions into two groups -- commercial banks, which had FDIC insured deposits; and investment banks, which could engage in more risky investments but had no FDIC insurance. Commercial banks were to be low-risk, low-return institutions and investment banks were to be high-risk high-return institutions.
That's how it turned out for the next 50 years. The country prospered with no major financial crises. Then, in the late 1980s and into the 1990s the Federal Reserve under Alan Greenspan -- over the objection of previous chairman Volcker -- began easing Glass Steagall restrictions. In 1999, with the support of key Clinton administration officials, Congress passed the Gramm-Leach-Bliley Act. Glass Steagall was entirely rescinded and commercial banks were again allowed to engage in investment banking. It took only ten years for the perhaps inevitable result -- the financial meltdown of 2008.
Now, back to the evolution of Volcker rule. It became clear early in the 2010 debate on the Dodd-Frank Wall Street Reform Bill that there was insufficient support in Congress and the Obama administration for the Cantwell-McCain amendment which I supported to reinstate Glass Steagall. President Obama announced his administration's support of the Volcker Rule. From the beginning there was great skepticism that a rule could ever be enforced that would truly keep banks from engaging in risky proprietary trading. This was especially true when the Senate would not allow a vote on a tough version of the Volcker Rule sponsored by Senators Carl Levin and Jeff Merkley.
So, like most of the other important issues involved in trying to reform Wall Street, the can was kicked down the road by Congress and thrown to the regulators. Over a year after Dodd Frank's passage, the regulators have unveiled a 298-page draft proposal. It includes 350 questions on which the regulators have requested public input. The complexity of the draft alone raises real questions about how it could be enforced. In addition, knowledgeable experts have numerous concerns about the draft's many vague definitions and clear exemptions. There is, for example, an exemption for "market making activities." I promise you high-priced Wall Street lawyers and accountants will have a field day turning this into an instant loophole.
Obviously, Paul Volcker's attempt to confront the real problem of banks making high-risk bets with government-insured deposits has, in just one year's time, evolved into a watered-down excuse for taking little or no action at all.
The Occupy Wall Street demonstrators are being characterized as to the left on the political spectrum. But there is nothing left-wing about wanting what was for many years seen as a very conservative approach to bank size and risk. I have no doubt that Glass Steagall or something very much like it will eventually once again become the law of the land. The only question is how much agony all Americans have to endure before it happens.
Dr. David Liepert: Should Muslims Occupy Wall Street Too?
Of course everybody is free to speculate on anything including shorting themselves. But with their own money. Otherwise, you may as well tear up not only contracts, but dollars.
Banks and skip the Volcker Rule. The Volcker rule was an accommodation
which Volcker himself was not quite fond with....
Financial stability needs to be restored through out the economy
with a fair common sense approach that prohibits the types of financial
shenanigans that tanked the economy! Therefore we must break up the
Big Banks, restore Glass-Steagall and insist upon campaign finance
reform to get 'special interest money' out of our political process! because
it is obvious that Wall Street has bought the politicians, lock stock and barrel...
really change not only comes from protesting, real change comes from taking meaningful action. OCW has to take the action of getting this republicans and any politician that doesn't work for the people out of office. change is done at the political level. we the people are the only avenue of change, and next year we must use our vote to affect proper change. vote the republicans congress out of office and see really progress come to this country.
Are you proud that the SEC did not enforce laws and rules to stop the Fruad in the Sub Prime Loans ?
Do you not feel shame that the Banks actually used ROBO Signers to complete the Fraud that the Loan Orginators forgot to complete.
Are you Proud of the Collusion between Property Appraiser who overvalued Homes so the Loan Companys could write larger loans and make more money.
Do you realize the Fraud and Collusion committed over 3 times breaks the RICO Laws of running a Criminal Enterpirze ?
Can you welcome a Soldier Home and be Proud of what you have allowed to happen ?
For more on this subject see Chris Hedges article:
http://www.commondreams.org/view/2011/10/17
Untill we get public financing of elections we will have rule by the rich