Paul Volcker Prevails

Paul Volcker, legendary central banker turned radical reformer of our financial system, has won an important round. The WSJ is now reporting:

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.

This is an important change of course that, while still far from complete, represents a major victory for Volcker - who has been pushing firmly for exactly this.

Thursday's announcement should be assessed on three issues.

1. Does the president provide a clear statement of why we need these new limits on banks? The administration's narrative on what caused the crisis of 2008-09 has been lame and completely unconvincing so far. The president must take it to the banks directly - tracing the origins of our "too big to fail" vulnerabilities to the excessive deregulation of banks following the Reagan Revolution and emphasizing how much worse these problems became during the Bush years.
2. Are the proposed limits on the total size (e.g., assets) of banks, or just on part of their operations - such as proprietary trading? The limits need to be on everything that banks do, if they are to be meaningful at all. This is not a moment for technocratic niceties; the banks must be reined in, simply and directly.
3. Is there a clear strategy for (a) taking concrete workable proposals directly to Congress, and (b) win, lose, or draw in the Senate, running hard with this issue to the midterm elections?

Push every Republican to take a public stand on this question, and you will be amazed at what you hear (if they stick to what they have been saying behind closed doors on Capitol Hill.)

The spin from the White House is that the president and his advisers have been discussing this move for months. The less time spent on such nonsense tomorrow the better. The record speaks for itself, including public statements and private briefings as recently as last week - this is a major policy change and a good idea.

The major question now is - will the White House have the courage of its convictions and really fight the big banks on this issue? If the White House goes into this fight half-hearted or without really understanding (or explaining) the underlying problem of unfettered banks that are too big to fail, they will not win.

 

 

 

Comments

[Rapier]

12:09 AM on 01/24/2010

This explains simply why we will get another disaster unless a better regulatory regime is effected.

http://ofthisandthat.org/LettertoPresident.html

[truthillusion]

12:00 PM on 01/23/2010

Kahuna2003- What does it matter if a bank lends money to a corporation? They just take it and still move jobs over seas! What, do you think corp CEO's have morals and ethics over profits? America needs to be innovative and start new markets The first place to start would be alternative energy! Stop making the sheiks and oil companies rich and stop buying oil and start investing alternative energy technology. And before the damn Chinese do! If we could just get the oil companies and big business out of Washington (Supreme court just squashed that) we could become the energy sheiks. Unfortunately, big biz and the US gov are one in the same. I wonder if yesterdays supreme court decision was a result of Obama's views on banking regulation? It would seem that if Big biz called in some supreme court favor to counter banking regs, that there might be some validity to in what Obama and some congressman are saying about banking regs? Or, it's all a show. Time will tell.

[Robson]

12:26 AM on 01/23/2010

My concern with Obama is that he has consistently talked the talk but not walked the walk. IMO he has far too many in his economic gang that are bankers joined at the hip with the same Wall Street crowd that created this mess. They are all in it for their own gain and not the country's interests.

[monahb]

03:55 PM on 01/23/2010

It is easy to become totally disheartened. I think it is true of most people since special interests have so much power in every country. One way to raise the caliber of politicians on both sides is to get involved at the nomination level where it takes far fewer people to make a difference. I have been involved in Canadian politics all my life and often been amazed at how few people take an interest at that level and then are shocked at the kind of person who represents the party they support in elections.

I just saw a good program about the Stimulus on CNN. Economists on both sides agreed there would be good job growth this year.

With the Democrats in power, the chance to achieve your goals is more realistic. If the GOP gets control in the fall it isn't. To expect a quick turnabout to all the problems in one year by one man working with over 500 people in Congress is unfair I think. Use your influence on the Congress. If they only hear from the teabaggers what are they to think? Don't let them disrupt your meetings like they did over health care. Most Americans are not that rude and self serving.

Let them be the angry, negative ones. Work for a bigger majority, express expectations to your representatives and support them at townhall meetings, on the radio, in comments. You can always sit it out in 2012 if you are still disappointed.

[unbelieve]

11:37 PM on 01/22/2010

i find it incredible that people still believe ............

[Keith Tofte]

03:08 AM on 01/24/2010

Whether or not you think Obama actually believes in regulation himself is besides the point. He is a politician and his goal is to stay elected. Facing declining poll numbers and a lost senate election, he is probably looking to consider some new strategies to work with since his old ones are costing. He may also have bought into the idea his advisers like Geithner are selling which is that rescuing Wall Street at all costs would have led to some sort of "trickle down" economic recovery by now (which hasn't happened).

If he is sincere or not, what does it matter? All that is important is that he actually do it, which is the test here. For his sake and ours, I hope he does.

[liberty68]

08:26 PM on 01/22/2010

The president is finally saying he's going to do what the people who voted for him were expecting him to do from the beginning. Now that he's talking the talk, let's see if he walks the walk, and uses his presidential powers Johnson did, to get congress to walk as well. Or will he/they go back to kow towing and bending over for the big banks, insurance and other corporations as they did with health care reform.

[NomadicView]

02:36 AM on 01/23/2010

I am not sure if one man- and I do still believe in Obama and his sincerity- I am not so sure one man can change this.I am not sure if we all understand how deep the corruption of the system actually goes. This has been a long term plan by Big Business to take over control of the government. At the moment, it appears they have victory in sight. The New Corporations, Wall Street and the Banking Sector, Insurance and the Medical Professionals and now the Supreme Court has given them cart blanche to spend whatever they wish on the next election to shove their message down the throats of the American people.

[zombie377]

05:42 PM on 01/22/2010

Gosh, the masters of the universe go to incredible lengths to obscure the obvious. It is common sense not to let the wolves guard the henhouse but billions of dollars spent on manipulating the public and hiding how finance works over so many years have made Volcker's ideas seem incredibly radical. We really need to start a national conversation about the social construction of "the free market" as it is presented in the mainstream propaganda.

[Moindependent]

04:05 PM on 01/22/2010

I just caught part of Obama's "town hall meeting" . A man asked him how he could bring his company that builds turbines to America from China along with 1200 jobs. Was there any way he could get a loan from the government to make this happen? Obama said he didn't know and went on to rail on the big banks, the very same ones that put him and half of the politicians in D.C. in office, G.O.P. and Dems. If that guy would have asked me that, I would have wrote him a check from my own account right there on national t.v.

[Star2000dancer]

11:02 PM on 01/22/2010

Fanned. Me too.

[yorkmapper]

12:55 PM on 01/22/2010

Separating commercial banking and investment banking is what Glass-Steagall Act did and it should be reinstated. Instead the administration staff (investment banker Giethner) is cobbing together a complicated set of "rules" with no enforcement power. The result will be no change and ordinary taxpayers will pay to socialize the risk for the billionare bankers.

[NomadicView]

01:25 PM on 01/22/2010

Before I heard the news today I wrote a blog post about an article I found in a Life magazine from 1949 talking about a conservative approach to banking. The report was clear about the need to follow the distinction of commercial and investment banks as laid out in the Banking Act of 1933- better known as the Glass-Steagall Act. A quick review of history since the 1980s shows a systematic and willful dismantling (by both parties) of regulations regarding duties and limits of banking institutions. In 1999, the Glass-Steagall Act was repealed and it has taken 9 or 10 years before we have seen the full impact of this reckless decision. By calling this "Obama's bank reform" it sounds untried and untested when in fact, this is nothing more than a roll-back to fairly responsible legislations following the Great Depression. This tactic is probably designed to attract those voters who detest whatever Obama might do
The Supreme court decision was a trump card that will now make re-regulation that much harder.
. http://nomadicjoe.blogspot.com/2010/01/life-examines-banking-in-1946.html

[rad28]

03:40 PM on 01/22/2010

Yep. Bank lobbies simply walked into the buy-your-politician department in Walmart and started buying. Over the years they managed to erode and then kill Glass-Steagall. This is a clear example of the Government equivalent of cancer.

Let's see if Joe-the-pick-up-Browne is willing to help solve the problem: Campaign reform, lobby reform, term limits, and all of the other selfless immolation that we need our politicians to commit.

.....and oh yea, some simple modern re-application of Glass-Steagall would be a good first step.

[muck-raker]

10:11 AM on 01/23/2010

Geithner/Summers part of the problem, I say save Geithner from gumming up the works by reinstalling the Glass-Steagal act as it once was....And as an aside these big banks have alot of lobbyist. It was Barney,I have something in my mouth,Frank and Dodd that took big money to push for the repeal...these two need to go to JAIL......NOW!

[InfosolutionWiz]

11:17 AM on 01/22/2010

WE all have different views on this issue. However, one thing is certain, WE Simply cant go back to paper wealth, the boom and bust economy that got us in this mess. Commonsense regulation is needed. Banks dont create jobs, they take your money and take risk and give you very little if anything in return while handing out record bonuses. The banks are NOT helping main street that bail them out and its time to hammer them.

[rcruss]

06:44 PM on 01/22/2010

I can't believe the the 5 supreme court judges would be so thoughtless when it comes to the American people.... How could they let corporations buy the next elections....they should all go to hell !!!!!!!!!!!

[SeconLine]

10:59 AM on 01/22/2010

How would you think Scott Brown would vote on a bill to reinstate Glass-Steagall?

How would you feel if he voted like a Republican?

What would that do to this theory of the vote in Mass?

[SeconLine]

10:50 AM on 01/22/2010

China keeps commercial banking and investment banking separate.

Waaay separate.

They're not suffering financially.

[NomadicView]

04:12 PM on 01/22/2010

Due to purely internal banking problems, Turkey too did not de-regulate its banking sector and maintains a fairly clear separation between the two types of banking. Because of its overseas investments and connections to foreign institutions, Turkey has had a jolt but by no means, a collapse and panic. It is one of the strongest economies in Europe at the moment because it stuck to regulations.

CNN had a guest that kept saying that the situation was much more complicated than that.. the lines are so blurred now between the different services. Basically.. we are the experts and you can't understand because you don't know anything. That kind of argument is familiar.
Blurred lines? Well, who blurred the lines and why? Unblur the lines with precise regulation- banks should be forced to make clear cut definitions to what constitutes commercial banking and what constitutes investment and security trading. Is that so difficult? If it is, then this a grand opportunity for government regulators to decide for them.
Anyway, when these banking corporation suggest that it is impossible to discern the subtle differences between banking of a high risk nature and a low risk one, don't believe them for a second. I just think of them as all having a serious gambling addiction and government need need s to force an intervention.

[dartagnan]

08:56 PM on 01/22/2010

Excellent post. Fanned!

[Star2000dancer]

11:05 PM on 01/22/2010

Yes! Fanned!

[kahuna20032000]

10:33 AM on 01/22/2010

To me this is supposed to show us something after the Brown election. Obama is trying to show us he's working on the economy. Someone is telling him the people are really upset with Big banking. He still doesn't realize we need jobs! We don't need him to demonize another sector of our economy. Doesn't he realize that businesses can't Hire anyone when they don't know what the next tax will be. Health care reform, cap and trade, proposing new taxes on banking making money more expensive. With this vague announcement (threat) yesterday the market tanked. We need him to stop proposing all this punishment on business. Here's a news flash... businesses are the ones who employ people. The government doesn't create anything and he should be working on programs to massage the private sector to grow. Nobody wants to hear about his social agenda when they are unemployed with an upside down mortgage.

[InfosolutionWiz]

11:14 AM on 01/22/2010

WE Simply cant go back to paper wealth, the boom and bust economy that got uis in this mess. Commonsense regulation is needed. Banks dont create jobs, they take your money and take risk and give you very little if anything in return while handing out record bonuses. The banks are NOT helping main street that bail them out and its time to hammer them.

[kahuna20032000]

11:36 AM on 01/22/2010

Banks lend to businesses who do create jobs and can't without access to money. Hammering the banks is hammering yourself. According to TARP these bank essentially have five years to pay back funds and have already paid back 2/3 of it with interest. Obama is trying to make up the difference to cover GM, Chrysler, and Freddy and Fannie (who are also handing out millions in bonuses even though they haven't paid back a dime but Barney Frank says that's okay.). I'm not saying thereisn't need for banking regulation. Now is not the time. Do you plan to put an addition on your house when your mortgage is upside down and you're unemployed? Obama needs to release the brakes, grease the skids, stop spending money we don't have and cut taxes, encourage business. "A rising tide lifts all boat" as JFK once said

[oldfart1]

04:08 PM on 01/22/2010

The entire derivative mess was hardly the result of "businesses employing people", it was gamblers selling McMansions to speculators, all endorsed by Bush to generate a false feeling of prosperity and a cover-up for his wars.

[Moindependent]

04:28 PM on 01/22/2010

Carter, Bush and Clinton endorsed this practice, wanting everybody to have "THE AMERICAN DREAM" if only for 6 months to a year then they were evicted. By that time the mortgage companies had already sold the loan and were signing up some other sucker, keeping the snowball rolling.

[NomadicView]

09:58 AM on 01/22/2010

Found an interesting article from LIFE magazine's back issues about banking with a conservative approach and why it is important. It is interesting how when it comes to greed over intelligence, greed and fast profits won out. Interesting but hardly surprising. http://nomadicjoe.blogspot.com/2010/01/life-examines-banking-in-1946.html

[muck-raker]

10:23 AM on 01/23/2010

thanx for the great link, everyone needs to read this article and understand that our legislators do things that do not make any sense......maybe its the money they get from the lobbyist, I think so.
.....................JUST reinstall the Glass-Steagall act as is......and do it now

http://nomadicjoe.blogspot.com/2010/01/life-examines-banking-in-1946.html

[maribelles]

09:31 AM on 01/22/2010

Obama /administration is not serving those in the spirit of why they were voted in. I hope they quickly and radically change course, or all is lost.

[rpknik]

09:49 AM on 01/22/2010

I agree. Obama ran as a center left moderate. My home town in Mass voted for him. But they elected Scott Brown with whopping 67% of the vote. Attacking the banks is short sighted. Remember Fannie Mae and Freddie Mac, the source of the debt instruments that were pivotal in the bank problems. If he attacks CitiGroup, Fannie and Freddie will be thrown in his face. Glass Stiegel may be needed again, but I have to agree with Barney Franks on this one. It would have to be phased in to prevent a 30% correction in the 401 K plans of independent voters. This could be a tidal wave for the republicans if he pushes forward on this.

[lambdin1]

09:17 AM on 01/22/2010

Well many before me have said it....in a word NO!