Everyone on CNBC and the other business media outlets are talking about how shocked wall street is with the ongoing reconciliation hearings in congress. Instead of the financial bill becoming softer and more sensible, it has instead become more strident and anti-wall street. The Volcker Rule will certainly pass, and even scarier, the Lincoln Amendment banning swaps trading will likely pass as well. The democrats are catering to the vulgar populism of the American people. What's especially infuriating is that this "reform" bill does not even address fannie/freddie and the rating agencies.
In short, we are FUCKED. The decline of this once great capitalist nation is truly sad to witness.
The Volcker rule is fair and somewhat reasonable- a watered-down version of Glass-Steagall, a rule that served us well from the end of the depression through the boom-and-bust cycles of the '80s and '90s.
Does "Decline of this once great capitalist nation" mean we are going back to an '80s and '90s economy like we had under Glass-Steagall? If so, bring it on!
Want to take a closer look at the Lincoln Amendment before I pass judgment on it, but that could be bad.
Prop trading was not responsible at all for the current economic crisis. It's just political anti-wall street posturing by the democrats. More importantly though, it's very tough to define "prop" trading. I don't see how this provision can be enforced reasonably.
The Lincoln Amendment is horrible. She just won her primary and now feels emboldened, and her fellow democrats might not want to piss her off by stripping it from the bill.
This financial reform bill will absolutely crush all the bulge bracket banks.
Yes. It will make funding more expensive and it will make the markets a little less efficient. There will be some layoffs. But we've got a lot of smart and talented folks in trading who can easily find jobs in other industries if necessary; I'm not worried.
Not sure I understand what you mean here. Are you saying that the above pairings will separate? It seems weird given that BOA and ML only merged like 1.5 years ago.
Can you elaborate please?
Thanks
OP, you are a fucking joke.
Who's "we"? Do you work in prop trading at a BB? If not, what are you bemoaning? The prospect that you won't have the opportunity to make bucketloads of cash at the expense of the "vulgar" populists?
Why exactly are you complaining about increasing oversight and regulation of derivatives and swaps trading? Are you against reducing "the possibility of taxpayer bailouts for speculative activity that does not serve the real economy"?
And why does this financial reform bill equate to the death of capitalism? Because you won't get to privatize your profits and socialize your losses anymore? Give me a break.
Depends on where you work. Some of us work at foreign banks which would actually benefit from the Lincoln Amendment, since our divisions were already spun off.
It's kind of amusing to see this weaker copy of the Glass Steagal encountering so much resistance and moaning about past greatness, when its daddy was only repealed 11 years ago. Were the past 11 years so exceptionally good that they left such a mark on the souls of BB people? The chaps at my desk aren't particularly worried by the Volcker rule (granted, the fact that my office is in Europe, and belongs to a BB which is not really known for its stunning trading success and % of profits coming from T may be a factor :D )
As for the Lincoln Amendment: I last heard about it around 2 weeks ago, so it may have changed, but as far as I know it only (use "only" if you prefer) bans the federal bailout of swaps dealers. It's categorically NOT a ban on swap dealing. It also forces the biggest sellers of swaps to spin off the swap division.
Now, you can discuss about its merits, but I really dislike this careless simplification and misrepresentation of laws, just because people dislike them on principle.
Remind me again how expanding regulation of overdraft fees, interchange fees, prop trading or compensation are supposed to prevent another asset bubble? Yes these may be items that may or may not need to be looked at for their individual merits, but this 'reform' bill doesn't get to the cause of the problem, and the cause of the problem isn't even fully in the financial sector. The core of the problem is economic growth through consumption, financed by debt. What caused the financial crisis? It wasn't Abacus and Timberwolf. The cause of the financial crisis was you and me, your parents, my parents, my neighbors, your neighbors. Yes the financial industry did certainly contribute to accelerating the situation, but the fault lies with us. Why do you think banks charge $40 every time you overdraw your account? Because you're stupid enough to let your account get overdrawn. If anything, overdraft charges should be allowed to be raised to whatever level the bank feels to discourage you from spending money you don't have.
But unless this bill does something serious about getting rid of the crap that got us here in the first place (no-doc mortgages, ARMs, ridiculous credit card offers to people who really should not have unsecured credit), it won't fix the cause of this boom and bust. We need to get away from this idea of debt financing our consumption growth. And the solution is not one single bill targeting the financial industry. The solution is a complete paradigm shift in the mindset of the American people (extremely wishful thinking, I know). And the only way to really get something to change is when you're staring down the barrel of the gun. The opportunity to really change things was in the fall of 2008.
I agree 100%. This "reform" bill does almost nothing to address the core issues that caused the economic crisis. This is purely motivated by politics. Democrats have a midterm election coming up, and they want to appease populist anger against wall street.
Just as an aside on the overdraft, it's being regulated because majority of people didn't know they were even getting hit with overdraft or that banks automatically allowed them to overdraft. Kinda defeats the purpose of saying "use debit cards because you can't spend more than you have in your account". Actually you can and the banks didn't notify consumers of it.
The financial industry knew what was coming, but they had no incentive to nip the problem in the bud. They kept on packaging CDOs and selling them off to less sophisticated investors because it made them money. With the increased demand for home loans to repackage, mortgage lenders lowered their lending standards, thus allowing strawberry pickers to buy $750K houses which they obviously couldn't afford.
The incentive here was to make short-term profits without regard for long-term consequences. After all, bonuses were paid out yearly, so who cared if the whole thing blew up a couple of years down the road? It may be impossible to change the attitudes and incentives at investment banks, but if the law can be used to cripple their ability to take irresponsible risks which make them too big to fail, all the better.
The real problem here is that there was no incentive for the person writing the loan (broker) to ensure the creditworthiness of the buyer.
It's ok to be suspicious of wall street and want sensible reform, but if you go into "let's punish wall street" mode, you're really shooting yourself in the foot in the end. Suppressing the processes that help keep the economy efficient is going to lead to slower GDP growth, more job losses, and higher inflation.I have to disagree, Illini. You can make the "keeping the market efficient" case for high frequency market making (as long as no front-running is involved). However, repackaging subprime mortgage loans and selling them off != keeping the market efficient.
These guys are supposed to be the experts. If they didn't know what these CDOs were really worth, they were incompetent, and if they did, you see my point. Imagine if your doctor/specialist screwed you over because they received a large fee for doing so, and when you demand an explanation, they shrug and say "buyer beware". Perhaps investment banks don't have the same obligations to their clients, but rightly or not, they were viewed as experts on these financial securities.
I'm not going into "punish wall street" mode. Obviously the IBD side had little to do with this mess, and the capital raising and advisory functions are crucial to the economy. I simply hope that the continued existence of these functions is not threatened by irresponsible risk-taking in other parts of the banks. My point was that if we cannot change these people's attitudes and incentives, we should cripple their ability to take irresponsible risks so that they don't drag down the good parts of the banks.
At some point over the past ten years, some of the fixed income products got so complicated that no one person could understand how they worked from a top-down level. You needed lawyers and quants who looked at different aspects of the product to get a top-down picture of the product, and it was impossible to get the full scope while also understanding it completely in detail. My view is that banks shouldn't deal in these products where a small portion of them that only one person really understands can completely alter the big picture. Better to leave it to casinos and con artists.
The most the federal government should do, though, is say that on really exotic products like this, all risk measurements need to be based off of the absolute worst-case- not some model that the quants came up with that only explains what happens to the product 99.99% of the time.
The equities trading side didn't have much to do with it, either.Perhaps "limit" would be a better word than "cripple", if that's what you really mean.
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