I guess it was a just a matter of time (and hundreds of millions of lobbying dollars), but now that the laser focus on banker misdeeds seems to be waning, lawmakers are signalling their willingness to dump the Volcker Rule forbidding prop trading at investment banks. So I guess the joke's on those banks who've already divested their prop trading arms.
Realizing they were dealing with dullards, the banking lobby dumbed their arguments down as much as possible so that Congress could understand them. They even went so far as to create the "Volcker Rule for Dummies":
The Financial Services Forum and the American Bankers Association circulated a 14-page presentation on the rule’s consequences to aides on the House and Senate banking panels. Sort of a “Volcker Rule for Dummies,” it compared Wall Street market- making to how Amazon.com Inc. manages inventory for the Christmas rush.
I'm not really surprised by any of this. In fact, I expected it when the rule wasn't passed during the height of the crisis. Now that everything is settling down, the big banks want their prop trading back. And it isn't so they can manage their inventory like Amazon at Christmas.
[Bartlett] Naylor, of Public Citizen, said it’s no surprise that the banking industry would work so hard to dilute a rule that restricts an activity as profitable as proprietary trading.“It can be the source of enormous bonuses for bankers and therein is the argument for the fierceness of their fight,” Naylor said.
Paul Volcker himself has been quiet on the issue. I guess he isn't surprised either.
How quickly we forget...
So you think the banks will begin revamping their prop desks now?
Because so many successful prop guys left banks to start funds (i.e. Goldman), do you think younger guys would have a shot at the filling the gap over the next couple of years?
you would think that a more fragmented prop trading industry would be better for the analysts that are looking to make the switch into HFs right?
I was kind of suprised when so many heavy hitters devisted their prop desks so quickly for this very reason. As you said, one should never underestimate the combination of deep pockets and friends on K Street.
Irrespective of any lessening in regulation I think prop desks at the BBs are a thing of the past. The bulk of the top traders have already left / are on gardening leave / are on the way out and have either set up their own shops (if their names were bankable (no pun intended) enough) or have been given a hefty chunk of risk at at the biggest funds.
The banks wont be able top compete with the lifestyle, 2/20 and other benefits which come from being on the buyside and the extra security that a giant organisation supposedly offered is a thing of the past.
I disagree. They might not be able to get the top names right now but when things start turning again for the finance industry they will be able to pay good money for them to go over there. And I think places like GS will be able to find guys to head at least a couple of prop desks. You are also forgetting that non-american banks still have prop desks, many of them headed by ex-gs/jpm/ms/etc... so they should be able to hire some of them back. Besides, you can always make new prop desks using your star flow traders, the way it has always been done. I actually think this is a great opportunity for the junior traders who entered the BB S&T graduate programs in the last couple of years.
Interesting... the Amazon.com analogy was genius, it manages to both confuse the issue and make the banks look good.
Anybody have a copy of the volker for dummies paper ? Im curious to see how they dummed it down... I spent quite a considerable amount of time doing a "resume" of all the dodd-frank rules for a law paper.
i find this useful: http://www.mofo.com/files/Uploads/Images/110707-Volcker-Rule.pdf
Whatever comes out of this, the walled off pure prop stuff is probably still going to be dead. I don't think the banks are asking for that back. Seems like what they want is more leeway in the 'market making' exception. My guess is the rule will move from the current incarnation which puts the burden on the bank to prove a trade is not proprietary, to one where the supposition is that a trade is not proprietary and regulators will have to prove that is to show a violation.
The time for making a name in politics by going after a bank is going to quickly pass when the deficit issues come from and center over the next few years. Also, like the user above said, friends and money on K Street will solve a lot of the problems. Within this framework of thinking, prop can be lumped under market making as an ancillary function and it's unlikely that Washintong will become sophisticated enough to really stamp it out completely.
-_-
Though, I guess it must be pretty hard for the media to cover a story as unimportant as this between Trayvon Martin and Kony2012
I bet all the traders that were laid off are bout to commit sui
This is bullshit. Why is this happening? Because the BB's and other big players can't exist without Prop. THe VAST majority of revenue from GS came from Prop. The Volcker rule for the most part is good, it forces prop operations to hedge funds - where a blow up can be mitigated without bringing down the entire fucking system. Oh well, it's just a matter of time until they all group-think themselves into another shitty leveraged trade...we never learn.
Please cite. And don't point me to their 10Q/10K line "Trading." Trading =/= Prop. In fact if you look at their new format they split out principal investment revenue, which is not a majority at all. This is exactly the problem - regulators, like you, don't appear to understand what 'prop' trading is or how it contributes to earnings. Granted, making the distinction between honest market making and 'prop' is not always easy, but the "trading" line item a lot of people refer to when talking about this is a lot of market making and client flow business.
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