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"Prop trading did not cause the crisis, but it presents a future risk. If banks want access to cheap Fed money, taxpayer backed guarantees, and FDIC insurance, then no prop trading."

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Re:Small banks shafted in Obama regulatory plan (1 viewing) (1) Guest

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TOPIC: Re:Small banks shafted in Obama regulatory plan
#2037
WFC ()
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Re:Small banks shafted in Obama regulatory plan 2 Weeks, 5 Days ago Karma: 0  
I love the ominous warnings that bankers and politicians have been putting out there opposing regulatory changes about "unintended consequences." Of course there will be. Every decision you make likely has unintended consequences. You can't be handcuffed by that.

People also seem to miss the point on some of the proposals, the Volcker Rule in particular. Its opponents insist that the financial crisis wasn't caused by prop trading, so that means it's OK. The point of the Volcker Rule is 1) to ensure prop trading isn't a cause of a future crisis and 2) to punish the big banks. They all obviously love their prop trading desks since no one is coming out saying "Oh, you want our prop trading gone? No biggie." And yes I think it's reasonable to punish the banks. Their failures are punishing all of us.

As Barry Ritholtz at The Big Picture put it: "Prop trading did not cause the crisis, but it presents a future risk. If Banks want access to cheap Fed money, taxpayer backed guarantees, and FDIC insurance, than [sic] no prop trading."

Clearly the big banks have too much power if they blow off every proposal to tax more of their activities with, "You don't want to do that because we'll just pass along the cost to our customers." If there was real competition in banking, that wouldn't be possible since the tax should put the big banks at a competitive disadvantage. Sadly, the crisis has put big banks at even more of an advantage over small ones. The Wall Street Journal wrote in December:

"Although smaller banks have long had a higher cost of funds than big ones, the gap has widened. The gap averaged 0.03 percentage point for the first seven years of the decade, but it jumped to a 0.66-point disadvantage for smaller banks in the four quarters ended Sept. 30, estimates Dean Baker of the Center for Economic and Policy Research, a liberal think tank."
 
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#2038
Ron F ()
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Re:Small banks shafted in Obama regulatory plan 2 Weeks, 5 Days ago Karma: 1  
Agree. The correct response to the criticism that the Volcker Rule doesn't go far enough to address the causes of the crisis isn't to oppose it but to demand that it be supplemented. And that means effective derivatives reform instead of the loophole-ridden bill in the House that Republican senators like Richard Shelby think goes too far.

But as Chris Whalen points out over at the Institutional Risk Analyst right now, the New York Fed is going in the opposite direction by institutionalizing the banks' monopoly over the over-the-counter market by setting up a new clearinghouse that they will own but which will not be subject to FDIC regulation even though the clearinghouse will be a bank.

The thing is, at this rate, the next crisis will be even worse than the last one, and even more difficult to avoid.
 
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#2039
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Re:Small banks shafted in Obama regulatory plan 2 Weeks, 5 Days ago Karma: 0  
Oh, that would explain why the banks have been A-OK with the clearinghouse, whereas only a couple of years ago they had to be dragged into it. But since the NY Fed agreed to make it such a safe, cozy place, I can see the appeal. Any unintended consequences are likely good in this case.
 
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