‘Volcker Rule’ Vindicates Former Fed Chief’s Regulations Push

[Crewleader]

By Yalman Onaran and Mike Dorning

Jan. 22 (Bloomberg) -- Paul Volcker didn’t lose confidence when the Obama administration initially cast aside his argument to separate banking from trading in its plan for a new financial-regulatory system.

“I’m sure he’ll recognize the wisdom of my view sooner or later,” Volcker said in an interview with Bloomberg Television last April, referring to Lawrence Summers, President Barack Obama’s chief economic adviser.

Volcker was vindicated yesterday when Obama proposed limiting trading activities of financial institutions to prevent another crisis, adopting recommendations of the 82- year-old former Federal Reserve chairman. Obama called it the “Volcker Rule.”

“This represents somewhat of a shift from the positions of those in the administration in favor of deregulation,” said Joseph Stiglitz, a Nobel laureate and frequent critic of the administration. “Volcker has been pushing for this for a year, and it was one of my biggest disappointments that his idea wasn’t picked up by decision-makers until now.”

As recently as last month, Volcker was still telling friends that he couldn’t get the White House to come around to his view, said two people who have discussed the matter with him. Then in late December Obama decided to take his advice, even with continued opposition from some within the administration, the two people said.

http://www.bloomberg.com/apps/news?pid=email_en&sid=aLUCx4iqK7HU&source=patrick.net

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1. Volcker also opposed some good ideas

Much too much is being made of this one announcement. This, in itself, is not near enough to fix everything that went wrong. And neither Volcker or Bernanke have the ability to look at how economic theory plays out in the real world. You've got to go to Elizabeth Warren for that.

"For instance, while Mr. Volcker supported 80 percent of the administration’s detailed plan for financial regulation, he opposed maintaining the investment side of banking, as well as the weakening of the Fed. He said that the government should give the Fed responsibility to survey the whole financial system as well as the ability to intercede in any sector when there is a dangerously large amount of trades in that area. He also believes the government should have the ability to intercede any time a particular institution has become too risky. “Somebody should have raised the question that subprime or credit default swaps raised a threat to the markets,” Volcker said.

Fed Chairman Bernanke, on the other hand, took the opposite approach, saying "plenty of firms got into trouble making regular commercial loans, and plenty of firms got into trouble in market-making activities,” at the Economic Club of New York on Nov. 16. “The separation of those two things per se would not necessarily lead to stability.”

The Senate released their version of a reform bill that would create a single federal bank regulator (opposed by Volcker) leaving the Fed only in charge of monetary policy. This approach is supported by supported by Arthur Levitt, a Clinton-era Securities and Exchange Commission chairman. The Senate bill also tightens capital and leverage requirements, provides shareholder with no-binding votes on pay and board; closes loopholes on derivatives, securities, hedge funds, payday lenders and more.

In Dec, the House passed a reform bill similar to the Senate bill except it does not create a single regulator, and also creates a federal insurance regulator, directly regulates derivatives and hedge funds, reforms credit ratings agencies, and creates a dissolution authority to dismantle failing institutes."

http://obama-mamas.com/blog/?p=1078

[Crewleader]

2. Thanks for posting that and we all now

Elizabeth Warren is the best! :-)