Naked Capitalism: Big Banks Continue As Before ( the "reform" bill passed)

[amborin]

Regulators (and New York Times) Discover Bank Use of “Customer” Trades to Place Bets

The very minute the Paul Volcker, who proposed the sound idea that government backstopped banks not engage in proprietary trading, said that trades done on behalf of customers were meant to be excluded from this proposal, anyone familiar with trading could see he’d just deep sixed his idea.

Proprietary trading existed LONG before banks decided to create separate “prop” desks to speculate with house money. And even in the era of prop desks, in the vast majority of cases when a prop trader puts on or exits a trade, who is the end buyer? A customer.

So the measure of whether a bank is making bets in its customer dealing book isn’t the composition of its counterparties, it’s how much in the way of bets it winds up carrying (traders, just like rug merchants, can shade the prices they buy and sell at to keep from accumulating too much inventory). It would have ben possible for regulators to devise rules, such as value at risk limits, requirements that dealers hedge or otherwise “flatten” their positions beyond a certain size level within a specified time period. Even with provisions like that in place, some desks will be exposed when markets turn chaotic, but it should be far fewer, with much less loss exposure.

Instead, as the New York Times recounts, life in big bank land continues more or less as it did before, including large losses when traders make bad bets:

snip

http://www.nakedcapitalism.com/2010/08/regulators-and-new-york-times-discover-bank-use-of-customer-trades-to-place-bets.html

[vi5]

1. Well, look on the bright side

At least the insurance companies are behaving after Health Care Reform was passed.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x9020158

Like I said when both of these things were passed, the "reforms" were only going to be as good as the enforcement bodies put in charge of keeping them in line, and that there were far too many loopholes and ways around.