Skip to main content

The Obama Proposal

  • Author:
  • Updated:

Good timing for Goldman to hold its conference call early, 'cause no one is talking about them anymore. We knew it was coming, but Obama's new restrictions on banks go beyond what was expected, sending bank stocks down. Taking the fight to another level, (and trust him, he will fight) Obama described proposed reforms that would limit the size and scope of banks.

My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform. So if these folks want a fight, it's a fight I'm ready to have.

The most stringent aspect -and what, unsurprisingly, is making Wall Street crazy angry- is the banning of prop desks at banks. The so-called Volcker Rule ("after this tall guy behind me") will no longer allow banks to own, invest or sponsor hedge funds, private equity funds or proprietary trading operations.

We cannot accept a system in which shareholders make money on these operations if the bank wins, but taxpayers foot the bill if the bank loses.

While this ban, combined with the proposed bank tax will cost banks big bucks, could it be a boon for hedge fund?
The second proposed reform (and that one's for you, Too Big To Fail) would limit the consolidation of the financial sector. To do so, Obama proposes to place "broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits."

The American people will not be served by a financial system that comprises just a few massive firms. Never again will the American taxpayer be held hostage by a bank that is too big to fail.

Yeah, yeah, people are angry. The banks are angry, the government is angry, Warren B and good ole' Ace are cranky. It's getting nasty out there. Blame it on Massachusetts. Or go Roubini-style and blame it on the Chinese.
Text of Obama's speech [Reuters]
White House statement [White House]


It's Good To Be Too Big To Fail

So, HSBC is going to have to cough up almost $2 billion for, in effect, running a massive money-laundering operation that helped fund such luminary do-gooders as the Iranian government and Mexican drug gangs. But the U.S. has decided not to throw the cuffs on the British bank because, well, that would be pretty hard. And could create an awful lot of collateral damage that no one needs as the country careens off the fiscal cliff.

Banks Lobbying, Capitalizing Like It's 2007

They may still be too big and fragile, but banks are throwing their considerable weight around and getting their way.