Now, you can think what you want about the Obama proposals, but there is something I find more than strange. What is happening about what caused the crisis in the first place and why is there no mention of it anywhere anymore in none on of the proposals?
Maybe I missed something here, and maybe someone can help me understand, but as far as I can remember, what was at the root of the problem, were OTC derivatives and securitized products based on bad loans. Oh wait, we did have a program to solve that and relieve banks from those "toxic assets" off their balance sheets: the Troubled Asset Relief Program, our beloved TARP. We kinda strayed away from its original intent, no?
Now, when did prop trading come into play? I don't remember any of the firms that massively failed, failing because of their prop desks. AIG? Not prop trading. And the firms that were bailed out didn't use money to prop up their prop desks. (yeah, bad pun)
Might prop trading cause problems in the future? Maybe. But why isn't the government dealing with problems, one by one?
The Volcker rule -again, think what you want of it - doesn't address the issues of lax underwriting, poor (yeah ok, deceptive) ratings, lack of disclosure and lack of understanding along the chain, of the structured products.
Hell, people are still- almost two years and a gazillion hearings later- trying to make sense of WTF AIG was holding and who the counterparties were.
Peter Morici, a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the US International Trade Commission puts it this way: "Many smaller banks invested in risky securities-commercial mortgage backed securities. They did that and could do it again without a proprietary trading arm."
Why the government is not addressing these issues more than two years after the crisis started is a mystery. Some industry sources say that it's because they have no clue about what they are talking about and they don't understand how the derivatives/securitization markets work.
Yes, swaps, CDS and CDOs squared are difficult to understand. But can't they find someone, anyone, to explain? There are lots of out of work people out there.