Thursday, January 28, 2010

Big Bank theory

Volcker has the measure of the banks

Part of the FT "we like Volcker" series. Can you tame the big banks by ruling that deposit-taking banks can't engage in proprietary trading or own hedge funds or banks, or is this just a populist play? Obama has failed to rein in big finance and still supports the Clinton-Bush deregulators, Summers, Bernanke and Geithner, and this move comes on the back of election rejection and Republican boasts that they opposed the 2008 bailouts. What about the other bricks in the Wall St system - regulatory arbitrage, use of shadow banking to evade controls on leverage and balance-sheet expansion, the transformation of money markets from clearing and smoothing operations to supplers funds for major speculation, and OTC credit derivatives with no pricing mechanism except bribed credit rating agencies?

Posted by icarus @ 04:37 PM (3560 views)
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4 thoughts on “Big Bank theory

  • cookie problems accessing the article? just google the FT title.

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  • Do investment banks need retail deposits anyway to do their thing? They realised a long time ago that such deposits weren’t sufficient for their purposes and they turned to wholesale money and inter-bank markets (which they transformed from performers of clearing and smoothing functions to suppliers of institutional funds for banks’ casino operations).

    And is it a matter of “too big to fail” (WaMu was wound down with no problems despite its $300 bn balance sheet because it was a normal commercial bank) or “too complex, fragile and interconnected to be wound down without posing systemic risk” – because of interconnection with other investment banks in highly leveraged capital market dealings in structured debt and related derivatives. And of course nothing else is safe with these wild cards around – commercial banks, that relied on insured deposits to provide traditional services, collapsed from the collateral damage caused by the undertow from bursting bubbles.

    Why doesn’t Obama concentrate on forming a new framework that would enable banks that are complex, leveraged, with multiple subsidiaries, extensive off-balance-sheet dealings and opaque finances, to be broken up and sold off with minimum disruption. Move the functions to a new bridge bank, losses for shareholders and uninsured creditors, assets sold off, top management sacked, government providing temporary liquidity from a fund levied in advance on the industry etc?

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  • First line of intro should read “own hedge funds or private equity groups”

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  • general congreve says:

    Volcker wants to f4ck off!!! Luckily he is a lone voice of reason, therefore I’m presuming and hoping that he won’t have too much real influence on US fiscal policy in the coming months and years.

    Anyway, it was heartening to hear Obama make plenty more promises that can’t be afforded in his state of the Union speech, not to mention the $800 million they are planning to print to pay off the Taliban.

    Go Gold!

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