Volcker Rules, or Does He?

The Volcker Rule that has been released as approved today believes that it’s the world’s answer to protecting the clients against bankers’ fraudulent speculating on the financial markets. But, if you were to believe that, then you are probably married to Mary Poppins and the next President will be Dick Van Dyke, which will probably be better than the present Chitty Chitty Bang Bang.

Volcker Rule

Volker was right when he stated that speculative action played a major role in the financial crisis of 2007. The Volker Rule which is part of the Dodd-Frank Wall Street Reform Consumer Protection Act is meant to stop banks from playing with their own money on the stock market in order to make a profit, trading in bonds, currencies or commodities and derivatives.

The Volker Rule will forbid all such activity unless it is at the request of a client of the financial institution.  Proprietary Trading will become a thing of the past.

Or will it? Does Volcker rule or is it Volker that is getting it wrong? Just how much will the banks take heed of what the rules and regulations are? Since when did the banks actually abide by the law?

Since time-immemorial they have been there to make a profit and they will continue to speculate on the markets for their own gain. We have gotten used to bubbles, and their bursting. We just don’t necessarily like the latter, but the state will always be there to bail them out and turn a blind eye when it happens again.

Can you see the banks deriving their profit from simply the difference between interest on loans and interest on deposits? That would never happen. Hedging will be allowed under the Volcker Rule and that’s the hangman’s noose for Volcker himself. The banks can say that investment was to hedge against whatever they like. The banks can say that they needed to invest in the stock market and that’s not for personal gain of the bank, just for covering the eventuality of losing money when the markets go all topsy-turvy and tank.

Some believe that it’s almost impossible to tell the difference between a prop trade and a legal hedge. But, the irony in the situation is that there has been much discussion and debate over a law that will just be by-passed by the majority (if not all) of the banking system. In the past, even in the final moments of the collapse of the subprime crisis, the banks were still coming up with new strategies to change the course of history. They were still working in collusion to fix the interest rates and to distort the returns. Wall Street is a never ending den of vice that just gets around the slow and sluggish machinery of the legal system, and laughs out loud at the same time.

The banks will still be too big to fail.

The banks have already worn down the regulators. The public may be outraged and crying out for change. But, theta will never happen.

The banks have us all right there where it hurts. The idea of a law to regulate the banks would have been good. But, they have far too much power to control anything they do these days. They are the crux of the society that we wanted and that we have ended up with.

Why the Volcker Rule still has that name is anybody’s business. It has been reworked so many times that it has nothing to do in this watered-down state with what it ever intended to do in the first place.

The Volker Rule will not solve the problem of the banks and the banks will continue hedging (which will become the by-word for investing and speculative money-spinning). Banks will be trading till the cows come home. Regulators will never be able to tell the difference between a hedge and a speculative investment.

Whatever happens they have until 2015 to think up a strategy to whisk them off into the skies under a protective umbrella of concealment. Let’s hope the taxpayers don’t have to pay out next time the trillion that it cost us after the last fiasco.

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