Tuesday, December 17, 2013

The Volcker Rule

Paul Volcker, former head of Federal Reserve bank, widely admired financial expert.  He ran the Fed for many years or more with steady economic growth and no depressions. 
    Few newsies actually understand what the Volcker Rule is, but they are all in favor of it.  Volcker wants to restrict bank trading in stocks.  He wants to forbid banks from trading stocks "on their own account".  If a bank customer orders the bank to "get me 400 shares of XYZ corp", that's trading on the customer's account, and that's OK.  But for the bank to guess that XYZ stock is gonna take a dive, and dump it, or even worse, sell it short, that's verboten.  There are some other tricky exceptions, but Volcker clearly desires to keep banks from playing the market.
   Why you ask?  First off, banks have enough money to move a stock's value.  Buy up all the shares in sight, and the price of those shares goes up.  Dump a bunch of shares on the market and the price tanks.  Corporations hate this.
   Second, investing in the stock market is riskier than doing home mortgages.  A low speed, dumb guy bank can loose it's shirt in the market, and fail.  Fail means the depositors loose their deposits.  Everybody hates that.
   Back after Great Depression I, Congress decided that banks playing the market had caused the depression.  They passed the Glass Steagall act which forbid banks from buying or selling stocks at all.  That was 1933.  Glass Steagall was in effect right up until Willy Clinton was president.  The banks hated Glass Steagall and  they lobbied hard for its repeal and ten presidents after FDR turned a deaf ear.  Finally we came to Clinton, he listened to the pleas of the banks and got a repeal of Glass Steagall thru Congress sometime in the 1990's.
    Then we had Great Depression 2.0 in 2007.   The Fed people didn't want to actually reverse themselves and call for re instituting Glass Steagall.  But they did call for the Volcker Rule, which is Glass Steagall in more complicated language.  Welfare for lawyers. 
     Me, I think we oughta bring back Glass Steagall.  Any outfit, no matter what it calls itself, that has FDIC insured anything, may NOT play the stock market in any way shape or form.  You wanna trade stocks, you go to a stock broker.  Uncle Sam does NOT insure brokers or stock accounts, no way, no how. 

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