Thursday, January 21, 2010

Obama to kick the props out from under banks??

Obama to Propose New Rules on Banks’ Size, Proprietary Trading
Obama is renewing his focus on economic issues in an effort to tap into voter anger about the struggling economy, taxpayer bailouts and growing bank profits at a time of 10 percent unemployment and a federal deficit that rose to $1.4 trillion last year.

President Barack Obama will offer proposals to limit financial institutions’ size and trading activities as a way to reduce risk-taking, an administration official said.

Obama will announce the rules today after meeting with former Federal Reserve Chairman Paul Volcker at the White House. The proposals will be part of an overhaul of regulations and will specifically address firms’ proprietary trading, the official said yesterday on the condition of anonymity.

Goldman reaped more than 90 percent of its pretax earnings last year from trading and so-called principal investments, which include market bets on securities and stakes in companies.

ZeroHedge has evidently been advocating something along those lines for a while, and is scathing of the proprietary desk trading, calling it legalized front running. His blog post is an excellent background briefing of the topic.

In it, he reminded Guambat of the Goldman Huddle, which Guambat touched on a few months back.

Guambat's gotta go with Obama on this. Tell 'em all to go to health.


MORE ON THIS:

As Guambat speculated a few days ago, Wall Street is quite prepared to put some hurt on the market to apply political pressures on the administration to back off on bank reform. It's easy to do because the market had become terribly one-sided and overbought after a 70% run up from last year's low.

But they won't call this a normal corrective move; they'll chalk it up to the damage Obama is causing to the financials. Nevermind the run up in the first place was the natural flow of all the fiscal stimulus he provided the market. He got no credit for that but is now getting the blame. It's normal market behaviour masquerading as political yo-yo.

Felix Salmon, for one (and obviously Guambat for another) isn't buying the argument. He says, Three cheers for Obama’s banking reforms
Barack Obama is coming out swinging today, and good for him for doing so. Note here how Geithner and Summers just become part of “the President’s economic team”, while Volcker gets top billing.

This is also a good sign: in the wake of Dodd making noises about softening existing legislative proposals, Obama has come out and said, quite rightly, that we should push hard in the opposite direction, and tighten them up. OK, so this is populism. But populism in the service of a good cause is no great sin.

Banks stocks are down in the wake of the speech, but not dramatically: it’s easy to get overexcited about a 6% fall in JP Morgan’s share price while forgetting that it’s still over $40 a share, compared to less than $15 in March. Indeed, its all-time high, back in 2007, was barely over $50. Let’s get the Republicans on board with this, and push it through. It’s probably our last chance to enact meaningful financial reform this generation.

Yves Smith, at Naked Capitalism, says,
This should have been implemented months ago, when the banks were on the ropes and beholden to Washington. They are now emboldened and will fight tooth and nail. The most encouraging bit of this story is that Volcker finally seems to be having some influence on policy
In another post Yves also says this about the bank bail-out claw-back fee:
Gee, Warren Buffett happens to own a chunk of Wells Fargo, and also provided an equity injection to Goldman Sachs. So it should come as no surprise that he has come out in a Bloomberg interview arguing against the so-called TARP fee, a charge to be levied against the non-deposit liabilities of large banks.

Now this little bit of lobbying via the media should end any delusions that Buffett is a friend of the little guy. But what is even more striking is his failure to mount a serious argument. It’s an insult to the public’s intelligence.

The idea that the fee is to punish the banks is a convenient fiction pushed by the banksters and their backers. The public is angry, but the anger is correctly founded: the banking industry got massive, unwarranted subsidies for failure, the safety nets are still operative and clearly will be redeployed in the event of future errors and chicanery. Yet no one has been brought to justice, and virtually nothing has been done to prevent a recurrence.

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