President Obama has outlined his populist-leaning plan to take on big banks
The proposed regulation would aim to halt proprietary trading and squelch "too big to fail" banks--two risky aspects of the banking system that helped contribute to the collapse.
The proprietary trading ban would block commercial banks from
investments like hedge funds or private equity funds. Financial
journalists have had time to mull over the proposals, and they find plenty to love and hate.
- Worthwhile Overall, but Terrible for Banks The Atlantic's Megan McArdle says
the move forces banks like Goldman Sachs to decide, "Do they give up
their profits, or their implied government guarantee? Either move is
going to hurt, which is why, despite reporting record
profits today, Goldman's stock is down 4% at this writing." She
"tenatively" calls it a good idea that would benefit the economy
overall, but warns it could still be "worse than nothing" if it allows
"loopholes you could drive a truck through." Even if it works, "this is
going to deal a major setback to New York as a world financial capital."
- The Huge Problem It Won't Address Reason's Tim Cavanaugh scoffs
the "good news" is that the proposals are "mostly
irrelevant." Cavanaugh notes that they likely won't address the
irresponsible mortgage lending that played such a big role in the
financial crisis. "Even commies agree
that mortgage lending is a basic operation of a bank." It will,
however, limit the mortgage-backed securities that exacerbated the
- Banks Already Finding Loopholes So laments Business Insider's John Carney. "[S]ources at three banks tell us that they are already finding ways to
own, investment in and sponsor hedge funds and private equity funds.
Even prop trading seems safe," he writes. "A person familiar with the operations of one big
Wall Street bank said it expects that new regulation will affect less
than 1% of its overall business."
Can You Even Stop Proprietary Trading? Reuters's Felix Salmon wants to, but is skeptical it can be legislated. "Absent a corner of the trading floor with a big flashing 'prop desk'
sign above it, in practice it’s very hard to draw the line between the
kind of daily trading that any broker dealer has
to do, on the one hand, and proprietary trading for a bank’s own
account, on the other." But he's far happier about the bank size
limits, gushing, "I love this."
- Won't Stop Foreign Banks A loophole that Washington Post's Sebastian Mallaby worries will weaken U.S. banks without solving the real problems. The proprietary trading ban "presumably would not extend to foreign banks. The foreigners would
still gamble in U.S. markets, and the risk of destabilization and a
job-destroying credit crunch would continue. In the good years, the
foreigners would reap profits, and U.S. banks would lobby regulators to
relax the definition of proprietary trading so that they could stay
competitive. Moreover, when the next crisis arrived, it would not
necessarily be foreign taxpayers that paid for the bailout. The risks
taken by Iceland's banks might well end up being partially paid for by
- This Is Just Politics The Washington Post's Steven Pearlstein shrugs
that Obama's proposals fall so short that they can only be about
populist posturing. "The president's motives seemed less substantive
than they were
political, allowing him to shift from defense to offense and put
Republicans in the uncomfortable position of having to defend the Wall
Street status quo."
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