Wednesday, January 20, 2010

Now Obama Wants to Limit Bank Proprietary Trading

Taxing the liabilities on the bank balance sheet is not enough for him. He wants a bigger show-down with the nation's bankers to show to the American people how he is fighting with evil, greedy bankers everyday so that our financial well-being is "secure". (Just like our physical well-being has been "secure" because of Patriot Act, I suppose.)

Obama to put limits on bank trading (1/21/2010 Financial Times)

"President Barack Obama is set to toughen his approach to Wall Street regulation on Thursday, announcing limits on the size of proprietary trading operations in the second broadside against banks this month.

"Mr Obama will make his remarks after a meeting with Paul Volcker, the White House advisor and former Federal Reserve chairman, whose more far-reaching vision of curbing banks’ riskier activities has been sidelined until now in favour of reforms drafted in the Treasury

"“A couple of months ago the president began discussing with his economic team the need to include in financial reform more specific and stronger provisions to limit the size and scope of financial institutions to cut down on excessive risk taking,” said an administration official on Wednesday.

"“The proposal will include size and complexity limits specifically on proprietary trading and the White House will work closely with [the House of Representatives] and Senate to work this into legislation moving on the Hill.”" (The article continues.)


Major U.S. banks, particularly Wall Street banks like Goldman Sachs (who is announcing the earnings on Thursday premarket, by the way) and J.P. Morgan Chase have large proprietary trading operation where they risk their own money (as opposed to customers' money) and trade in various financial markets - stocks, bonds, options, commodities, futures and other derivatives.

Does Obama want to become a trader, on top of being a car salesman, residential mortgage broker, and insurance agent? Good luck with that. How about being the President of the United States, whose responsibilities are clearly stated in the old document that he swore to uphold (in a mangled oath, if I remember from a year ago).

(If you dare limit the size and complexity of proprietary trading by Goldman Sachs or J.P. Morgan by some kind of bureaucratic, arbitrary decree, I have a feeling that that's when the stock market will lose much of its liquidity and .... splat! In this ugly social mood, I wouldn't dare do that, Mr. President, as the stock market going higher in the last 10 months is one of the few good things that have happened in recent memory of many average Americans who have 401K and IRA. For many, that may be the only good thing.)


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