Volcker Rule of the Dodd-Frank bill

     I thought some of our Patriots who cannot watch Cspan would be interested in getting summaries of discussions at the capitol.  Today’s discussion was of the Volcker Rule of the Dodd-Frank bill. Representatives from various regulatory agencies, FDIC, CFTC, SEC, FTC and the Federal Reserve were asked to create the guidelines that would distinguish risky proprietary trading from healthy market-making trading which is absolutely essential to the economic well-being of the country

      The issue is so complex that that one rule required nearly 400 pages of regulations and 1,300 questions.  The regulators agreed that the only way to really distinguish between the two is to examine the intent of the investor, discern the investor’s motives.  When asked how effective it would be all of them were hesitant:  “We think we can…”  We hope…”  “Maybe we can.”  The ineffective implementation of the rule could be caustic to the economy damaging capital building, affecting liquidity, interest rates, property values, the gamut.

Members of both sides of the aisle and all the regulators agreed that there is no evidence that proprietary trading had any effect on the recent banking crisis. They are apparently trying to get a jump on the next crisis which is in and of itself a scary proposition when we realize the unintended consequences of everything government does.

       There was also a lot of agreement with regard to how costly implementation would be.  It would take banks at least 18 months to set up tracking systems that could adequately track activity.  The actual monitoring would cost from 80 billion to 400 billion to implement.  Corporations would necessarily have to sideline a trillion dollars, take a trillion dollars out of the market to make the system work.  The agencies would have to hire extra staff to take on the responsibilities and they would also have to set up a separate research center to maintain data, a significant increase to federal bureaucracy.

       The other hitch is that none of the other G-12 countries have agreed to follow the guidelines which would probably cause a loss of jobs to countries that are more business friendly.

       Aside from some of the Democrats, the only person on the panels who seemed adamant about the importance of implementation was a professor from MIT.