In a dramatic switch in position after the Massachusetts Surprise, in which the voters of Massachusetts elected a Republican to the U.S. Senate over a Democrat, President Obama proposed what he called the "Volcker Rule". The Volcker Rule, as explained by the President, would ban speculative investments by banks and bank holding companies in "proprietary trades". These are in turn defined under the proposed ban as trades in which the banks invest their money without servicing their clients.
The basis of the proposed Volcker Rule, named after former Federal Reserve Chair and Obama adviser Paul Volcker, is a perceived ignorance by banks, evidenced by their investing behavior in recent times, of their Fiduciary Duties toward any other party involved in their investment transactions, including their own clients.
Mr. Volcker warned many people in many places for a long time, "that banks had developed 'unmanageable conflicts of interest' as they made investments for clients and themselves simultaneously." David Cho and Binyamin Appelbaum, "Obama's 'Volcker Rule' Shifts Power Away From Geithner" (Washington Post Online, Friday, January 22, 2010). "We ought to have some very large institutions," Mr. Volcker is quoted as saying in a speech he gave in Toronto, Canada ...
... whose primary purpose is a kind of fiduciary responsibility to service consumers, individuals, businesses and governments by providing outlets for their money and by providing credit. They ought to be the core of the credit and financial system. Those institutions should not engage in highly risky entrepreneurial activity.
Id. [Emphasis added.]
Restoring a sense of Duty to speculative investment would be a major change in behavior on the part of speculative investors and so-called banks. Even if it may have no effect on repetition of the causes of the current Great Recession in the future, the Volcker Rule would to a certainty prevent other causes of another Great Recession as a result of the behavior demonstrated in the past by speculative investors. See also Gretchen Morgenson, "Resetting the Moral Compass" p. 1, col. 5 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, January 24, 2010).
A related post on similar issues can be found on Insurance Claims and Issues Web Log, available through the American Bar Association web site or at www.insuranceclaimsissues.typepad.com.
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