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This updates previous posts here on February 15 and on January 25, 2010 and on Insurance Claims and Issues Web Log on February 23 and January 25, 2010.
Proprietary trading is in trouble. Maybe not so much.
The Obama Administration has proposed a "Volcker Rule" which would do two things, both related to proprietary trading, i.e., trading in which only the 'Bank' has an expectation of making a profit and no client is involved. (Here is a Summary of the "Volcker Rule Proposal" released by the Administration, and reprinted in the Financial Times on Wednesday, March 3, 2010.)
First, Banks would be prohibited from "owning or controlling hedge funds and private-equity firms." Rebecca Christie and Phil Mattingly, "'Volcker Rule' Draft Signals Obama Wants to Ease Market Impact" (Bloomberg.com, Thursday, March 4, 2010).
Second, Banks would not be permitted to act "as a prime broker to hedge funds they advise." Id.
Former Secretaries of the Treasury and other Financiers (the "Elders") support the Rule. The Banks, through their Financial Services Roundtable for example, oppose it. Id.
Some time ago, or so the story goes, Josef Stalin was told that the Pope was opposed to some action or other which Stalin proposed to take. The Pope was a huge symbol of persuasive but not coercive influence. Stalin's reply to being told that the Pope's views were opposed to his own views, is notorious: "How many divisions has the Pope?"
The persuasive influence of the Elders is clearly aligned on the opposite side of the Volcker Rule from the financial influence of the Banks, the Financial Services Roundtable, et al. The fate of the Volcker Rule at the hands of Congress will be decided by which influence prevails on Capitol Hill. Whether the way in which individuals behave in situations governed by the proposed Rule may, or may not, be changed hangs in the balance as well.
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