Some Sanity Injected into Dealings with Banks
Former Federal Reserve Chairman Paul Volcker wants to prohibit commercial banks from some high-risk trades, saying that this should be an essential component of broader financial regulations and would cut back on institutions deemed “too big to fail.”
That’s seems eminently reasonable to us and we are glad to see Paul Volcker brought to the front of the regulatory battle.
President Obama has embraced Volcker’s idea to prohibit large financial companies that have both commercial and investment functions, such as Goldman Sachs, from engaging in speculative trading.
Large banks have already said that they oppose the idea. Do you blame them? These guys had the best deal around, since mobsters built Las Vegas and they don’t want to give any of that up.
Volcker said commercial banks, whose deposits are insured by the Federal Deposit Insurance Corporation, should not be allowed to engage in speculation that does not benefit their commercial customers.
The ban would distinguish between commercial and investment banks – a separation that had existed until 1999 when Congress, Alan Greenspan, Robert Rubin, Larry Summers and President Bill Clinton repealed major provisions of the Depression-era Glass-Steagall Act.
This wasn’t exactly the beginning of the wild ride on Wall Street, but most likely the beginning of the mortgage derivative schemes, the irresponsible lending practices and so forth – all leading to our present economic quagmire.
It appears that Paul Volcker has the right idea – to roll back some of the deregulatory schemes, which have turned the financial mills into legalized gambling houses.
One thing we wonder about, though… Why wasn’t he allowed to speak publicly before Scott Brown won the Massachusetts senatorial race?
