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Volker Rule Under Fire from Bachus & U.S. Chamber of Commerce

January 11, 2011

“All Americans have a stake in this bill…It will offer families the protections they deserve, help safeguard their financial security and give the businesses of America access to the credit they need to expand and innovate.”

So said Treasury Secretary Timothy Geithner, “House and Senate in Deal on Financial Overhaul,” The New York Times, June 25, 2010, Congress Reaches Deal on Financial Bill.

But, the U.S. Chamber of Commerce and every Republican member of Congress have said that the Financial Reform Bill was a “job killer.”

Representative Spencer Bachus, the new chairman of the House Financial Services Committee since Republicans took control of the House of Representatives, told Reuters in September that his top priority as chairman would be to kill parts of Dodd-Frank, specifically orderly liquidation.

What seems to be the problem? The Volcker Rule

The Volcker Rule, named for former Federal Reserve Chairman and current Obama adviser Paul Volcker, 82, sought to avoid future bailouts by curbing risk-taking and initially aimed to ban banks from investing in hedge funds and private equity. The watered down version that made it into the financial version of the reform bill is under fire by financial industry lobbyists.

Here is todays WSJ late breaking news excerpt of recent action by trading firms affected by the Volker Rule:

WSJ Reports:

Morgan Stanley reached an agreement with proprietary-trading chief Peter Muller that will allow his team of traders to form a new firm at the end of 2012, people familiar with the matter said.

The widely anticipated deal is the latest exit by high-profile traders from traditional Wall Street firms because of the Volcker rule, approved as part of last year’s Dodd-Frank financial-overhaul law. Under the rule, large U.S. banks and securities firms must shed their proprietary-trading units. The requirement is aimed at making companies such as Morgan Stanley safer and less likely to require government aid, as they did in late 2008.

In response to the regulatory squeeze, Goldman Sachs Group Inc. has essentially shut down one of its large proprietary-trading operations, called Goldman Sachs’ Principal Strategies, with many of the traders who worked there going to new funds or joining rival investment firms. One group of about nine Goldman traders, led by Bob Howard, was hired by private-equity firm KKR & Co. in October.

The remaining proprietary-trading desks at banks like Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. likely will be shut down or spun out to comply with the new rules, which take effect over the next several years.

PEW Economic Policy Group reported from Reuters, Jan 06, 2011

“Federal Reserve economists endorsed on Wednesday one of the crown jewels of 2010’s Wall Street reform laws — orderly liquidation of troubled financial firms — which a top Republican has targeted for repeal.

The Cleveland Federal Reserve Bank researchers, in a report that could foreshadow congressional testimony, said the orderly liquidation provision of the Dodd-Frank laws ‘is an important step toward addressing the too-big-to-fail problem.’

The provision is one of several interlocking measures in Dodd-Frank, approved in July, meant to prevent a repeat of the 2007-2009 financial crisis that deeply wounded the economy and led to huge taxpayer bailouts.”

Related stories:

PEW Economic Policy Group

Huffington Post

Wall Street Quietly Seeks to Undo New Financial Rules

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