Volcker Rule Would Cause Irreparable Damage To The Muppets – And Much More Broadly

By Simon Johnson, April 1st, 2012

A major new research report – released this weekend by the renowned international consulting firm, IMS – finds conclusively that implementation of the proposed Volcker Rule would damage not just the irreplaceable Muppets but also “all children-oriented television or other media-based educational program content.”

The logic in the report is straightforward and, quite frankly, compelling.  The Volcker Rule – which aims to limit proprietary trading and excessive risk-taking by the country’s largest banks – would reduce the ability of “too big to fail” institutions to bet heavily on the price of commodities used to produce puppets (mostly cotton, but also apparently wood, aluminum, and some rare earths.)

“In response to the changing demands of their customers, banks have expanded their role of providing financial resources and services to include risk management and intermediation services to [various kinds of puppets]” (p. ES2)

These services are highly profitable and of great value to the skilled artisans who produce puppets, but if the very biggest banks are not allowed to engage in these activities, then no one else will.

This, of course, is elementary economics – dating back as far as Adam Smith.  If there is a profit-making opportunity to be had, then everyone will spurn it, unless they work for a massive international bank.

The history of the United States is replete with examples of business sectors that would never have come into existence were it not for the proprietary trading of banks that were large enough to damage the economy when they failed.

Thomas Edison worked long and hard for J.P. Morgan (the man) before being allowed into the speculative trading side of the business.  Henry Ford’s entire model was a spin-off from Bankers’ Trust – with a substantial equity investment from his former employer.  And the Wright Brothers’ business concept – as well as their most basic notions of aeronautics – derived from their early work with paper airplanes on the trading floor of what became First National City Bank of New York (i.e., Citigroup today).

Put simply, there has never been real entrepreneurship in the U.S. financial markets or economy – other than what these banks have put there, directly or indirectly.  The fact these banks were very small relative to the economy until the 1980s is irrelevant.

And the fact that these banks now draw on huge government implicit subsidies – while also creating an enormous and dangerous tax payer liability – is neither here nor there.  Malfeasance by these banks has brought us to the brink of fiscal disaster.  In political terms, we are manipulated by bankers just as if they are pulling our strings.

But you have to consider the benefits, as well as the costs.  Do you enjoy watching the Muppets or not?

If the Volcker Rule is implemented as planned, that would have a major negative effect on the bond yields – the spread over the “risk-free” interest rate – paid by the Muppets and other leading providers of children’s entertainment.  No one else will ever trade these bonds to any significant degree – just as no one would have produced cars or planes without the dominance of big banks in those sectors.  Even the electricity you are using to read this piece was made possible by the market dominance and overbearing presence of deeply entrepreneurial and ethical entities such as Enron.

The Muppets themselves have come out strongly in favor of the financial sector as currently structured.

As Lloyd Blankfein, head of Goldman Sachs, reportedly said recently,

“It’s not the dealers and it’s not the investment bankers and providers that have to grapple with regulation. It’s users and [puppets of all kinds] in the market that have to deal with different margin requirements…have to deal with unfortunately and inevitably higher cost in managing their portfolios…and have to pay the price for the higher cost of holding inventories.”

The IMS report was paid for by Morgan Stanley (see p. 3), further evidence of smart entrepreneurial investments by big banks that support the deeper development of the economy and help create puppets everywhere.

12 responses to “Volcker Rule Would Cause Irreparable Damage To The Muppets – And Much More Broadly

  1. One of the best April Fool’s post since Wikipedia
    explained, a couple of April Fools ago, that Lady
    Gaga’s moniker came from Jean-Pierre Serre’s
    Geometrie Algebraique et Geometrie Analytique.

    My compliments to Funster Simon!

    Alan McConnell, still in Silver Spring MD

  2. Took me a minute…. then I remembered the date…

    Good one!

  3. As always consider the source.

  4. Moses Herzog

    This post is too, as in tooooooooooooooooo funny!!!!! A++ for humor, and A++ for in-between-the-lines message. It’s posts like this is why Kwak and Johnson will always reign supreme of finance/econ bloggers in my mind. I just pray to God that President Obama peruses this site from time to time. I pray to God President Obama peruses this site from time to time…..

    ….. But then IF Pres. Obama did peruse this site, he wouldn’t have used Volcker’s profile behind him ONLY as a PR/Photo stunt, and he wouldn’t have brushed aside Volcker and Stiglitz in favor of the TAXCHEAT with the visually-deceptive virgin boy scout eyeballs. The worst trade off of his Presidency, and maybe his life.

  5. @ Simon, you had me going there…..almost had Elmo on speed dial to warn of the dire news.

    Happy April Fools, I pinged my son with something about his guitar lesson, and then I got pinged here……serves me right….all is fair in love and grace.

  6. Dudes, it’s IHS not IMS. Otherwise, spot-on. Morgan Stanley is about to head into BBB purgatory, and their customers will continue to leave in droves. Without customer business, all they have is using their too-big to fail status to lever up at cheap rates and trade. What coils possibly go wrong?

  7. http://www.huffingtonpost.com/2012/04/01/goldman-sachs-backpage_n_1394868.html#comments

    No doubt a publicist will claim the same about the attached article – “April Fools!”

  8. bayardwaterbury

    And a happy April first the the April (and every other month) Fools on Wall Street. Thanks, Simon!!!

  9. It took me just a while to realize that this story was cut out of whole cloth, that Simon was stringing us along. The presentation was so wooden that it’s the only conclusion I could reach…
    What’s amazing about this April Fools’ narrative is how well it “hangs” together! The links tell the story, both the funny and not-so-funny parts.

  10. http://www.msnbc.msn.com/id/3036789/#46937185

    Tough job promoting a book but Professor Johnson did a great job talking with the beloved pets of the elite – the Poodle (Mika) and an Airedale (Joe) about *debt*.

    I would be more than happy to send along my financial history from this past decade to Prof Johnson so that it can be clearly understood just how delusional and destructive policies were regarding *revenue* collection for militarism. Skinned alive….

    Ponzi scheming the last big river of money (health care) for *revenue* is breaking into what I call *primal boundaries*. Blood will be shed before the elite get to collect the *revenue* from a health care Ponzi…

  11. Not quite. A brand new stream, one fed from investments and ripe for skimming, was happily created by an easily bribed and readily hoodwinked legislative branch, thanks to the JOBS bill.

  12. IHS, the business insight people, not IMS, the prescription drug data people.