Tag Archives: Merkley-Levin

Will The Volcker Rule Really Be Enforced?

By Simon Johnson

The Financial Stability Oversight Council has put out a request for comments on the Volcker Rule – if you write to them soon, they may actually listen.

One big issue is whether there will be high frequency monitoring of trades by big banks – potentially enabling regulators to know if the “no proprietary trading” rule is being violated. The default approach is probably to have a hands-off, light touch – pretty much continuing our recent and not-so-distinguished traditions with regard to supervising banks.

I go through the issues in more detail – including who seems to be on what side within the government – in a Bloomberg column that appeared this evening.

Decision Time: Has the President Abandoned Paul Volcker’s Ideas On Financial Reform?

By Simon Johnson

The official reconciliation process between Senate and House reform bills will get underway next week, but the behind-the-scenes maneuvering (and intense lobbying) is already well underway.  The main remaining question is whether the final legislation will ultimately make the financial system at all safer than it was in the run up to the crisis of September 2008.

How do big banks repeatedly get themselves into so much trouble?  Dangerous banking in today’s world involves banks trading securities and, in that context, taking positions – i.e., betting their own capital.  For example, almost all the profits made by big banks in 2009 came from securities trading.  When market conditions are favorable and traders get lucky, the people running these banks (and hopefully their shareholders) get tremendous upside.  But when this same risk-taking behavior results in big losses, the major negative impact is felt in terms of a major recession, raising government debt, and sharply lower employment.

“Wall Street gets the upside, and society gets the downside” is an old saying that is now more relevant than ever.  This asymmetry in incentives explains how smart people with concentrated financial power can cause so much damage – according to, for example, the Bank of England’s analysis. Continue reading

Focus On This: Merkley-Levin Did Not Get A Vote

By Simon Johnson

After 9 months of hard fighting, yesterday financial reform came down to this: an amendment, proposed by Senators Jeff Merkley and Carl Levin that would have forced big banks to get rid of their speculative proprietary trading activities (i.e., a relatively strong version of the Volcker Rule.) 

The amendment had picked up a great deal of support in recent weeks, partly because of unflagging support from Paul Volcker and partly because of the broader debate around the Brown-Kaufman amendment (which would have forced the biggest 6 banks to become smaller).  Brown-Kaufman failed, 33-61, but it demonstrated that a growing number of senators were willing to confront the power of our biggest and worst banks.

Yet, at the end of the day, the Merkley-Levin amendment did not even get a vote.  Why? Continue reading

Finally, The Republicans Come Out To Fight. Where Is The President?

The Senate Republicans are refusing to allow a vote on the Merkley-Levin amendment, which would put a meaningful version of the Volcker Rule into law (splitting off proprietary trading from major banks).

After weeks of dancing around, the Democrats finally have a signature issue on which to fight.  Senator Carl Levin frames it exactly right: “It’s a sad day when the power of Wall Street can overwhelm the power of the American people in the US Senate.”

This is the opportunity that White House claims it has long sought – to have an intense fight on a financial reform issue that everyone can understand.  Paul Volcker made his determination long ago: the big banks are too big and must, in this fashion, be broken up.  Senators Merkley and Levin negotiated the precise language of their amendment in good faith.  The Republicans have made their answer clear: No way.

Time for President Obama to make the call. Continue reading