Subscribe: RSS Feed | Twitter | Facebook | Email
Home | Contact Us

Amar Bhide Makes Case for Volcker Rule

Posted by Larry Doyle on February 20, 2012 8:50 AM |

Why do you think former Fed chair and widely respected central banker Paul Volcker paid a visit the other day to SEC head Mary Schapiro?

I would gather that Mr. Volcker was not there merely to exchange pleasantries. No, clearly Mr. Volcker was exhorting Ms. Schapiro to withstand the pressure currently being applied by many members of the Wall Street-Washington Incest society to water down the Volcker Rule which would curtail proprietary trading on Wall Street.

Those on Wall Street would love to utilize the free money provided by Ben Bernanke to generate perceived easy streams of revenue via prop trading. Need we remind them that proprietary trading embodied within the SIVs (structured investment vehicles) brought down many financial institutions on Wall Street and around the globe. I wrote as much a year ago in a commentary which addressed the manner in which SIVs operated. That commentary, Proprietary Trading Did Bring Down Wall Street, was accurate a year ago and remains so today.

Selected traders running relatively small books of proprietary business may view the Volcker Rule as overkill. Who can help us make the case that taken in its entirety, the massive and often unknown risks within many trading books (proprietary and non-proprietary alike) are not the stuff which American taxpayers are supposed to be subsidizing via the now deeply embedded “too big to fail” standard?

While the passage of time along with the powerful Wall Street lobbyists are diligently at work to erode the memories of those terrifying days back in 2008, let’s not be so shortsighted. To help properly frame the debate and make the case for the interests of all Americans, I welcome sharing a clip from our Sense on Cents  Economic All-Star Amar Bhide, the Thomas Schmidheiny Professor at Tufts University Fletcher School of Law and Diplomacy.

None other than Volcker himself had this to say about Bhide’s work:

“Events have raised large questions about the academic theories supporting the concept that our heavily ‘engineered’ financial markets are self-disciplined and efficiently allocate capital. Amar Bhidé’s skeptical analysis should stimulate basic reconsideration.”

For those with interest on this day that we honor the greatest of presidents in our nation’s history, I encourage you to view and appreciate the case made by Bhide in this 20-minute clip. Bhide never once mentions or references the Volcker Rule. He comprehensively and systematically dismantles the manner in which risks are taken and managed on Wall Street. I would challenge anybody to refute the premises put forth by Bhide, and then deny the need for the Volcker Rule. I only hope that Ms. Schapiro and her minions are familiar with Bhide’s work.

This clip is provided thanks to the Institute for New Economic Thinking. I think you will find it quite informative and helpful as we collectively try to navigate our economic landscape.

Navigate accordingly.

Larry Doyle

Sense on Cents Related Commentary
Sense on Cents/Paul Volcker

Isn’t it time to subscribe to all my work via e-mailRSS feed, on Twitter or Facebook?

Do your friends, family, and colleagues a favor and get them to do the same. Thanks!!

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

  • Obsvr-1

    As long as the doctrine of “privatized gain and socialized loss” continues, these valid discussions get reduced to mere academic exercises. I am not saying it is not important to continue the dialogue, but the voice of those who lose is certainly silenced by the scream of those who gain (through lobby “bribes”, Citizens United type judicial decisions, crony capitalism run amok …).

    If there is a real desire to change the behavior of the ‘legalized fraudsters’, then the answer lies in treating those who mis-behave with a punishment of suffering personally through loss of freedom (e.g. jail) and financially through disgorgement of illicit gains. And please, close the revolving door between the regulators and the industry which they regulate.
    The key idea in the interview was gross mismanagement of the entire financial system due to lack of judgement. However, I believe it is the corruption of judgement. Paraphrasing what I heard from one of the tea party congressmen: Many good intentioned people come to Washington to expose and change the ‘cesspool of corruption’ only to find out in 6 months to a year that they find themselves with the others in the ‘hot tub’ of cronyism.

  • The too big to fail banksters can get away with murder, fraud, coercian, harrassment of the general public and any other illegal activity under the sun because they have a lot of influence on the political class, the rule makers and the rule enforcers due to their enormous purchasing power. So irrespective of the position in the government, everyone works for their benefit.

  • coe

    Don’t examine the brakes too closely, just thicken the air bags…interesting views, LD…can the CEO of a SIFI possibly be in touch with the various pockets of real systemic risk in a large financial institution? Is it possible for the regulators to use judgement in lieu of flawed models in the examination process…good questions posed by Amar Bide…certainly adds some provocative thought to the debate…once again, it’s all about judgement and dialogue.

Recent Posts