Reply #18: "does not re-install Glass-Steagall, or anything equivalent." [View All]

[ProSense]

Nonsense.

Robert Kuttner

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The miracle of Dodd-Frank is that it got stronger as it moved through the process. The question now is whether that forward momentum will be reversed. Because the factions in the executive branch mirror those in Congress, it's worth looking back at the legislative story.

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Reformers ultimately prevailed on a few key issues, including tough regulation of financial derivatives, the Volcker Rule, and Warren's consumer protection agency, while the moderates and their Wall Street allies were able to block other proposals outright, such as breaking up the big banks. But time after time, to gain the support of key swing votes, the bill's managers had to punt details to the executive branch

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The premise behind the Volcker Rule, like Glass-Steagall before it, is that there is a fundamental difference between commercial banking and investment banking. Commercial banking requires detailed local knowledge and patience. Nobody gets filthy rich lending to ordinary businesses. Investment banking, by contrast, is a trading culture. You don't need to know much about the underlying business if you have a feel for doing deals and reading market trends and can make a quick fortune. In the old days, investment bankers took these risks with their own money. Since the repeal of Glass-Steagall, giant outfits like Citigroup and Bank of America do both kinds of activity, putting their customers at risk and the taxpayer on the hook.

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Panel Begins to Set Rules to Govern Financial System (Volcker Rule)