Thursday, January 21, 2010

Reacting to the Obama plan (BAC; C; GS; JPM; MS; WFC)

From Felix Salmon at Reuters:

The reactions to the Volcker-Obama bank plan seem to be veering off to extremes. On one side, the Financial Services Forum is talking about how it’s a bad idea to “preemptively break up large, well-managed, and well-capitalized banking companies”, which is wrong on two levels: no it’s not, but in any case no one’s proposing any break-ups at all. It’s also making the point that prop trading didn’t cause the financial crisis, which is true, but beside the point: the idea here isn’t to prevent a play-by-play rerun of the last crisis, but rather to reduce systemic risk more generally. And prop traders at too-big-to-fail institutions undoubtedly increasing the systemic risk in those institutions. To a large degree, that’s their job.

At the same time, the Clusterstock guys I think are altogether too sanguine about the effects of this proposal, should it get enacted. Henry Blodget seems to think it will apply only to banks and not to any other systemically-important financial institutions: we’ve made that mistake once, I’m pretty sure we won’t make it again....MORE
For those who don't follow this stuff [he means people who have a life -ed] there was a dust-up between Felix and Henry a couple months ago.*

From Bloomberg:

Obama Says No Bank Should Have Proprietary Trading (Text)

Following is the text of President Barack Obama’s announcement calling for restrictions on the size and scope of financial institutions:

President Obama joined Paul Volcker, former chairman of the Federal Reserve; Bill Donaldson, former chairman of the Securities and Exchange Commission; Congressman Barney Frank, House Financial Services Chairman; Senator Chris Dodd, Chairman of the Banking Committee and the President’s economic team to call for new restrictions on the size and scope of banks and other financial institutions to rein in excessive risk taking and to protect taxpayers.

The President’s proposal would strengthen the comprehensive financial reform package that is already moving through Congress.

“While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse,” said President Barack Obama. “My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary.”

The proposal would:

1. Limit the Scope-The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.

2. Limit the Size- The President also announced a new proposal to limit the consolidation of our financial sector. The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits....MORE

*Felix: "Kicked out of finance, and into journalism"
Henry: "Felix Salmon: Henry Blodget Should Be Banned From The Industry"
Felix: "Disclosing journalists’ pasts"
New York Magazine: "Financial Bloggers Felix Salmon and Henry Blodget Have a Fight, Make Up"