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Banks already finding ways around Obama financial reforms


Posted: Jan 22, 2010

By Daniel Tencer
Thursday, January 21st, 2010 -- 6:31 pm

'If these folks want a fight, it’s a fight I’m ready to have': Obama

On the same day that President Barack Obama announced an ambitious plan to reform the US financial system, bankers at the largest Wall Street institutions indicated that they are already finding ways around the proposed changes.

Sources at three Wall Street banks told BusinessInsider's John Carney that "they are already finding ways to own, invest in and sponsor hedge funds and private equity funds" despite the proposed restrictions on those activities. One unnamed operative at a major bank said his firm expects the reforms to affect no more than one percent of its business.

President Obama announced two major reforms of the financial system on Thursday. The first would see the US in effect return to the separation of commercial and investment banking that was mandated by law until 1999, when that rule in the Depression-era Glass-Steagall Act was abandoned.

Many economists say allowing banks to be both lenders to the public and investors in large hedge funds and other securities contributed to the economic collapse of 2008.

The other rule would limit the size of banks, ostensibly to ensure that no banks are "too big to fail" and require taxpayer bailouts to keep the economy from collapsing.

But Wall Street bankers are pointing to a phrase in the proposed reforms -- that banks will be barred "from proprietary trading operations unrelated to serving customers" -- as an easy loophole to get around. John Carney reports:

The key phrase is “operations unrelated to serving customers.” The banks plan to claim that much of the business in which it engages is related in one way or another to serving customers....

A still more devious way is to have a bank's own employees be the customers who are invested in the internal hedge funds. That way trading operations can remain closed to outsiders while the regulatory requirement of relating the trading to customer service is met. Goldman Sachs is rumored to be considering this approach.

TOUGH TALK

In the wake of a slew of criticism accusing the president of weak leadership on the health care issue, particularly in light of the Democrats' loss of Ted Kennedy's old Senate seat earlier this week, Obama sounded a tougher note on the issue of financial reform than he has been known for in the past.

"If these folks want a fight, it’s a fight I’m ready to have," Obama said Thursday in announcing the financial reforms.

"While the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near collapse," Obama said. "Never again will the American taxpayer be held hostage by a bank that is too big to fail."

Obama dubbed his plan to separate commercial and investment banking the "Volcker rule," after former Fed Chairman Paul Volcker, who is credited by many economists for being the architect of the economic policies that allowed the US economy to thrive during the Reagan era. For much of the past year, Volcker, who is now an economic advisor to Obama, had argued for a return to the Glass-Steagall era that separated commercial and investment banking.

The fact that a former Fed chairman considered to be economically right wing was pushing for these reforms was one major reason that the reforms began to gain traction among commentators and lawmakers.

The remainder of the article can be found at:

http://rawstory.com/2010/01/bankers-ways-around-financial-reforms/

 

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Ever since Obama announced the new taxes on - banks, stock market dropped and

[ In Reply To ..]
down 400 points this week. He has NO idea how business runs, obviously. Already, his decision is hurting, not helping us by lessening what is in our 401K from his really dumb decision. I am losing all hope in this president. NOTHING he does improves the situation.

of course investors are fleeing - fencir

[ In Reply To ..]
They realize they will no longer have a free pass to rob their customers. That's a good thing, finnie.

YOU obviously do not know how business runs either. - PEOPLE are worried and selling

[ In Reply To ..]
their shares because they know that the more O messes with the banks, they will simply move offshore.. this will really KILL the economy. My God! Wake up people.. this president is the one ROBBING the nation. We are in real real trouble because of his ignorance.
So your solution is to give banks too big to fail - a big fat pass...
[ In Reply To ..]
and defend the fear they spread and threats they make? I wish they would move offshore where they can drown in their own greed and make room for a little trust-busting backlash, giving way to small banking institutions that remember who they are in business to serve. I agree with your statement about trouble and ignorance, but not for the same reasons you might think.
What you are suggesting is crazy and death to our - economy. Also, GOVERNMENT
[ In Reply To ..]
forced the banks to make the loans to people that the Govt knew darn well were at high risk for not paying them back, but the Govt, being more worried about being politically correct than fair told those banks they could turn no one down. This caused problems that may take many years to recover from.. I know this from a dear friend working in banking who got so tired of stressing over it they gave up and retired. Ignorance comes out of the mouth of the president. You must have learned it from him as well. Raising taxes at the moment on anyone, big or small, is a mistake. He should "first, do no harm" and just stop the nonsense spending, borrowing, blowing of money we dont even have. Many of the banks returned the bailout money, but still are being forced to pay the taxes on top of it. I know there is greed in the system, but Obama is so clueless in his handling of the economy.
Not nearly as crazy as one might think. - sm
[ In Reply To ..]
Careful. Do you really want to take this into the arena where we examine administration response to inflated housing values and predatory lending practices? We could swap snipes all day about how, who and when, but fact remains that the bubble enlarged exponentially exactly when and under whose watch? More to the point, if this is a strictly a government problem that victimized banks, that would imply it was the government's responsibility to stop the train wreck instead of riding the crest of the bubble curve as it went off the charts. W did exactly what to correct the situation?

We could sit here half the day and swap articles trying to prove points one way or the other on this, or we could fast forward back the future and return to the context of TARP and the banks response to Obama's financial policies. Care to take up that banks as victims malarkey while addressing realtime issues?

A fee is not a tax. Ask any bank. Guess you think those poor defensely institutions own exclusive rights to the term that describes an attempt to employ a tool that RECOVERS LOSS (not enhance profit). Semantic hyperbole is ineffective in assessing current administration policy. Less effective are personalized slurs transferred from blame targets to chat room posters. Before proclaiming superior knowledge of economic theory, it could be beneficial to read up on Keynesian economics and take a look-see as to how recessions and depressions have historically been mitigated.

It is fairly clear that you "misunderestimate" the thinking behind the bank fee proposal. It is unrelated to the argument over who has or has not repaid. It has to do with how the banks used and misused the funds. Staggering CEO bonuses that represent a full 20% of total TARP funds come to mind. So while painting that picture of the poor suffering banks, stop and ask yourself who reaped the most benefit from TARP funds? Here's a clue. It was not the economy or the taxpayers who bailed their behinds out.

BTW, I am old enough to remember the days before banks too big to fail. Competition between banks for customers is every bit as healty as competition between insurance companies for policyholders. It is a basic capitalist concept as it applies to transforming economic recovery into rebound.
Predatory lending practices put in place by Barney Frank - remember fannie and freddie?! nm
[ In Reply To ..]
nm
O didn't seem to care about the banks when he was - receiving HUGE donations!! nm
[ In Reply To ..]
nm
No American president has the power to do ANYTHING. - Wall Street & BofA are running things, now.
[ In Reply To ..]
.
Uhh.. no.. THIS president has decided to run it ALL - Thats the problem!..He cant.nm
[ In Reply To ..]
nm
If he can't, then why the huff? - nm
[ In Reply To ..]
nm
Duh! He takes on too much, then gets NOTHING - accomplished/solved, get it?nm
[ In Reply To ..]
xxx
Uhh..NO..Duh...plus O slam messages and mentalities - plus
[ In Reply To ..]
in-box overload explain why stuff does not get done.

Have you not been paying attention? - sm

[ In Reply To ..]
Obama took nearly a MILLION DOLLARS from Goldman Sachs for his campaign! And now he actually thinks anyone with a brain believes he wants limits and reform!! Ask yourself why he took that kind of money if he REALLY thought big corporations were such a bad thing!?

He is just trying to find a way to redeem himself because he knows his healthcare garbage is going nowhere now. WALL STREET bought that sucker into office and he gladly accepted it!! So what's new? I didn't see him griping about taking the money when all the BIG BUCKS were coming his way!

That man is still in bed with big corporations and will always be. All his running his mouth is just for show and nothing else!

AMEN to that! BIG AMEN!! - anon

[ In Reply To ..]
Couldn't have said it better. As my mom says....I'm tired of listening to someone with diarrhea of the mouth.

Why try to vilify the banks? - ....sm

[ In Reply To ..]
Obama knows darn well the banks will find ways around all his "financial reform". For goodness sakes, the man is in bed with the big financial institutions. He took HUGE donations from them during his campaign. He certainly doesn't believe these guys are the big bad fellas he's trying to convince the American public he thinks they are. He's just trying his best to get attention turned away from his healthcare loss and onto something else.

This man loves these big institutions. They are his bread and butter. Don't forget, he is an attorney first and foremost!! Heck, he'll even be taking HUGE donations from these very same guys if he runs again; the very institutions he is trying to vilify right now.

When he is no longer president,he will be right back in bed with them, doing the deals and taking HUGE payouts doing business with them. Folks have got to stop thinking he is going to do anything. Any taxes/regulations put on these institutions will only find their way to the American public; we will be the ones paying higher fees, etc.... the banks won't!

All this grandstanding is such a farce!

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