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What you should know about the Volcker Rule

Discussion in 'Politics, Elections & Legislation' started by mrskeet410, Oct 6, 2011.

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  1. mrskeet410

    mrskeet410 TS Member

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    You should know about this. Here are some links to help you learn about it.

    http://www.investopedia.com/terms/v/volcker-rule.asp#axzz1a0U3nyCL

    http://www.economist.com/node/16435769

    http://lexicon.ft.com/Term?term=volcker-rule
     
  2. mrskeet410

    mrskeet410 TS Member

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    If you don't know what the Volcker rule is you should. It's about the pending banking reform legislation. Now banks can go into high risk businesses. If it works out they make big bucks. If it doesn't work out they jeopardize the deposits of their customers. We don't allow that in the USA, so FDIC or bailouts keep them from failing and keep depositors from losing their money.

    Good deal for the bank, lot's of up-side potential, little down-side risk. Volcker rule would separate investment banking from commercial banking (the banking indivuals do).

    The link above gives a good easy to understand explanation. In part it says:

    "This proposal, announced by US President Barack Obama, aims to limit risky behaviour within banks but is narrower than the Glass-Steagall Act. Banks that take retail deposits would not be allowed to engage in proprietary trading that is not directly related to the market making and trading they do for customers. These banks would also be prohibited from owning or sponsoring hedge funds or private equity funds.

    Mr Obama also wants to cap the overall size of banks.

    This rule was inspired by Paul Volcker, the former chairman of the Federal Reserve."

    The video at the link is worth watching.
     
  3. mrskeet410

    mrskeet410 TS Member

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    Paul Volcker was the best thing Jimmy Carter did as president. Carter appointed Paul Volcker Chairman of the Fed, and then Ronald Reagan supported him as Volcker gave the economy the bitter medicine it needed to end double-digit inflation and get started with the Reagan recovery.
     
  4. shootinghero

    shootinghero TS Member

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    Are you an employee of the Democratic National Committee, or DongressionalCampaign ommittee? The Dodd Frank Act, of which the Volcker Amendment is part, is a major reason why our weak economy is not recovering. It also represents another failure of the Obama Administration's program of attempting to nationalize the distribution of capital and redistribute wealth. It is fun for Obama and his boot lickers to bash the banks because his constituents don't do anything except hold them up. Business people have to borrow from banks to get working capital and arbitrary rules like Volcker, that keep sophisticated banks like JP Morgan and Citi et al from making profits trading are not only artificial limits on their earnings but insure they will have less money to lend. Profits are fungible, banks are heavily regulated, and the idea that taking deposits and making loans (the core business that Volcker wants to restrict them to) is without risk or is less risky than trading is the type of stupidity that is typical of you Occupy Wall Street types.

    By the way, I too want to occupy Wall Street. A nice two bedroom in Battery Park overlooking the water would be very nice.
     
  5. shootinghero

    shootinghero TS Member

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    The Volcker rule is part of the Dodd Frank Act that is part of the reason the economy is not recovering. It may be fun to bash banks, particularly if you are on welfare getting the continually extended benefits the Obama Administration is handing out, but if you need to borrow capital for your business, banks are your partner. They need to make profits in order to have money to lend, and having the government tell them that they cannot trade securities to make money is arbitrary and micromanagement that we don't want in our free society. Why shouldn't JP Morgan or Citibank be allowed to trade for their own account, the more they make the more they have to lend to us. Similarly, the government tells banks they must make loans to poor credit risks, the Community Reinvestment Act.

    You Occupy Wall Street types would be better served occupying a library and studying capitalism and profits, two things you hate. By the way, I would love to occupy Wall Street. A nice two bedroom in Battery Park overlooking the river would be very nice.
     
  6. mrskeet410

    mrskeet410 TS Member

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    It's not arbitrary to say you can't loose your butts in high risk operations then expect the tax-payers to bail you out. They sure don't share the profits with the taxpayers when they make big bucks in the high risk ventures.

    Very simple solution....play high risk games with your stockholders money, but keep it away from your traditional commercial banking operations.

    I have a lot of respect for Paul Volcker, so his endorsement carries a lot of weight with me. Dunno if Congress will pass what he intended.

    I also have a lot of respect for Phil Gramm. I thought he would make a good president. I strongly suspect events went in directions he did not anticipate when led the effort to rid of Glass-Steagal and to allow the intermingling of investment banking and commercial banking.
     
  7. Rick Barker

    Rick Barker Well-Known Member

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    It's bad enough now the banks pay about 1/2 of one percent on passbook and CD's.

    I think you will see a time, and not too far off, when the banks will charge you for keeping money in their banks, because it will be the only way the govenment will let them make any money.
     
  8. Catpower

    Catpower Molon Labe TS Supporters

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    Rick they pay .5%, but they charge 4-12%+, so that's a 800-2400% mark up, they should be able to make a decent profit at that mark up, we pretty descent money on 40% mark up on HVAC equipment
     
  9. mrskeet410

    mrskeet410 TS Member

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    Wall Street Journal article at link about the Volcker Rule. Paul Volcker is withholding comment until the final version is released. It will be interesting to read his thoughts. Best to read the article while you can. WSJ.com links often go dead pretty quickly.

    It would also be interesting to know what Phil Gramm thinks of this as well.
     
  10. Rick Barker

    Rick Barker Well-Known Member

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    Catpower

    True enough, but banks on aveage pay 50-60% of their profits towards compensation and benifits. And, we are not talking just about Bank President's salaries.

    Plus they have real estate expenditures on property, including branches.
    Also they pay insurance to the FDIC for coverage of all the depositors accounts, and there has been record forclosers the last couple years that has almost depleted the fund.

    A weekly finance periodical DBRS" said this in July of 2007:
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------


    "Compared to other expense categories, C&B has grown steadily over the last five years. It is up 250 bps from 52.9% in 2001 to 55.4% in 2006. Expansion of branches and the drive to improve customer service have contributed to banks’ need to hire additional staff.

    The more extensive use of performance-based compensation for recently hired personnel may have also affected the overall payroll growth. The increase in C&B may also be attributed to the increase in regulatory requirements with the implementation of the Sarbanes-Oxley Act of 2002 (the Act). The Act forced U.S. banks to develop more extensive internal controls and enhance financial disclosures.

    To this end, banks were compelled to hire experienced staff to implement and manage new processes and procedures. Further personnel expenditures may reflect banks’ strengthening of their internal controls in compliance with the Patriot Act and Anti-Money Laundering legislation."

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------

    Again, regulatory requirements increase operating costs. So in addition to Sarbanes-Oxley, we now have Dodd-Frank looming. We saw the first of increase fees to the consumer with Bank of America's debit card charge.

    Banks innocent? No that is not what I am trying to say. Government Regulation cost money, plain and simple. You do not get cost free protection. Just about anytime some law is passed, a business has to hire a boatload of attorneys to figure out what the law says and what they need to do to be in compliance with it.

    In order to offset increase costs brought about by government regulations, the business world, passes the increases off to the customers, until the customers say enough and then the business will go out of business.
     
  11. mrskeet410

    mrskeet410 TS Member

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    Barker and Catpower - Your looking at the wrong part of banking. You're looking at commercial banking. Small margins, small profits, highly regulated, low risk.

    There are huge, HUGE profits in investment banking. There is also potential for huge loses, e.g. the financial meltdown in 1998. Let investment banks stand alone, to win big or loose big without the taxpayers bailing them out. Not the if I win big its mine; if I loose, it's the taxpayers problem situation we have now.
     
  12. Rick Barker

    Rick Barker Well-Known Member

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    Regardless of the institution or the size of it, all are subject to Sarbanes-Oxley and Dodd-Frank bills.

    Both have and will added operating costs to the bottom line.

    By the way, Sarbanes-Oxley applicable to all public traded businessess, not just banks.

    With and investment, there is risk and loss. The government can limit the size of the risk, but they cannot eliminate it, short of closing the investement houses down.

    The bailout was wrong! It should have not been done at the expense of the taxpayers. The businessess should have been allowed to fail. Of course there is the other arguement that if the government had not caused the housing market collaspe by forcing banks to make bad loans, the collaspe might not have taken place.
     
  13. Brian in Oregon

    Brian in Oregon Well-Known Member

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    When is congress going to do something about banks charging 5000% (no typo) on overdrafts?
     
  14. mrskeet410

    mrskeet410 TS Member

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    Good point Barker - Investments are a risky. They should be taken by organizations other than banks. We need a banking system. On of the first acts of out government after it was formed was to establish a banking system. Look what happened when the banking system was not supported ny the government in 1934.

    The country needs a banking system. The country doesn't need hedge funds and private equity funds.
     
  15. mrskeet410

    mrskeet410 TS Member

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    Here is what Volcker says about his plan. (at link)

    Good read.

    Volcker says this:

    "The long-established “safety net” undergirding the stability of commercial banks — deposit insurance and lender of last resort facilities — has been both reinforced and extended in a series of ad hoc decisions to support investment banks, mortgage providers and the world’s largest insurance company. In the process, managements, creditors and to some extent stockholders of these non-banks have been protected."

    I say this - taxpayers should be providing this protection to these firms.

    Volcker also say this:

    "In approaching that challenge, we need to recognize that the basic operations of commercial banks are integral to a well-functioning private financial system. It is those institutions, after all, that manage and protect the basic payments systems upon which we all depend. More broadly, they provide the essential intermediating function of matching the need for safe and readily available depositories for liquid funds with the need for reliable sources of credit for businesses, individuals and governments."

    But go to the link and read the whole article for yourself.
     
  16. Catpower

    Catpower Molon Labe TS Supporters

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    Rick, they must be making some kind of money, all I worked for the 15 yrs before my retirement was banks, some pretty good sized ones one was a Credit Union

    It was beyond my wildest dreams, at first there was no money, that's how I got my foot in the door, they had a bunch of old worn out HVAC equipment that no one in the DFW area would touch, they ended up calling my company, somehow, but I/we patched and bandaided the equipment together to get them trough, well I guess they finally made some money because they were building new branches and buying new equipment as fast as we could put it in for them

    Made more money that I ever thought was possible and was able to retire comfortably at 52

    I used to kind of shock strangers when they asked me what I did for a living, "I rob banks............... with a tool pouch and a pen!!!!!!"

    Life was good, it would be fun to do all over again if the shit ever straightens out, but if not we're set for life
     
  17. 51mgb

    51mgb TS Member

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    Bankers only rent other people's money.
     
  18. Rick Barker

    Rick Barker Well-Known Member

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    I would think teller's wages are one thing, but when you talk about loan managers and attorneys, your talking more.

    With all the laws being passed, the attorneys may end up out numbering the tellers at any given location.
     
  19. mrskeet410

    mrskeet410 TS Member

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    New article at link.
     
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