Friday, January 22, 2010

Political pivot point

Wisely Listening to Volcker, Obama Proposes Restrictions on Banks
By Don Bauder - San Diego Reader

Finally showing some backbone and taking advice from former Federal Reserve Chairman Paul Volcker, President Obama today (Jan. 21) proposed restriction on large banks' abusive practices. Obama's proposal would prohibit commercial banks from owning or investing in hedge funds or private equity funds. Most significantly, the proposal would put restrictions on proprietary trading by the big financial institutions that today can borrow from the Federal Reserve at zero percent and gamble in various markets. The president's proposal would place restrictions on banks using federally-insured deposits for gambling activities. The proposal has to pass Congress, and financial institutions will find loopholes, but initial response is positive -- that is, stocks of these big banks are tanking. At least initially, the market fears that the proposals could stick. That's good.

Voltron says: President Obama is calling this the "Volker Plan". This is significant because according to former bank regulator, Prof. William Black, limiting bank size will cause the ponzi schemes to collapse because all ponzi schemes must continuously grow. This marks the ascendency of former federal reserve bank chairman Paul Volker and the marginalization of President Obama's soon-to-be-former economic team: Treasury Secretary Tim Geithner and Larry Summers. Tim and Larry were responsible for the big bank bailouts that have backfired politically and, as we will soon see, have only delayed the crisis. Paul Volker raised interest rates aggressively in the early 80s to combat inflation, the this could pre-sage a change in interest rate policy. Also Federal Reserve Chairman Ben Bernanke's re-appointment is now in doubt.

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