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Chris Whalen: What’s The Volcker Rule Good For? 'Absolutely Nothing' (VIDEO)

Video - Chris Whalen on Tech Ticker - Jan. 17, 2012

If you want to fix the problems on Wall Street, do what Kyle Bass suggests:

  1. Eliminate off-balance sheet assets
  2. Bring back Glass-Steagall
  3. And most importantly, cap leverage at 10X


On Wednesday, a subcommittee of the House Financial Services Committee is slated to hold a hearing on the so-called Volcker Rule.  Named after the former Fed chairman, the rule calls for banks to stop trading their own funds (a.k.a. proprietary or "prop" trading), and cease investing in private equity funds or hedge funds.

"Why are we doing this now when we still haven't gotten the Congress to focus on where the problem was?," asks Whalen, senior managing director at Tangent Capital Partners and vice chair of Institutional Risk Analytics.

Far more that prop trading, Whalen says the 2008 crisis was caused by the origination, sales and marketing of mortgage-backed and related securities, a.k.a. the syndicate desk, which was aided and abetted by Fannie Mae and Freddie Mac. In addition, the lack of regulation on over-the-counter derivatives and abuse of leverage by financial firms were far bigger contributors to the crisis and resulting bailouts than were banks' prop trading desks, he says.

If the rule doesn't make the financial system any safer, Whalen says it has triggered the law of unintended consequences. Specifically, he says anticipation of the Volcker Rule has resulted in a loss of jobs, most notably at JPMorgan, and a loss of liquidity in the financial markets.

After Occupy Wall Street, few tears are going to be shed for a bunch of out-of-work traders. Meanwhile, the Fed is working overtime to provide ample liquidity. Still, there's no arguing with Whalen's point that our elected officials and financial regulators have blown a golden opportunity to reform the system.

Read the whole story at Tech Ticker...




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Reader Comments (5)

Everything the eminently sensible Whalen says in this clip is right. But in terms of reform, we don't need any more regulations or laws. And why would we when existing laws and regulations aren't enforced, or at least enforced uniformly (and not just against middle class valedictorians like Martha Stewart and Mark Cuban).

Look. Jon Corzine is still walking around a free man despite the theft of $1.2 billion and despite his signatures on Sarbox disclosures. Until that changes, all talk of improved regulation is just so much masturbation. No one seems to want to cope with the fact that we've reverted to the Divine Right of Kings. Dimon, Blankfein, Moynihan, Corzine--these guys are above straightforward black letter law; they are, in short, your Kings. Until that changes, the looting continues.

You wanna reform Wall Street? Ask yourself this: what would bring a Wall Street exec quicker to heel? Another powder puff paper regulation that high-priced lawyers can dance around, or hearing an executive's story about what it feels like pinned face-down to a nasty toilet with no guards around?
Jan 19, 2012 at 8:35 AM | Unregistered CommenterCheyenne
Why does a certain cruise ship captain come to mind?
Jan 19, 2012 at 9:05 AM | Unregistered Commenterjohn
Excellent comment, john. I've been thinking a lot about that lately.

The cowardly captain should be celebrated as an icon of our culture. I hope he is promoted to an executive seat, the best of our leadership's breed.
Jan 19, 2012 at 9:21 AM | Unregistered CommenterCheyenne
In other news, Bailout is a finalist for best documentary at Derby City. The panelists looked past the crazed performance of dailybail founder Steve Megremis and latched on instead to the owl-like lucidity of bank analyst Christopher Whalen.

"That cat knows what the fuck is going on and isn't afraid to tell it," said Derby critic Saul Lazlo.

Jan 19, 2012 at 2:52 PM | Unregistered CommenterCheyenne

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