Regulatin Ur Prop Trading, Or Not

Here’s your sporadic update on where we stand when it comes to regulating prop trading. We all know it isn’t going to go anywhere, but Obama is still talking big about turning the vampire squid into calamari, Volcker style:

The Obama administration said on Tuesday it is still committed to the “Volcker rule” to ban risky trading by banks…President Barack Obama had originally framed the proposed Volcker rule on January 21 as an outright ban, which stunned markets and complicated extended negotiations in Congress over legislation to tighten bank and capital market regulation.

He proposed that banks “no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.” The Volcker rule could affect as much as 10 percent of net revenues at Goldman Sachs, said a senior executive of the Wall Street giant earlier this month.

To go ahead and make the argument against – is it the brightest thing to tell these banks “Stop trading or investing in anything for your own profit”? The biggest banks aren’t about to run out and reincorporate themselves as 501(c)(3)’s any time soon, so isn’t this going to equate to “Find new and innovative ways to bleed customers through fees and such?” But, anyhow. Ordering Lloyd Blankfein to go to yoga and meditate on the Zen art of portfolio balance isn’t in the cards.

The House and Senate are considering a weaksauce iteration:

The committee is considering including a watered-down version of the Volcker rule in the bill, which will also propose new rules to protect financial consumers, rein in derivatives markets and tackle the “too big to fail” problem. Financial services industry lobbyists said senators may add language to their bill from a bill approved in December by the House of Representatives. The House bill would allow, but not require, regulators to restrict proprietary trading at firms judged to pose a risk to the stability of the financial system. Regulators could also order firms out of the hedge fund business under the Democratic House bill, which got no votes of support from Republicans.

So when it comes to vampire squid ceviche, Obama wants to get the knives, Treasury – which you’d think would agree with the administration, but nah – wants “mandatory limits,” and the House wants to retain the rights to step in… maybe.

Oddest quote of the article award goes, I think, to this, from Representative Paul Kanjorski:

“When your dog just keeps wetting the carpet, there’s only one thing to do, you’ve got to whack him on the nose to let him know that’s not what he’s supposed to do. Maybe the regulators have to whack the banks a little bit to make them respond.”

Ohhhh. So THAT is what this entire financial crisis equates to — a dog peeing on the floor. Finally, now I get it. Sparky just needs a little scolding. Dude who said this is an author of the House bill. Frankly I don’t think this analogy does his point any favors. He could’ve at least evoked Giant George and a pooper scooper if he was going to go the canine route.