naked capitalism

Yves here. No one should be surprised that Bloomberg is reporting today that Goldman is aggressively lobbying for a Volcker Rule waiver for its role as a sponsor of and investors in “credit funds.” Update: Andrew Ross Sorkin predictably parrots industry talking points.

By George Bailey, who has worked in senior compliance roles at a Big Firm You’ve Heard Of and is also a member of Occupy the SEC

Today is “Volcker Day” and Paul Volcker was on a tear.

Mr Volcker added in a formal submission to regulators Monday that “proprietary trading is not an essential commercial bank service that justifies taxpayer support,” and that banks should stop “stonewalling.”

He went on to say,

“There should not be a presumption that evermore market liquidity brings a public benefit,” Volcker, 84, wrote in a letter submitted yesterday to regulators in defense of the rule curtailing banks’ bets on asset prices with their own money. “At some point, great liquidity, or the perception of it, may itself encourage more speculative trading
(See here and here for the full story.)

But then Jamie Dimon came along and slapped Tall Paul. Ouch.

“Paul Volcker by his own admission has said he doesn’t understand capital markets,” Dimon told Francis in the Fox Business interview. “He has proven that to me.”

SIFMA, on behalf of the industry, took over to explain in detail just what it is that Mr. Volcker doesn’t understand in their comment letter. They reiterate their dire warning about the devastating effects on ‘corporate liquidity‘ from the Volcker Rule. Yet surprisingly, no non-financial corporate bond issuers filed any comments to acknowledge or object to this danger. In fact, there are no comment letters from any non-financial companies. They did haul out the widely lampooned Oliver Wyman study to bolster their comment that ‘corporate’ America would suffer horribly if Volcker is enacted. But that just serves to remind us again that the corporate bond liquidity that will be affected is the liquidity in dodgy financial company ‘corporate’ bonds, like CDOs and other drek. They conclude the only solution is a rewrite. They request the rule makers go back and start all over again.

The SIFMA comment letter runs to 175 pages. I haven’t read all the other financial company letters, but the ones I’ve skimmed conform to SIFMA’s position.

The Occupy the SEC comment letter logs in at 325 pages and oddly enough draws the exact opposite conclusions to each of SIFMA’s objections. It’s an interesting contrast. For some reason (some familiarity with the subject matter and public interest primarily) the group seems to have understood and articulated Volcker’s (and the electorate’s) intent pretty effectively (because this is a large document, we suggest you download it if you’d like to peruse it).

Occupy the SEC Comment Letter on the Volcker Rule

Of the comment letters received about 90% are from financial institutions, and another 5% are from foreign governments objecting to the priority the US regulators have gifted to US traders in US Government Bonds. The remaining 5% are from ordinary folks, like Mr. Volcker, Occupy the SEC and other public interest groups.

It’s interesting that 95% of the comments reflect the views of the 1%, and the views of the 99% are embodied in the comments of the remaining 5% of commenters.

I’m confident the regulators will recognize that, for all its complexity, the rules are comprehensible and can be refined to serve the public’s demand for control over a runaway financial system.