President Obama is scheduled to hold a press conference Thursday at which he is expected to call on Congress to pass new legislation to restrict the proprietary trading programs of banks. Tom Braithwaite broke this story just before 11 pm New York time Wednesday evening in The Financial Times.
The press conference is scheduled to follow a meeting between the president and former Federal Reserve Chairman Paul Volcker. Volcker has been a vocal advocate of stronger regulation of risky activities by the banks. Until now, it appeared that Volcker's influence with the president was less than the advice received from former Treasury Secretary and Obama advisor Lawrence Summers and, of course, Treasury Secretary Tim Geithner. Perhaps Volcker is starting to have more influence.
To date, Obama appears to have let Summers and Geithner have free rein and to some, such as this writer, it has appeared that these two have been BBFs with the banks. It will be a good thing if this perception is changed.
It seems, according to the following quote from the Braithwaite article, that this action has been brewing for a while.
"A couple of months ago the president began discussing with his economic team the need to include in financial reform more specific and stronger provisions to limit the size and scope of financial institutions to cut down on excessive risk taking,” said an administration official on Wednesday.
“The proposal will include size and complexity limits specifically on proprietary trading and the White House will work closely with [the House of Representatives] and Senate to work this into legislation moving on the Hill.”
This does not sound like a bad thing, but it falls far short of what this writer (and other authors here at Seeking Alpha) have been calling for:
- It does not reinstate Glass-Steagall.
- It does nothing to address the need to remove too big to fail from the system.
- It does nothing to remove the leveraged derivative structures that make the largest banks such a threat to the financial system.
Do we have to wait for the FCIC (Financial Crisis Inquiry Commission) to get on the right path and finish their work? That is scheduled to take a year. Can we expect Congress to pass meaningful legislation in less than a year? If the answer is no, then that gets us to 2012. Oh wait, that is an election year and Congress can not act then for fear of losing some campaign contributions. Now we are in 2013, just about the time the next financial crisis will create demands for another bailout of too big to fail banks.
This scenario doesn't have to play out this way, but to prevent it the president will have to be getting more advice from Volcker (and others, like Simon Johnson and Joseph Stiglitz) and less from Summers and Geithner, a whole lot less.
Disclosure: No positions.
