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Volcker Rule Is Approved, Ending Wall Street's Taxpayer-Backed Gambling (Video)

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- 1626 days ago -
On Tuesday, December 10, 2013, the Federal Deposit Insurance Corporation (FDIC) along with 4 other agencies passed the Volcker Rule, while a 5th agency has stated it will also pass the rule, but behind closed doors.

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Kit B (276)
Friday December 13, 2013, 1:15 pm
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On Tuesday, December 10, 2013, the Federal Deposit Insurance Corporation (FDIC) along with 4 other agencies passed the Volcker Rule, while a 5th agency has stated it will also pass the rule, but behind closed doors. The Volcker Rule is a huge win for President Obama in regards to financial reform, fundamentally changing the way banks on Wall Street operate and severely limit the relationship between commercial and investment banks.

More specifically, the new law separates investment banking, private equity and proprietary trading (hedge fund) sections of financial institutions from their consumer lending arms.

Glass-Steagall was passed after the Great Depression, as part of the U.S. Banking Act of 1933. The aim of the bill was to prevent banks from using customer’s money to make hedges on possible future banking losses. It was around this time that the FDIC was also created to ensure that any money placed in a bank up to a certain limit would always be there.

During the Great Depression, and prior to the FDIC, there was a rush on the banks of customers pulling their money in fear that the bank would not be there tomorrow. This caused the Depression to become even worse than it may have been, and it is why many of our parents and grandparents still keep money “under their bed” and away from banks. The inherent distrust that was created was so severe that no amount of regulations could change that.

Despite that, Glass-Steagall eventually did its job. It instilled enough confidence that money being placed in the bank would be used for reinvestments in the community in the forms of loans and, when it was needed, it would be there.

Unfortunately, over the years, the divide between commercial and investment banks was dissolved. During the Reagan Administration, many of the provisions of Glass-Steagall were weakened or repealed. By the time President Clinton was in office, Glass-Steagall was only a ghost of what it once was. In 1999, Senator Phil Gramm (R-TX), Senator Jim Leach (R-IA) and Representative Thomas Bliley, Jr. (R-VA) successfully put a bill together that put the death knell in the law and lobbied a repeal effort.

Since that time, it has been an uphill fight to replace Glass-Steagall with something that had the footing the law once had. With Wall Street and corporate interests more influential than ever, doing so was no easy task. The turning point came at the end of the Bush Presidency and the beginning of the Obama Presidency.

After the financial crisis in America, President Obama was looking to put in place rules and regulations that would prevent the banks from destroying our economy again. Despite all odds, in 2010, President Obama successfully passed through Congress the Dodd-Frank reforms. One provision of the law was called the Volcker Rule. On Tuesday, the Volcker Rule was successfully approved.

U.S. banks will no longer be able to make big trading bets with their own money after regulators on Tuesday finalized the Volcker rule and shut down what was a hugely profitable business for Wall Street before the credit crisis.

After struggling for more than two years to craft the complex rule, five regulatory agencies signed off on the nearly 900-page reform that included new tough sections narrowing carve-outs for legitimate trades.

The rule is expected to eat into revenues at large investment banks such as Goldman Sachs and Morgan Stanley, even if many have already wound down some of their trading desks in anticipation of the rule’s release, and may spark legal challenges.

The Volcker Rule is looking to reform a very complex system, and thus is not a black and white rule change. A very well written summary of the Rule can be found here. In short, what the Volcker Rule does is set limits between commercial and investment banks, much like happened after the passage of Glass-Steagall. It also severely limits the amount of hedging allowed by a bank to offset their own financial shortcomings.

Paul Volcker, who was the Federal Reserve Chairman under President Carter and Reagan, was named Chairman of the Economic Recovery Advisory Board by President Obama from February 2009 to January 2011.

Needless to say, Mr. Volcker’s Rule is not very popular with Wall Street. It is expected the implementation will be delayed through law suits, however, it will only be delaying the inevitable. Much needed reform is coming to Wall Street that is aimed at protecting the consumers. Republicans and banks a like will try to tell us how bad it is for the public, but one need look no further than the 2012 J.P. Morgan’s “London Whale” scandal, which could have been prevented had the Volcker Rule been in place.

The Volcker Rule is a 21st century Glass-Steagall. No single piece of legislation or rule change will bring back what once was. With Wall Street and corporate interests controlling Washington today, that is simply an impossibility. However, the Volcker Rule will go a long way towards helping President Obama bring back the protections that consumers need.


AP discusses the Volcker Rule and the effect it will have on the banking industry.

posted by Salvatore Aversa | Occupy Democrats |


JL A (281)
Friday December 13, 2013, 3:24 pm
A monumental task that should create significant protections for most all--kudos to all who kept the needed ball moving forward!

Sheila D (194)
Friday December 13, 2013, 4:17 pm
This is a perfect case where something is very definitely better than nothing. People's money needed to be protected from these two-legged sharks...apologies to the finned species.

Barbara K (60)
Friday December 13, 2013, 7:02 pm
This is good news. I hope they follow the law now and stop gambling away our money. I hope we can get all the crookedness out of the banks, a monumental task, I know. I hear Gitmo will have room for them soon.

Sheryl G (360)
Friday December 13, 2013, 8:24 pm
The 50 years following the passage of the Glass-Steagall Act constituted by far the longest running period of financial industry stability in U. S. history. Only a tiny number of banks failed, while the economy as a whole underwent robust growth.

Although the Volker Rule is a really great start it still doesn't have the same teeth as Glass-Steagall. But we at least are finally making inroads to the correct direction. So many lives have been made harder with what has taken place, and us older ones will never be able to fully recover unfortunately.


Bryna Pizzo (139)
Friday December 13, 2013, 10:15 pm
I'm glad to know and effort is being made to to end the gambling with taxpayer money; however, it isn't good enough. Thanks for the news.

Jonathan Harper (0)
Saturday December 14, 2013, 3:36 am

. (0)
Saturday December 14, 2013, 9:56 am
It's a start but Volcker is one of the founding members of the Trilateral Commission. To me, that's like the fox guarding the hen house and Volcker was responsible for the fiasco that led to so much suffering during the late Carter years and the first four Reagan years. His M1 theory just didn't work because of his lack of attention to the velocity of money. Many would speculate that it was deliberate and in some arrogant personal aspect it was. He was too proud like a lot of us are to let go of a concept and admit he was wrong. Of course most of us don't create policy that leads to the personal and commercial bankruptcies that his M1 Theory did. I have deep reservations about Volcker heading this as I lived through the Carter and Reagan years. It wasn't fun and Reagan wasn't the greatest POTUS since FDR or Lincoln for that matter and neither is Obama.

The other Trilateral members are: David Rockefeller is the initial founder along with Zbigniew Brzezinski, United States National Security Advisor to President Jimmy Carter from 1977 to 1981, and a professor at Columbia University and Rockefeller advisor who was a specialist on international affairs, left his post at the time to organize the group; Alan Greenspan;
Henry D. Owen (a Foreign Policy Studies Director with the Brookings Institution)
George S. Franklin;
Robert R. Bowie (of the Foreign Policy Association and Director of the Harvard Center for International Affairs)
Gerard C. Smith (Salt I negotiator, Rockefeller in-law, and its first North American Chairman)
Marshall Hornblower (former partner at Wilmer, Cutler & Pickering)
William Scranton (former Governor of Pennsylvania)
Edwin Reischauer (a professor at Harvard) and more importantly, a United States Ambassador to Japan from 1961-1966
Max Kohnstamm (European Policy Centre)
Tadashi Yamamoto (Japan Center for International Exchange)[4]

It also included Jimmy Carter and Ronald Reagan. Every POTUS since has been a Trilateral member. It is alleged that Zbiggy groomed Obama from a very young age. I don't know whether that's true or not but it is an interesting allegation isn't it?

Forgive me if I have "reserves" about this. How about repealing the Money Control Act and closing down the Delaware style tax havens; reformation of campaign funding and spending wherein all corporate contributions and lobbyists are declared illegal? It's time government stopped being the toadies of the mega corporations. It's time the US stopped paying 8% on every dollar issued by the FED. Do you know what gives China the edge over the US? It's because China controls its own currency rather than ceding control to a foreign agency that is nothing more than a conduit for foreign internationals to grossly enrich themselves while indenturing the US public through usury of the grossest proportions.

Kit B (276)
Saturday December 14, 2013, 10:10 am

The problem with conspiracy theories is that they allow us to center our focus on one narrow interpretation of ideas. The Tri-Lateral, the Bohemian Camp, Bilderberg group, the statue of liberty, Masons, illuminati the list is long and I'm not going to list all of it here. Sweep away conspiracies and one must read beyond what is easy to dig out, one must try to find the curtain before we can peek behind the curtain.

Though consider Michael, that China is in deep do-do right now with their economy and financial transactions.

Roger G (154)
Saturday December 14, 2013, 12:13 pm
noted, thanks

Malgorzata Z (199)
Saturday December 14, 2013, 12:51 pm

Birgit W (160)
Saturday December 14, 2013, 4:12 pm
Noted, thanks.

Mary Donnelly (47)
Saturday December 14, 2013, 5:40 pm
Thanks for another great post Kit.

Joanne Dixon (38)
Sunday December 15, 2013, 1:15 pm
It took a lot of work on the part of Oregon Senator Jeff Merkley just to get this far. I say good for him.

Theodore Shayne (56)
Sunday December 15, 2013, 1:32 pm
Of course China is economically challenged. They've extended themselves around the world with mining; dam building and funding which is a sure way to upset the economic hand basket. Of course it doesn't help them that the US can't pay its debt to them. Europe's a mess too. It ain't conspiracy when it's hitting you everyday in the wallet or at the doctors. I prefer to keep an open mind and follow the money. I suppose there are those that will deny the connection between Friedman's economic theories that started in the 60s and became the basis for globalization; outsourcing wherein now the mega corporations call the tune. Deny it if you will.
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