Tim Geithner is back on top in the Obama administration, and his deputies are making it clear that the “Volcker Rule” won’t seriously overturn the way business is done on Wall Street.
Some institutions will be able to avoid facing the Volcker rule by shedding their insured deposits, according to U.S. Deputy Treasury Secretary Neal Wolin on Monday.
Goldman Sachs Group, which funds fewer than 5 per cent of its assets with deposits, could easily change its funding profile to get out from under the rule.
We were hoping that our earlier analysis would not be deadly accurate. But our analysis is proving more reliable than our hopes. Here’s what we said when the plan was first announced:
In the fall of 2008, Lehman Brothers wasn’t a bank. Neither was Bear Stearns. Or Goldman, Morgan, or Merrill Lynch. Or Fannie or Freddie. Or AIG–remember AIG?
None of these firms were banks.
Under Obama’s new proposal, all of these firms would have been able to trade for their own accounts and own, sponsor, or invest in hedge funds.
And excuse us if our memory’s faulty, but weren’t these non-bank firms, along with with other non-bank firms like the idiot mortgage lenders, the ones that got us into trouble in the first place?
In other words, Obama’s wildly popular new plan still hasn’t addressed the real problem, which is not “banks.” It’s Tim Geithner’s “Too Big To Fail.” Until we address that one–preferably by making it possible for ALL firms to fail without taking the system down with them–we won’t have done a thing.
If anything, the Volcker rule will only strengthen the hands of Morgan Stanley and Goldman Sachs. They’ll no longer face competition from JP Morgan and Citi’s traders. In fact, they’ll be able to hire the best of them.
And the financial system won’t be one iota safer than it was in August of 2008.