Zeev's Turnips Patch-No Politics (ZEEV)

[marketmaven]

OT:Mr. Market HATES Tax Cheat Timmy G.

Let's see if the Big O has any cohones
More on Glass-Steagall 2.0
http://www.prospect.org/csnc/blogs/tapped_archive?month=01&year=2010&base_name=more_on_glasssteagall_20

We have a little more detail on President Obama's new proposal for the financial sector:

1. Limit the Scope -The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit. .

2. Limit the Size - The President also announced a new proposal to limit the consolidation of our financial sector. The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.

Again, without enough detail to see if the execution will match the principles, this is a pretty big deal. Proprietary trading especially is where banks have made huge profits, and they will fight like maddened animals to protect that profit center. Without more detail on how the limits on the market share of liabilities will be measured and enforced, it's hard to say how effective they'll be, but that's probably the best angle to take when thinking about shrinking bank size.

The key dynamic that makes this a real change from previous proposals is the switch from discretionary regulation to set rules about what banks can and cannot do. Nonetheless, Treasury officials point out that these ideas have long been part of the administration's plan; for instance, last June's White Paper [PDF] said that the government "should tighten the supervision and regulation of potential conflicts of interest generated by the affiliation of banks and other financial firms, such as proprietary trading units and hedge funds." In October, Treasury Secretary Tim Geithner told the House Financial Services Committee that regulators should be able to limit bank activities and compel them to shrink and separate, an option that was included in the House bill and the Senate's initial draft. Now, though, the president is apparently set to take away regulatory discretion and mandate that no banks will have these types of business, which is a major step.