Wednesday, February 15, 2012

Protecting the United States' Economy from Artful Banking

The 111th Congress passed the Dodd-Frank Act  --  a new law to govern banks and the financial industry  -- and President Barack Obama signed it into law in  2010.  The Dodd-Frank Act establishes a banking rule called the Volcker Rule; named after former Federal Reserve Chairman Paul Volcker.  The Volcker Rule is the focus of this post and the article highlighted in it.

The Volcker Rule, as part of the Dodd-Frank Act, is an effort by Congress and President Obama to draw in the reins on the casino-like behavior of the banks.  During the run up to the Great Recession, now Little Depression, federally-insured banks gambled in all kinds of speculative financial instruments (e.g., CDS, CDO, CDO-squared, RMBS, etc.).  The failure of these speculative financial instruments began the collapse of the bank system, and the only thing that saved the United States' banking system and economy from another Great Depression-like crash was an immensely large (trillions of dollars) government bailout.  

The article introduced in this post, written by Peter Radford of Real-World Economics Review Blog, provides an update on the Volcker Rule and the banks major effort to undermine/block its implementation.  Also, Mr. Radford provides some insight, based on personal experience supporting bank lobbyist, as to why the Volcker Rule is truly necessary.  A passage from Radford's article, discussing the importance of banking to a properly working economy, is enclosed below.

Banking is too important to the proper and socially beneficial workings of an economy to be left to bankers. They have amply demonstrated that they cannot, and should not, be left to regulate themselves. I say this as someone who spent more than a little time in the mid to late 1980′s writing position papers for bank lobbyists dedicated to the abolition of the twin regulations of the Glass-Steagall and the MacFadden Acts. How naive I was.


Radford, Peter. "Volcker and Banks." Real-World Economic Review Blog 15 February, 2012: online edition.  

Related information:

Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF).

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