Volcker Rule? What Volcker Rule?

7 Jan

"Nothing illegal to see here..."

The FT reports that the Financial Stability Oversight Council is planning to adopt a tiered approach to the proposed “Volcker Rule” that originally sought to limit Banks’ proprietary trading activities (based upon the proposition that they’re inherently riskier than Banks’ other operations…)

Alas, it looks like in practice whatever rules we end up with look like they’ll be about as effective as drug testing in the NFL. (Warning, sarcasm ahead, clearly marked so as to avoid confusion)

At least in theory, team staff/doctors/etc are supposed to “monitor” players who may be ‘using,’ and the league conducts “surprise” and “reasonable cause” drug tests.  Of course its no secret that these “surprises” are a complete and utter joke, at best.  The NFL has quite an extensive list of “Banned Substances” and policies governing their illegal use (and masking thereof),  how players are to be tested to make sure they are not using them.  Test positive for a banned performance-enhancing substance once (and lose your appeal): 4-game unpaid suspension (from a 16-game season).  2nd time? 8-game unpaid suspension.  3rd strike: 12-months.  Seems like little more than increasingly-annoying slaps on the wrist, no?

Similarly, the FT claims that under the new, grossly-watered-down version of the remnants of the Volcker Rule, banks will have guidance on activities that should signal alarms or  flags in their internal control systems.  The next step (if the activity is deemed to be deserving of further scrutiny, a determination I’m sure will be honest and diligent…) is to have Bank risk managers/compliance interview the trader(s) involved.  As history has shown, fear of being probed by borderline mid-office personnel will no-doubt be more than enough to dissuade rainmaker traders from pushing the envelope…

Next, on the highly likely chance any “questionable” activities get past this point, regulators stationed on-premises at Banks (and presumably other regulated entities?) would be able to review the information surrounding the activity.  Considering how resource-constrained (and according to some, ineffective) the current large-scale financial regulatory apparatus is now, I’m not quite sure this “last line of defense” is realistic, let alone confidence-inspiring.  The FT continues:

William Silber, a New York University professor who is a trading expert, said a multi-tiered test would make sense if coupled with surprise visits to trading desks by regulators.

“Spot checks by regulators should be part of the package. Regulators should make sure traders know they are not waiting to act until after the cow is out of the barn,” he said.

Even if, as this NYU professor suggests, traders (banks) are subject – like NFL players – to random spot-checks, what’s to make anyone think such “random” inspections will 1. come as a surprise to traders and/or 2. uncover any prohibited activities and most importantly, 3. upon uncovering prohibited activities, result in sufficient punishments to discourage future acts?  Before Brian Cushing tested positive (and received a relative slap on the wrist for his BS excuse), when was the last time a massive, jacked-up NFL player was punished for using/abusing performance-enhancing drugs?

I wont proclaim to know for certain whether performance-enhancing drug use in the NFL is commonplace and the League, Coaches, Owners, etc simply “accept” it as that’s not what I’m trying to discuss (nor am I nearly informed enough besides what I see with my own eyes on Sundays).

In the aftermath of the Financial Crisis (or as some would say the darkest days thereof), Government officials promised they’d reign-in Wall Street’s society-endangering excesses and make sure that a greedy few couldn’t get fantastically rich by effectively playing with “taxpayer” money.  Now, what do we get?  More Wall Street-influenced, watered-down regulation that will likely fly under the radar of The Public (now more concerned about the new season of Jersey Shore or whatever Housewives show is currently en vogue), much to my chagrin.

The more things change, the more they stay the same.  Such certainly seems to be the case when it comes to Financial Regulation, at least.

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