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Bankers' opposition to Volcker rule is no surprise

The rule, named after former Fed chief Paul Volcker, would prohibit banks from making risky trades for their own accounts. Of course, the financial industry is warning of dire consequences and trying hard to water it down.

January 10, 2012|Michael Hiltzik

There's no dearth of industry calculations of the supposed cost of the Volcker rule. One securities industry trade group estimates, for example, that the value of corporate bonds held by investors might drop by $315 billion if the rule is "overly restrictive," whatever that means.

That sounds like a lot of money, until you calculate the cost of the banks' unrestricted gambling — leaving aside the $1.5 trillion spent by the U.S. government on bank bailouts and post-crash stimulus programs, the net worth of American families fell nearly 20% the year of the crash, or by as much as $13 trillion. It's still mired at about the 2006 level. In that context, it sounds like the Volcker rule comes cheap.

The industry's most laughable complaint is that the proposed rule has become overly complex, running now to hundreds of pages. What the banks don't acknowledge was that they openly connived to make it so.

While the Dodd-Frank bill was making its way through Congress, they lobbied relentlessly to inject exceptions and exemptions into the Volcker rule. In the give-and-take of the legislative wringer, many details were dumped on regulators to figure out. Don't let anyone tell you that this doesn't benefit the financial industry, which is thereby given a second bite of the apple to lobby rule makers, abetted by its pantsfuls of cash. It should go without saying that when a big firm such as Goldman Sachs or JPMorgan Chase calls officials at the Treasury Department or the Fed, they pick up the phone.

The scale of Wall Street's lobbying effort attests to the profits (and bonuses) at stake. A study by Duke University law professor Kimberly D. Krawiec of records of agency meetings on the Volcker rule show that nearly 94% involved financial institutions, their trade groups and their law firms, with JPMorgan Chase, Morgan Stanley and Goldman Sachs leading the way. Public interest groups, unions and other public advocates — all of whom certainly have an equivalent interest in protecting the financial system from harm — made do with the other 6%.

Krawiec found that entities whose views might be expected to function as a "counterweight" to the industry's, such as the AFL-CIO and Public Citizen, got 18 meetings with regulatory rule makers from the end of July 2010 to the end of June 2011; JPMorgan Chase alone had 17. Volcker himself had only one. Goldman Sachs Chairman Lloyd Blankfein hit a trifecta in March 2011, securing a private meeting with SEC Chairwoman Mary Schapiro, her chief of staff and the agency's director of trading and markets. And the roundelay of meetings is still going on.

Do you still think the Volcker rule is going to be as tough on Wall Street as it needs to be?

Every time a new regulation comes along, the financial industry claims it will crash the economy. This was the argument the banks used against deposit insurance and the creation of the SEC in the 1930s, and we'd be in a lot worse shape without those reforms. So when you hear the same claim being made, just repeat to yourself: "They would say that, wouldn't they?"

Michael Hiltzik's column appears Sundays and Wednesdays. His latest book is "The New Deal: A Modern History." Reach him at mhiltzik@latimes.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.

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