As GS was reporting the most profitable year in its history, Obama introduced the ‘Volcker Rule’: a call for a return to a Glass-Steagall type of separation between commercial and investment banking activities. The proposal aimed at addressing some on the implicit moral hazards currently existent in the US financial system.
Bank holding companies with government-insured deposits and access to cheap financing from the Federal Reserve should not be allowed to engage in proprietary trading or co-invest and sponsor riskier alternative investment vehicles such as hedge funds or private equity types of structures;
Firms that underwrite new issues of stocks and bonds and act as broker-dealers for their institutional clients should not be allowed to trade for their own accounts;
Such proposals would probably be more effective at constraining profits and resolving moral hazard issues than actually addressing the structural problems that almost brought the entire financial system to a halt in 2008.
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'Whatever the status quo is, it is wrong and there must be a better solution'
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