‘If these folks want a fight, it’s a fight I’m ready to have’: Obama
On the same day that President Barack Obama announced an ambitious plan to reform the US financial system, bankers at the largest Wall Street institutions indicated that they are already finding ways around the proposed changes.
Sources at three Wall Street banks told BusinessInsider’s John Carney that “they are already finding ways to own, invest in and sponsor hedge funds and private equity funds” despite the proposed restrictions on those activities. One unnamed operative at a major bank said his firm expects the reforms to affect no more than one percent of its business.
President Obama announced two major reforms of the financial system on Thursday. The first would see the US in effect return to the separation of commercial and investment banking that was mandated by law until 1999, when that rule in the Depression-era Glass-Steagall Act was abandoned.
Many economists say allowing banks to be both lenders to the public and investors in large hedge funds and other securities contributed to the economic collapse of 2008.
The other rule would limit the size of banks, ostensibly to ensure that no banks are “too big to fail” and require taxpayer bailouts to keep the economy from collapsing.
But Wall Street bankers are pointing to a phrase in the proposed reforms — that banks will be barred “from proprietary trading operations unrelated to serving customers” — as an easy loophole to get around. John Carney reports:
The key phrase is “operations unrelated to serving customers.” The banks plan to claim that much of the business in which it engages is related in one way or another to serving customers….
A still more devious way is to have a bank’s own employees be the customers who are invested in the internal hedge funds. That way trading operations can remain closed to outsiders while the regulatory requirement of relating the trading to customer service is met. Goldman Sachs is rumored to be considering this approach.
In the wake of a slew of criticism accusing the president of weak leadership on the health care issue, particularly in light of the Democrats’ loss of Ted Kennedy’s old Senate seat earlier this week, Obama sounded a tougher note on the issue of financial reform than he has been known for in the past.
“If these folks want a fight, it’s a fight I’m ready to have,” Obama said Thursday in announcing the financial reforms.
“While the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near collapse,” Obama said. “Never again will the American taxpayer be held hostage by a bank that is too big to fail.”
Obama dubbed his plan to separate commercial and investment banking the “Volcker rule,” after former Fed Chairman Paul Volcker, who is credited by many economists for being the architect of the economic policies that allowed the US economy to thrive during the Reagan era. For much of the past year, Volcker, who is now an economic advisor to Obama, had argued for a return to the Glass-Steagall era that separated commercial and investment banking.
The fact that a former Fed chairman considered to be economically right wing was pushing for these reforms was one major reason that the reforms began to gain traction among commentators and lawmakers.
But news that banks are already easily finding ways around the proposed reforms will likely lead to questions over whether Obama’s proposed fixes are tough enough, or whether any reforms can actually be effective in the current business environment.
“This thing is about showing the public that Obama is standing up to Wall Street,” an unnamed Wall Street insider told BusinessInsider. “So the rhetoric is heated. But the implementation will require far less change than people think right now.”
Trump alerts ‘active-duty U.S. military police’ for possible deployment to Minnesota: report
President Donald Trump's administration is contemplating using active-duty U.S. troops in an attempt to quell the protests in Minneapolis, the Associated Press reported early Saturday morning.
As unrest spread across dozens of American cities on Friday, the Pentagon took the rare step of ordering the Army to put several active-duty U.S. military police units on the ready to deploy to Minneapolis, where the police killing of George Floyd sparked the widespread protests," the AP reported.
"Soldiers from Fort Bragg in North Carolina and Fort Drum in New York have been ordered to be ready to deploy within four hours if called, according to three people with direct knowledge of the orders. Soldiers in Fort Carson, in Colorado, and Fort Riley in Kansas have been told to be ready within 24 hours. The people did not want their names used because they were not authorized to discuss the preparations," the AP explained.
John Roberts joins liberals as Supreme Court rejects challenge to Newsom’s COVID-19 limits on California church attendance
In a 5-4 ruling, the Supreme Court on Friday rejected an emergency appeal from the South Bay United Pentecostal Church in Chula Vista, California. The San Diego area church tried to challenge the state's limits on attendance at worship services:
The church argued that limits on how many people can attend their services violate constitutional guarantees of religious freedom and had been seeking an order in time for services on Sunday. The church said it has crowds of 200 to 300 people for its services.