The 411 on The Volcker Rule
While initially a very small part of the new Dodd-Frank financial reform law, the Volcker Rule has become the focal and most debated part of this financial bill. The Dodd-Frank bill was signed into law by President Barrick Obama in 2010 to prevent the commercial banks from engaging in risky speculative investments like hedge funds and derivatives. These risky investments are the purported reason for the great financial collapse of 2008.
Paul Volcker is one of the top American economists, serving as Chairman of the Federal Reserve under Jimmy Carter and Ronald Reagan from 1979 to 1987. he was appointed to Chairman of the Economic Recovery Advisory Board under President Barrick Obama from February 2009 to January 2011. This panel of experts was created to advise the President on ways to improve America’s economy. During this tenure Paul Volcker proposed the Volcker Rule to limit bank risks while speculating with taxpayer funds without the consequences of going broke (Government Bailouts).
In its simplist and broadest form, the “Volcker Rule” would severely limit or restrict investment in US securities like US Treasury bonds and notes and include municipal bonds which carry very little risk if any. These limits would restrict and possibly increase the cost of marketing federal, state, and local debt further burdening the taxpayers it’s trying to protect. While some foreign governments are just as financially save as the US Government, others can be risky; so how do you decipher which ones should be exempt? Congress and the Senate are presently trying to draft exemptions and exclusions for these investments.
Currently debates continue about the effectiveness of the Volcker Rule with Chase’s recent reported loss of over $2 billion dollars on “proprietary trading” and “could get worse” according to JPMorgan Chase CEO Jamie Dimon. Many maintain that this loss by JPMorgan Chase bank wouldn’t have fallen under the umbrella of the new rule but others say if that’s the case then there’s something wrong with the Volcker Rule. Even with this loss the big banks like Chase are adamantly against it because of the restriction or limits to their profit potential.