Paul Volcker, who did the dirty work that pulled us out of recession and stagflation 30 years ago, has been busy during his year with the Obama administration. His explanation of proposed financial sector reforms appears in today’s New York Times.
I might be wrong, but the idea that forcing commercial banks to divest themselves of proprietary trading desks and in-house hedge/private equity funds appears to be a win for some banks (Wells Fargo) and a major loss for others (JP Morgan, Goldman Sachs).
WFC’s focus on traditional banking has served its investors well over time, even if the stock price had stalled before the meltdown. Analysts say it is working out the headaches that came with Wachovia and Golden West, and will emerge from these doldrums in an excellent position relative to its competitors. (WFC ended the week up, while GS, MS and JPM tailed off.)
Volcker makes a good point about the continued moral hazard facing fragile financial markets, and the proposal to bring back Glass-Steagal barriers between investment and commercial banking seem reasonable. They will be hard to implement, even if they can make it through Congress. But who knows, perhaps we’ll see Obama get behind this in a big way. Maybe he’ll forget about that ill-begotten tax on former TARP recipients.