It would all be so much easier if we didn’t need the banks. We could send the banksters in a rocketship to start an over-leveraged life on Mars, or ship them to the Yukon and see how caribou like credit default swaps.
But the government is convinced we do need banks—to hold our money, to keep grandmother’s jewelry behind a metal door, to make loans and run payment systems. Bank loans, it imagines, are the only way most people—especially here in the 99%—can ever dream of starting businesses or buying homes. Dull, prudent banks—like It’s a Wonderful Life’s Bailey Building and Loan Association—are one of our greatest weapons against inequality.
It’s been easy to disagree recently: our biggest banks, drunk on leveraged profits, abused government guarantees to bet against our houses for their own gain, then picked all our pockets when it went bad.
So what can government do when an industry the public needs has a problem? It can try to love banks through their problem. It can also intervene.
In 2010, Congress passed Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the “Volcker Rule.” The rule bans speculative “proprietary trading” in which a bank trades (read: gambles) to make a profit for itself.
What’s the matter with proprietary trading per se? Not much. Just like a glass of wine won’t kill you, there’s nothing wrong with proprietary trading by medium-sized independent firms, which are free to fail without dragging down the rest of us. But proprietary trading dependencies at big commercial banks can have disastrous consequences.
For one thing, trading is almost always “leveraged”; banks bet as much as $30 or more for each dollar in their pockets. This strategy maximizes profits, and it also means entire banks can be wiped out by a single bad investment. Worse still, in addition to the destructive market “bubbles” caused by their profit-seeking, these banks are protected by the government both explicitly through the FDIC and implicitly through “too big to fail” guarantees.
What all that means is that proprietary trading at the major banks amounts to Heads I win, Tails you lose: banks make obscene profits when they’re right and leave the rest of us to pay when they’re wrong. This profiteer’s dream is what the Volcker Rule is designed to stop. If well-enforced, Volcker could dry out the banks for good, leaving us the safe, sober and refreshingly unglamorous banks we need—the ones that couldn’t make this mess again.
But the bank regulators in charge of writing and enforcing the rule are enablers par excellence. They’re currently planning to allow almost unlimited trading in “repurchase agreements” and “market making,” while enabling banks to invest up to 3% of their capital in hedge funds. This is like telling an alcoholic he can’t drink unless he’s having Everclear, or drinks with a business contact, or promises never to spend more than 3% of his paycheck at one bar.
What’s more, the banks already have teams of lawyers trying to further water down the law. Fortunately, there’s a way to occupy this process:
Until February 13, the SEC is required to listen to public comments on its implementation of the Volcker Rule, and Occupy the SEC has prepared a comment letter addressing the 300+ questions in the rule. In the 150 page letter we are preparing to present, we’ll argue against banksters and their loopholes. We’ll assert the principle that banks should be helping Americans, not themselves. Most importantly, we’ll remind the SEC that right now, America needs protecting from its banks more than the banks need protecting from America.
The regulators may not listen. And even if they do, the Volcker Rule won’t put anyone in jail, at least not yet. It won’t give back the money the banks took to feed their habit, nor will it help anyone who lost a house or job or pension due to bank malfeasance. It won’t assist the people that banks illegally evicted nor the protesters who’ve been injured and arrested making the case against them. It won’t demilitarize the police or fix what’s broken in Washington.
But it might help keep all this from happening again. That’s what we’re fighting for.