Volcker Rules

No issue is more critical to ensuring our nation’s long-term economic health than addressing America’s dysfunctional financial regulatory system. Unfortunately, like so much legislation lately, the Obama administration’s economic reform agenda has fallen victim to prolonged partisan gridlock in the Senate.

However, it looks like bank reform has finally found its champion: Former Federal Reserve chairman and current chief of the President’s Economic Recovery Advisory Board, Paul A. Volker.

Volcker deserves to be commended for his role in shaping legislation that, according to The New York Times, “Would ban banks that take federally insured deposits from investing in hedge funds or private equity funds and from making trades that are for the benefit of the banks, not their customers, a practice known as proprietary trading.”

As stated in the U.K.’s Telegraph, the act will also, “block banks from takeovers that would give them in excess of 10% market share.”

Modeled on the Depression era Glass-Steagall Act, the so-called Volcker Rule would play an essential part in preventing financial institutions from becoming “too big to fail” and prohibit them from engaging in the sort of risky trading practices that brought about the financial crisis in the first place.

President Obama voiced his approval for the measure in January and, as The Times reported, its supporters include, “five former Treasury secretaries, elder statesmen like William H. Donaldson and John S. Reed and prominent investors like George Soros.”

Testifying before the Congressional Oversight Panel on Thursday, Citigroup CEO Vikram Pandit also endorsed the rule, “Banks should operate as banks, focused completely on serving their clients.” Pandit also spoke up in favor of, “regulations that promote transparency, particularly in the derivatives markets.”

“We are selling 40 percent of the company…We are breaking it up…This is a different company,” Pandit continued. After offering this rare mea culpa, he also acknowledged that “Citi owes a large debt of gratitude to American taxpayers.”

Not only is this Wall Street CEO’s honesty refreshing, but his observations also demonstrate how vital the Volcker Rule is to ensuring that financial institutions don’t repeat the mistakes of the past.

Pandit concluded his testimony by backing improved safeguards for consumers of financial products, “Recent experience reinforces the truism that what is best for consumers is also best for the financial system and the economy. I strongly believe that consumer protection can and should be strengthened at the federal regulatory level.”

Unfortunately, Congressional Republicans don’t share Pandit’s view and they’re fighting the creation of an independent Consumer Financial Protection Agency with all their might.

As The New York Times observed, “Most Republicans object to a new freestanding regulator with broad authority, while most Democrats back proposals to create a regulator that can operate with substantial independence.”

As a compromise, Senate Banking Committee chairman Chris Dodd (D-CT) suggested burying the agency within the existing framework of the Federal Reserve.

However, even this major concession isn’t enough to satisfy Senator Richard Shelby (R-AL), the Banking Committee’s ranking Republican. “It doesn’t matter that much whether it’s housed in the F.D.I.C., housed at Treasury or housed at the Fed…I think it will be a no-go for the Republicans,” Shelby said.

The senior senator from Alabama’s stubborn refusal to adopt common sense consumer protections provides further evidence of the Republican Party’s prime directive: protecting the interests of large banks, corporations and the rich at everyday Americans’ expense.

Housing the proposed agency within the Federal Reserve is a watered down half-measure at best and even that’s not enough to satiate the GOP’s unquenchable thirst for obstruction.

After all, this is the same agency that turned a blind eye to the dubious derivatives trading that ultimately led to our recent financial collapse. There’s no evidence that the Fed would fair any better the second time around.

This sentiment was echoed by Senator Jeff Merkley (D-OR), who said on Wednesday, “I’d have to be convinced that the culture of the Fed has gone through some radical change,” before consenting to Dodd’s concession.

Perhaps Times columnist and Nobel laureate Paul Krugman said it best, “The only way consumers will be protected under future antiregulation administrations — and believe me, given the power of the financial lobby, there will be such administrations — is if there’s an agency whose whole reason for being is to police bank abuses.”

Passing a financial regulatory reform bill that includes both the Volcker Rule and an independent Consumer Financial Protection Agency is essential to securing our nation’s economic stability.

The statements of a former Federal Reserve chairmen, five former Treasury secretaries, a Wall Street CEO, at least one U.S. Senator and a Nobel prize winning economist all attest to this. Richard Shelby and his fellow Republicans owe the American people an explanation as to why they obtusely refuse to accept these crucial reforms.



I founded Armchair Firebrand as a direct response to Republican obstructionism in our government and the widespread proliferation of Right-wing misinformation throughout our media. In the weeks and months since this endeavor began, those nefarious forces have only grown stronger.

Washington D.C. shut down well before last weekend’s epic snowstorm descended upon our nation’s capitol. Thursday, Sen. Richard Shelby (R-AL) placed a “blanket hold” on nearly seventy Obama Administration nominees currently awaiting Senate approval.

Shelby’s objection has nothing to do with these qualified individuals themselves. Rather, it hinges upon a pair of earmarks, recently eliminated from our nation’s budget, that would benefit his home state of Alabama. Placing these narrow interests above filling so many vacant posts within our government is both irresponsible and inexcusable.

Shelby’s intransigence is also a sharp rebuke of President Obama’s recent request that the G.O.P. govern responsibly rather than blindly obstruct his agenda. If Senate Republicans insist on throwing such temper tantrums every time they don’t get their way, our country will soon become ungovernable.

Even more despicable is the venomous vitriol spewing forth from the Tea Party’s inaugural convention in Nashville, Tennessee. Friday, in his speech at the Gaylord Opryland Hotel, former Republican Rep. Tom Tancredo fervently denounced our President as “a committed socialist ideologue” elected by “people who cannot even spell the word ‘vote’ or say it in English.”

Then there was Sarah Palin, an unsuccessful G.O.P. Vice Presidential candidate and half-term former governor, who reportedly received $100,000 for delivering the convention’s keynote address Saturday night. Palin began with a stunning indictment of optimism and progress, rhetorically asking Obama voters, “How’s that hope-y, change-y stuff workin’ out for ya?”

Meanwhile, Palin’s political paradigm or, to employ her preferred populist parlance, presumably, “that fear-y, status quo thingy,” seems to be working out just fine, at least for her. This self-centered strategy has proven extremely effective in the short-term, upping Ms. Palin’s media profile while lining her pockets at the same time.

However, appealing to people’s irrational fear of change generally brings out the worst in them (a fact demonstrated by the many misguided and offensive slogans spouted at tea party events last summer).

And assuring voters that we can continue consuming resources at or above our current rate is as reckless as it is dishonest. To use a tired metaphor, at a time when Americans must get leaner, Palin is scoring political points by telling us we can eat ice cream every night for dinner and never gain weight or run out of milk.

Journalist Jacob Weisberg recently bemoaned this cheap brand of political charlatanism in his piece for Slate.com, “the politicians thriving at the moment are the ones who embody this live-for-the-today mentality, those best able to call for the impossible with a straight face…Middle-class Americans really don’t want to hear about sacrifices or trade-offs—except as flattering descriptions about how ready we, as a people, are, or used to be, to accept them.”

As Weisberg notes, in our democracy, the buck stops with us: the American People. We’re the ones enabling the despicable words and actions of cynical charlatans like Shelby, Tancredo and Palin by failing to expose the obvious flaws in their logic. Instead, we’re left with a public unwilling or unable to separate fact from fiction and make the tough choices necessary to bring our country back from the brink.