Tuesday, February 2, 2010

Banks Battle Regulation. Period.

The headline in the WSJ reads "Banks Gear Up for a Battle." The ensuing article discusses banks' new worries over being forced to define and hive off their profitable proprietary trading units due to the Volcker Rule. Yet the headline is symbolic of the new financial environment. In fact, you could play a fun little game of fill in the blank if you were too lazy to read the story. Banks Gear Up for a Battle Over...
  1. Bonuses ("But how are we supposed to retain talent???")
  2. New Fees Imposed on Liabilities ("You're going to kill the repo market with that mindless 15 bp tax!!")
  3. Forcing Issuers of Asset-Backed Securities to Retain a Sizable Amount of Default Risk ("You're going to destroy the ABS market! How are we ever going to fuel another bubble? I mean, ahem, you're going to destroy the market!")
The list could go on and on. The theme for the year will be banks pushing back against an army of regulators attempting to prevent more rampant speculation that leads to yet another huge boom and bust cycle that requires more bailouts because the economy is still a slave to our bloated financial system. Get used to it. The banks have way too much money and power now that they are profitable again and can operate with government guarantees. There is a much easier answer to stopping a bubble in its tracks, of course. Raise interest rates. The free money goes away.

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