Obama Proposes Tough Restrictions on Banks
In an effort to prevent another banking crisis (or, alternately, to gain political points as his administration continues to loose favor) Barack Obama has proposed some tough new restrictions on the banking industry. Among the suggested changes, Obama supports the prevention of banks from owning or investing in hedge funds and from carrying out proprietary trading operations. His backers claim this will help to tamp down on volatility and prevent banks from becoming “too big to fail”. However, in a recent CNBC article, Ralph Fogel, an investment strategist at Fogel Neale Partners, explained his view of the consequences of this in pretty stark terms:
“This is going to have a tremendous impact on big-name brokerage firms like Goldman Sachs and JPMorgan [...] If they stop prop trading, it will not only dry up liquidity in the market, but it will change the whole structure of Wall Street, of the whole trading community.”
As you can imagine, the Street did not take receive the President’s proposals too favorably as the Dow fell 2% on Thursday, with the country’s major banks leading the slide. This follows a proposal last week by the administration to tax financial firms to help pay for the funds spent on their bailout packages.
It’s difficult to assess at this point just how detrimental these proposals will be, or to what extent their affects are felt. At first glance, it doesn’t seem to make much sense to rein in banks and financial firms just as the economy is beginning to recover. I’m also tempted to wonder about the constructiveness of this proposal, as opposed to the obvious punitive element. Should we worry when government appears to take an adversarial approach to business?
To read more about this, check out these articles from CNBC:
http://www.cnbc.com/id/34975288
http://www.cnbc.com/id/34978454
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