The Fed met a little more than a week ago to propose a more lenient take on the Volcker Rule. Prompted by the half-dozen or so big investment banks remaining after the 2008 crash, the new rules, if approved, would "... alter how much time the banks have to spend proving they are following the Volcker Rule and give them more leeway to determine which types of trades comply. It would also shift the burden of proof for determining whether a trade qualifies under Volcker away from the bank to the regulators.
Now, banks must prove that each trade serves a clear purpose that goes beyond a speculative bet by showing regulators specifically how each trade either meets customer demands or acts as a hedge against specific risks. That had curtailed trading in a variety of assets like derivatives, corporate bonds and other complex products" (Emily Flitter & Alan Rappaport, May 30th, https://www.nytimes.com/2018/05/30/business/volcker-rule-banks-federal-reserve.html).
Do you think this is a smart move?
According to Renae Merle at the Washington Post..."The Federal Reserve approved sweeping changes to the “Volcker Rule,” which was established after the global financial crisis to prevent taxpayer-insured banks from making some risky financial bets. Banks, which have complained for years that the rule is too cumbersome and time-consuming, will gain new flexibility in deciding when a trade is too risky if the proposal is finalized." This change makes it easier for banks to trade make proprietary trades and take on substantial positions in securities for their own accounts. It pushes back at Dodd-Frank's attempt to revive Glass-Steagell. Four other banking regulators have to weigh in, but there is no doubt they will follow the Fed's lead. Added to bank consolidations after the 2008 crash and record profits over the last few years, we are reminded of our concern about institutions becoming too big to save.
According to a story by Investment News...
"The Public Investors Arbitration Bar Association, a group of lawyers that represents retail investors who sue brokerage firms, in a new report Wednesday morning took aim at perceived conflicts of interests at the board of governors of the Financial Industry Regulatory Authority Inc."
Read more at...
Some think we are headed for another big crash - and that algorithmic trading will make it worse than anything we've seen yet. What do you think? Are you prepared?
Janet Yellen says the regulations are essential to preventing the next market failure. But to what extent did the address the real reasons for the collapse? Derivatives are still barely regulated - most, like the mortgage products and the related credit default swaps, not at all. Mortgage-based derivatives are not gone, plus we have new derivatives, this time based on auto loans and student loans. Let's hope students find well paying jobs when they graduate! Also, the banks now have to keep higher reserves and pass stress tests to prove that they wouldn't need public funds to keep them afloat in the next crash. But the Supreme Court nixed the AG bailout, calling into question government's ability to bail anyone out in a future crisis. And finally, the run up this year is based in large part on perceptions/expectations that the party in power will be able to pass tax cuts. But how does Dodd-Frank protect us from the fallout when the markets realize that those cuts, and perhaps even spending allocations for the next fiscal year, won't materialize? Chairman Yellen says the regulations are essential. Do you agree?
Would you get investment advice from Amazon? Would you buy stock from them? We're not the first to think of this... I think even Cramer had something to say about this a while back.
From Investment News
What would it take for you to switch from E*Trade or Ameritrade or Schwab to Amazon?
Last month the House passed the CHOICE Act, its effort to repeal much of Dodd-Frank and give the states more individual authority over securities regulation. Karen Kunz talked with Wisconsin Public Radio's Culture Time about its potential impact on Dodd-Frank www.wpr.org/house-republicans-pass-choice-act-repeal-portions-dodd-frank
Authors Karen Kunz and Jena Martin of When the Levees Break recently wrote a conversation piece on theconversation.com discussing the Dodd-Frank Act, and how both political parties are wrong and should take a step back to analyze the best way to prevent the next financial crisis.
Read the entire story here: https://theconversation.com/why-dodd-frank-or-its-repeal-wont-save-us-from-the-next-crippling-wall-street-crash-73417
There is a disconnect, or more precisely, a disaggregation, in our current markets between the companies in our regulatory framework and the stocks that purport to represent them.
We don’t buy stock to invest in the company anymore – often we don’t even understanding what the companies we buy actually do or make. Now we buy stocks because of the value they represent. We buy analysts’ picks because the prices will go up – or down if we’re hedging our bets.
What stock have you purchased recently solely because you love the company and think of it as a good investment?
*stock certificate courtesy Google Images
We think regulation of investments and investing has become so complicated and complex that that is has become incapable of accurately monitoring and regulating the flow of investments. With the power of a tsunami, the last crash shook the very pilings our our system. The next one may wipe them out.In our book we envision an entirely new way to look investing and regulation with an eye toward shoring up the original concepts of the 1930s. We plan to use this site and our blogs to talk about our ideas. We hope you will join us and look forward to your thoughts and ideas!