CFTC Commissioner Bart Chilton made the following interesting remarks before the Institute of International Bankers, at The Yale Club, in New York City:
“First Volcker: It’s a huge issue that, frankly, might be on life-support. Now, before you folks get all “yeah, yeah, yeah” and start knuckle bumping, I’ll give you fair warning. If Volcker isn’t finished in a robust fashion, that’s gonna be big trouble for banks. (Big Trouble—2002, Tim Allen and Rene Russo—great actors, but not worth a Netflix shot). Here’s why a weak Volcker Rule would be big trouble. As we noted, people are mad as hell. Many folks in fairly high levels of government—presidents of Federal Reserve Banks, Members of the House and Senate and others—want to break up the banks. Legislation has been introduced to do just that. Some want to go back to Glass-Steagall.
Now, Dodd-Frank says that banks should not be allowed to engage in proprietary trading, provided however, that they may hedge their financial business risks, e.g. risks they take on in the course of commercial banking. I think that’s a good thing. However, I have a critical caveat. What could very easily happen is that the definition of “hedging” in the final Volcker Rule could be so broad as to allow unchecked speculation costumed as hedging. We have already seen the difficult duplexity that was created with the repeal of Glass-Steagall when a couple of banks had the incentive and bet against their own customers and settled for hundreds of millions of dollars with the SEC. Remember in Wall Street (1987) just before Bud—Charlie Sheen—is arrested? Lou Mannheim—Hal Holbrook—says, “The problem with money, Bud, is that it makes you do things you don’t want to do.” If banks continue to speculate for themselves, and watch out if they bet against their customers ever again, I think that may mark the beginning of the end for big banks. The populace and those in government will come back like a Rambo movie (1982, 1985, 1988, and 2008). And frankly, I’d be in the camp saying “You go, Rambo.””