Will the Volcker Rule Survive The Midterm Elections?

By Simon Johnson

The Obama administration saved the deeply troubled megabanks in the United States in early 2009 with a bundle of rescue measures that, compared with similar financial crises elsewhere, stands out as extraordinarily generous – particularly to the bankers at the epicenter of the disaster.

The banks responded to this magnanimity with – by all accounts – extraordinarily generous support for the Republicans leading up to this week’s midterm elections. Why would they do this?

The answer is straightforward: The Republicans have promised generally not to tighten restrictions on the financial sector, which means specifically that they will seek to make the recent Dodd-Frank financial regulatory legislation less effective.
The Dodd-Frank Act is not strong legislation to start with. The administration started with overly modest goals, and the banks then devoted considerable effort to weakening the bill as it passed through the House. But some pieces that survived have the potential to make a difference – including the Volcker Rule, which in principle would force big banks to get out of the business of betting their capital in ways that can bring down the entire financial system.

Paul Volcker came up with the ideas and helped shape the original proposed rule. This provision was pushed hard by Senators Jeff Merkley of Oregon and Carl Levin of Michigan, who prevailed against the odds in getting it into the bill, but now find regulators less than uniformly enthusiastic about applying the rule.

remainder: http://baselinescenario.com/2010/11/04/will-the-volcker-rule-survive-the-midterm-elections/

significant change on that piece of legislation.

to make business easy for the banks. The Republicans should have their heads handed to them for even the suggestion of altering the bill.