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December 13, 2013

Financial Reform Friday Newsletter – 12/13/2013

Financial Reform Friday Newsletter
December 13, 2013
Volcker Rule ban on prop trading finally here. Five years after the financial crash and more than three years since the financial reform law was passed, the Volcker Rule is final. On December 10, financial regulators voted to approve the ban on high risk proprietary trading at the biggest banks on Wall Street. The vote is a direct attack on Wall Street’s high-risk “quick-buck” culture that focuses on short-term gains, regardless of the risk to American taxpayers. Wall Street’s lawyers and lobbyists will inevitably continue to attack the rule, as they have for the past three years. But make no mistake about it: regulators now own the Volcker Rule. Unless cash-strapped regulators hold Wall Street accountable and aggressively enforce the rule, the American public, which since 2008 has borne the brunt of Wall Street’s economic wreckage, will expect Washington to answer for any future blowups.
Video of the Week: On Tuesday’s PBS NewsHour, Dennis Kelleher debated the Volcker Rule and the need to change Wall Street’s risk-taking culture with an American Bankers Association representative.
Will the Volcker Rule change the culture of Wall Street?
Better Markets’ Dennis Kelleher and ABA’s Wayne Abernathy on PBS NewsHour: “Will the Volcker Rule change the culture of Wall Street?”
JP Morgan Chase is alleged to be “at the very center of the [Madoff Ponzi scheme] fraud, and thoroughly complicit in it,” but sill might get another sweetheart settlement deal. This week marked the 5th anniversary of the arrest of Bernard Madoff. The largest Ponzi scheme in history cannot last for years without many active participants. JP Morgan Chase, Madoff’s banker for more than two decades, was a key enabler. As court filings have alleged, for years JP Morgan “turned a blind eye to” the fraud while stuffing its pockets with almost $500 million in fees and saving itself another $250 million by withdrawing its own investments with Madoff right before his arrest. It is now being reported that the bank is nearing a $2 billion settlement with federal authorities for its role in Madoff’s scheme. As with its recent $13 billion settlement with the Department of Justice, JP Morgan appears to be hoping to settle these claims with minimal public disclosure. And as with the DOJ settlement, any deal that does not include full and complete public disclosure will be another sweetheart deal for JP Morgan and the too-big-to-fail banks.
Stop high-frequency traders from destabilizing U.S. markets. In an effort to reduce the risks that computer-generated trading poses to markets and investors, the CFTC in September issued a concept release on possible regulation of high-frequency trading. HFT, the term for buying and selling stocks in milliseconds using high speed, complex computer programs, is the unregulated “Wild West” of the financial markets. Several HFT-related trading disasters and near-disasters have in recent years caused turmoil and massive losses in the markets. For example, in 2012, when a Knight Capital trading program ran amok, turning 212 customer stock orders into more than 4 million stock orders, causing more than $4 billion in losses, and ultimately leading to the distressed sale of Knight itself. High-frequency traders destabilize U.S. markets, drain the wealth of investors and destroy public and investor confidence in the markets. Better Markets recently submitted a comment letter calling on the CFTC to act now and implement sensible reforms before the next inevitable computer-driven market meltdown. And HFT watchdog Themis Trading had this recent post referencing these issues and some additional comments on the proposal.
New details emerge about JP Morgan’s reported alleged bribery practices in China. The New York Times recently published new details about JP Morgan Chase’s “Sons and Daughters” program for hiring the children of Chinese government and business leaders to obtain business deals. It was reported that JP Morgan hired the daughter of the Deputy Minister of Propaganda for the Communist Party, among others. If true, this would be bribery made illegal by a longstanding, well-known U.S. law called the Foreign Corrupt Practices Act. Dennis Kelleher discussed this on Bloomberg TV, observing that allegations of JP Morgan’s “fairly systemic illegal conduct in China” is the latest example of “banks this sprawling throughout the world, they’re not just too big to fail and too big to jail, but they’re too big to manage.”
Some other things that might interest you:
Finally, the Volcker Rule: The New York Times 12/12/2013
Celebrations of Too Big to Fail’s Demise Are Premature: Bloomberg by Simon Johnson 12/8/2013
The Problem Is Bigger Than Too Big to Fail: ProPublica by Jesse Eisinger 12/11/2013
A Safer Financial System Is Now Within Our Grasp: Financial Times by John Reed 12/11/2013


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