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December 19, 2012

House Republicans' Three Big Lies About the Volcker Rule

“On December 13th, the House Financial Services Committee convened what is likely to be the last hearing of this Congressional session for the purposes of seeking “alternatives” to the Volcker Rule. The Volcker Rule, as I’ve written previously for The Nation, is a piece of Wall Street reform with a crucial purpose: to create a firewall that bars banks that enjoy FDIC insurance from risky, speculative gambling. On Wall Street, gambling with the firm’s money is known as proprietary or “prop” trading. This is an important rule to get right, and its final version has been delayed far too long. And unfortunately, the aim of this hearing was not implementing the regulation, or even about exploring alternatives to the Rule, but rather dragging things out to the benefit of the banks.

The hearing put on display everything we’ve come to expect from our most beholden members of Congress. Many questions had clearly been penned by bank lobbyists, and a largely hostile reception greeted the two witnesses, William Hambrecht andDennis Kelleher, who dared to defend the reforms. But three Representatives in particular— Chairman Spencer Bachus (R-AL), Rep. Shelley Moore Capito (R-W.Va.), and Rep. Jeb Hensarling (R-TX), the incoming Chairman of the Committee—stood out, handing over their pulpit to a litany of misrepresentations about the effect of the rule.


Lie #1: Prop Trading Did Not Cause the Crisis

In his opening statement, Chairman Bachus argued that the Volcker Rule is a “self-inflicted wound that should be repealed,” because prop trading did not cause the crisis. He’s suffering, perhaps, from a case of self-inflicted amnesia that likely came about from the $1.3 million he received from the Financial, Insurance and Real Estate sector in the 112th Congress.”


Lie #2: The Volcker Rule will hurt regional banks

In her opening statement, Rep. Shelley Moore Capito repeated a concern made by KeyBank, a regional bank based in Cleveland, of the substantial hours that will be spent proving the bank is not involved in prop trading. This is a reference to the metrics the Volcker Rule requires banks produce. But any substantial financial institution should already be producing such metrics for their own internal risk systems. If a bank requires significant time and effort to generate them simply because of the Volcker Rule, I fear more for their own stability and the viability of their business model than for their ability to conform to this regulation.”


Lie #3: The Volcker Rule Will Hurt Teachers

In the most surreal moment of the hearing, Rep. Jeb Hensarling tried to argue that the Volcker Rule will hurt the pension funds of teachers, and smugly asked, “I hear much language here about the big banks, but to what extent are we thinking about the little teachers?“ He pointed to a comment letter from TIAA-CREF, a retirement services provider, saying that it served as evidence of a negative impact of the Volcker Rule. He used the letter to argue that the entire Rule will endanger the retirement security of teachers.”


Read full The Nation article here

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