Congressional debate about the Volcker Rule may have escaped close scrutiny by the general public. But in the nation's big banking and financial circles, and thus in the lobbyist-bloated halls of Congress bloated, few items of business could be more critical. The Volcker Rule -- named after Paul Volcker, the former chairman of the Federal Reserve -- simply seeks to ban proprietary trading by banks supported by taxpayers.
Volcker has long advocated the barrier. Without it, inappropriate risk-taking by traders in financial institutions is made easy. Traders can make speculative transactions on their own accounts that enrich them personally if they win. And if their deals go bad, they can pass their losses on to taxpayers. Which is precisely why so many big commercial and investment banks ended up having to be bailed out in the financial implosion of 2008.
Democrats and the Obama administration fought hard for the Volcker Rule to be included in the regulations that would flow from Dodd-Frank financial reform bill. Banks and financial institutions generally persuaded Republicans -- no hard task -- to protect their interest in keeping proprietary trading permissible for banks that get subsidized, when need be, by the Federal Reserve.
The Republicans have technically won. They couldn't actually kill the Volcker Rule, though they tried mightily. But they managed to tie it up in a tidal wave of complexity in a 530-page bill that seeks to distinguish, according to a ProPublica investigative review by Jesse Eisinger, "intentional proprietary trading from unintentional cases, a standard that is tantamount to pre-emptive surrender" by regulators.
The standard "will make enforcement all but impossible without a trader stupidly putting something incriminating in an email," he found.
This is precisely what reformers fought against. It's still not too late -- not yet -- for Congress to back away from the bloated bill. They could do precisely what reformers advocate. Simply write a sentence-long rule, to replace the 530 pages of fog, that says that proprietary trading is illegal at banks that receive government support.
But politics isn't simple. It's controlled by lobbyists and big money. And taxpayers pay for it -- at least, for the losses. They surely do not share the fabulous gains that big banks want to keep. Ask Republican protectors of proprietary trading why that is.