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The November US elections swept Republicans into control of the House of Representatives and inched them closer in the Senate. This change could introduce long range trouble for Canadians as premier trading partners. One aspect of the Obama financial reforms was the little publicized Volcker Rule that was proposed by Paul Volcker, former Chairman of the Federal Reserve that all powerful 'engine room' of the US economy. Reserve Chairman have immense power. His proposal was indorsed by 5 former Secretaries of the Treasury in the US. Some less than keen 'experts' have said that the recent meltdown was a wakeup call for Wall Street, while others are convinced that the two greatest beneficiaries of the near disaster have been Wall Street insiders themselves and Medical Insurance Companies. The electorate has ignored this and feels more comfortable with platitudes like 'we'll put that on the table for discussion' or 'we need to get back to Constitutional Values' The Volcker rule was intended to restrict financial institutions being in the business of banking and taking positions that are not in the best interests of their clients. In particular the Volcker Rule was first publicly endorsed by President Obama on January 21, 2010.The proposal specifically prohibits a bank or institution that owns a bank from engaging in proprietary trading that isn't at the behest of its clients, and from owning or investing in a hedge fund or private equity fund, as well as limiting the liabilities that the largest banks could hold. It was designed to get rid of some of the largest financial firms ability to bet against their clients winning on all counts whether the clients interests went up or down. Financial institutions of great size were putting themselves as individual officers in a position of low risk, while their clients and by implication the US and the world economy at undetermined risk. In short the insiders were winning on the way up and the way down. Another aspect of the Volcker Rule was to limit the size and thereby the risk of any banking institution. This would have allowed a poorly run bank to fail without taking the world down with it. The proposal never got off the ground. Although Volcker's Proposal was never mentioned by name, it was bundled into words like 'bad for free markets', 'too much government takeover and rules'. These became a mantra of Tea Party Candidates in the last election. They were unaware that they were in fact backing a welfare state for Wall Street. To illustrate the point that Wall Street has done just fine, we present the average income of the top 25 Hedge Fund managers for the year 2009, which was a bad one by all measures as the world economy teetered on the brink. The top 25 earned an average of 25.3 billion. That is, each of them could expect to bring home a billion dollars each. By way of comparison in 2007, they earned an average of $540 billion. So they in fact doubled their income while the rest of the world sweated. The top 10 managers' earnings were: 1.David Tepper, Appaloosa
Management 2. George Soros, Soros Fund Management 3. James Simons, Renaissance Technologies 4: John Paulson, Paulson & Company 5: Steve Cohen, SAC Capital Advisors 6. (tie): Carl Icahn, Icahn Capital 6. (tie): Edward Lampert, ESL Investments 8. (tie): Kenneth Griffin, Citadel Investment Group 8. (tie): John Arnold, Centaurus Advisors 10. Philip Falcone, Harbinger Capital Partners Now as President Obama's health care bill was ripped and ridiculed, the stock value of Insurance Firms was treading water. The insiders were watching from afar. As soon as the guts were torn out of it and it was finally passed, the medical insurance stocks rose. So they liked the Health Care bill? No, they liked what was not in it. The Tea Party members said that all this was free markets at work, not knowing that medical insurance companies are exempt from US Federal anti-trust laws and are free to price set. Due to the US national debt and the great gaps between the middle class and the super rich, all this is a serious problem for the world. Other governments are complaining about the lack of restraint by the US. The Tea Party people, by way of contrast decry what they call 'European Style Democratic Social Welfare States'. It's going to be an interesting year. Can Obama explain things in a form the electorate will grasp. It's a mystery and not everybody likes mysteries.
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