Proprietary Trading Creates Bank Risk?

Paul Volker, a former head of the Federal Reserve Bank and now advisor to president Obama, has wanted to restrict proprietary trading among banks or bank holding companies. But when pressed he has had no idea as to what really describes proprietary trading activity.

There have already been regulatory restraint on the activity, much of which have been ridden off by banks to other entities. However, there is no real lessoning of risk as a result. It's difficult to delineate trading by banks for accounts and for themselves in many instances, as Mr, Volker knows from his experience.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

The Psychology For Regulations

Debacles happen when you get an over-regulated attempt to spend yourself out of a financial tangle while psychologically pushing citizens and business into an ever-deepening recessionary funk.

I have felt that most regulators and politicians fail to understand psychology that drives the way people affect everyday economics.

I have been asked: What would you do if you could, in practical terms, to get out of a recession?

Simple. Cut taxes permanently and watch how that creates jobs and spending because of the psychological uplift. Clear the doubts for business and the consumer, and natural instincts will resolve recessions before they fester into depressions. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Recap: Our Man-Made Financial Meltdown:

I frequently comment on aspects of the 2008/2009 financial meltdown, and how the severity of our Great Recession could have been prevented, had there been a “hands-off” attitude by government. Instead, we got heavy-handed, ultra-expensive attempts.

Those of you who have seen my Earl J. Weinreb Newshole® info will have insight on much of the situation.

I bring this up once more because the Federal Reserve’s easy money policy,

The Fed has allowed itself to become a tool of administration fiscal policy and shows little independent monetary policy for its intended purpose. It helps guarantee future financial upheaval for this country unless an effort is made politically to change matters. We cannot any  longer depend on the Fed. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Financial Reforms in Doubt?

 The government has given more power to the Federal Reserve but the agency has had perhaps too much power up to now. The big problem is the possibility of any banking institution failing and then dragging down another.

Unfortunately, the regulators have historically never been good at this, and I doubt they ever will. The 2010 Dodd-Frank legislation has merely made it more of a debacle for big banks to fail.

That spells out more senseless bailouts.Want more information? (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Regulating Pay of Top Execs

You receive a dependency that is difficult to get rid of when you accept government aid. The result becomes worse than an addiction. Even when you want to repay the debt, Uncle Sam makes it hard to comply.

For some of the larger banks who accepted funds from the U.S. the result was impractical and actually stupid.

Apart from the fact the bank management is controlled within a government straitjacket (a characteristic of a fascistic and not a capitalistic free government), banks who have accepted aid are restricted in how they pay bonuses and compensation to top executives. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Seeking An MBA or Equivalent?

A suggestion for students seeking an MBA .

You probably have seen Earl J. Weinreb comments on this subject many times in the past. They’re the result of my observing the successes, failures and foibles I have noted on Wall Street.

One has to do with the study of failures of the many mathematical models that have been devised to reduce risk. The models have not cut investment risk that is their primary objective.

I am not talking about the well-discussed Black Swan concept of risk that happens once every fifty years or so. Concerning events such as the recent financial meltdown. But they regard the constant use of financial models which don’t seem to work as they are intended to do.

The truth is, some complex models by MBAs work but they are destined to eventually fail, no matter the brain-power and effort applied. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Regulators Often Do a Poor Job

The current deep financial downturn, like all recessions, is started when business people and consumers get pessimistic and stop spending or buying.

The twelve regional Fed banks all have regulatory duties. But within them there are often disputes as to what exactly is to be done.

Many supervisors and regulators within the system have different functions, with varying answers from their observations. Always, a human element governs what they feel must be accomplished.

Errors inevitably turn up with individual decisions and action that would not happen when free markets determine outcome.. This fact has been established from years of experience.

Remember what I have said in the past about how better predictability futures markets anticipate events, as opposed to that of a small group of experts.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)