Paul Volcker In, Geithner’s Palling Around With Wall Street Out?
January 22, 2010
(ChattahBox)—Paul Volcker, former Federal Reserve chairman appeared at President Obama’s side on Thursday, as Obama announced his new proposals for tougher restrictions on big Wall Street banks, that he dubbed the “Volcker Rule.” This new move by Obama, left Treasury Secretary Timothy Geithner on the sidelines, to speculate on his loss of favor within the White House. For months, Geithner has been advocating a kinder and gentler approach to convince Wall Street of the need for regulatory reforms. But Obama’s new alliance with Volcker, to stop banks from engaging in risky speculative investments may signal an end to Geithner’s influence and his “palling around” with his Wall Street buddies.
Volcker leads an outside economic advisory group that formulated the new plan to impose stricter curbs on big banks. According to a report in the Washington Post, the new restrictions would force banks to stop making risky investments that don’t benefit customers:
“At its heart, Volcker’s plan restricts banks from making speculative investments that do not benefit their customers. He has argued that such speculative activity played a key role in the financial crisis. The administration also wants to limit the ability of the largest banks to use borrowed money to fund expansion plans.”
The need for stricter curbs on risky investments by banks, was made apparent to White House officials when banks stopped lending money and used government funds instead, to make speculative investments. Volker condemned the banks’ practices. He said the banks have”unmanageable conflicts of interest” as they made investments for clients and themselves simultaneously.
Said Economic Advisers Austan Goolsbee of the banks’ disreputable behavior in refusing to lend to its customers:
“We started coming out of the rescue and you saw some of the biggest financial institutions . . . who had access to cheap financing . . . use that money without lending or anything, just doing their own investments,” he said. “That clearly started putting [the issue] on the radar screen for us.”
The proposed regulations will need congressional approval.
See the Washington Post for more.