Eleanor Widmer 8:30 a.m., March 23
Wisely Listening to Volcker, Obama Proposes Restrictions on Banks
Finally showing some backbone and taking advice from former Federal Reserve Chairman Paul Volcker, President Obama today (Jan. 21) proposed restriction on large banks' abusive practices. Obama's proposal would prohibit commercial banks from owning or investing in hedge funds or private equity funds. Most significantly, the proposal would put restrictions on proprietary trading by the big financial institutions that today can borrow from the Federal Reserve at zero percent and gamble in various markets. The president's proposal would place restrictions on banks using federally-insured deposits for gambling activities. The proposal has to pass Congress, and financial institutions will find loopholes, but initial response is positive -- that is, stocks of these big banks are tanking. At least initially, the market fears that the proposals could stick. That's good.