According to Fiscal Times’ Suzanne McGee it has become clear in recent days that two much-debated Wall Street reforms – the Volcker Rule and restrictions on high frequency trading – may never occur, at least not in any truly effective way, all in the interest of preserving market liquidity.
In other words, they may be sacrificed for no good reason. Liquidity -- the extent to which banks, brokerages, trading firms and their clients have enough cash on hand to buy or sell a stock, bond or other security without driving the price higher or lower -- is a good thing. It makes markets function smoothly, encourages people to trade and enables companies to raise funds at lower costs. But what price are we willing to pay for liquidity? That’s the question that dominates the current debate over the much-criticized Volcker Rule, one of the solutions to rein in Wall Street’s excesses.
The new regulation was supposed to ban banks that rely on some kind of government guarantee from getting into the business of trading for their own accounts – proprietary or “prop” trading – as well as limiting their ability to invest in hedge funds and private equity partnerships. These approaches to making money are riskier and not core to the bank’s main purpose within the financial system. But when it came time to draft specific provisions and implement the rule.....
Don’t stop now. Find out more at http://www.thefiscaltimes.com/Columns/2012/02/24/Banks-Play-the-Liquidity-Card-to-Kill-Real-Reform.aspx#page1
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