Punking Ourselves to Death | James Howard Kunstler

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James Howard Kunstler -- World News Trust

Dec. 16, 2013

The so-called Volker Rule for policing (ha!) banking practices, approved by a huddle of federal regulating agency chiefs last week, is the latest joke that America has played on itself in what is becoming the greatest national self-punking exercise in world history.

First of all (and there’s a lot of all), this rule comes in the form of nearly 1,000 pages of incomprehensible legalese embedded in what was already a morbidly obese Dodd-Frank Wall Street Reform (ha!) and Consumer Protection (ha!) Act of 2012 that clocked in at 2,000 pages, not counting the immense rafts of mandated interpretations and adumbrations, of which the new Volker Rule is but one. These additions were required because the Dodd-Frank Act itself did not really spell out the particulars of enforcement but rather left it to the regulatory agencies to construct the rules -- which they did with “help” of lobbyist-lawyers furnished by the banks themselves. That is, the lobbyists actually wrote the rules for Dodd-Frank and everything in it, which means the banks wrote the rules. Does this strain your credulity? Well, this is the kind of nation we have become: anything goes and nothing matters. There really is no rule of law, just pretense.

The Volker Rule was a lame gesture toward restoring the heart of the Glass-Steagall provisions of the Banking Act of 1933, which were repealed in 1999 in a cynical effort led by Wall Street uber-grifter Robert Rubin and his sidekick Larry Summers, who served serially as U.S. Treasury Secretaries under Bill Clinton. Glass Steagall was passed in Congress following revelations of gross misconduct among bankers leading up to the stock market crash of 1929. The main thrust of Glass Steagall was to mandate the separation of commercial banking (deposit accounts + lending) from investment banking (underwriting and trading in securities). The idea was to prevent banks from using money in customer deposit accounts to gamble in stocks and other speculative instruments. This rule was designed to work hand-in-hand with the Federal Deposit Insurance Corporation (FDIC), also created in 1933, to backstop the accounts of ordinary citizens in commercial banks. The initial backstop limits were very modest: $2,500 at inception, and didn’t rise above $40,000 until 1980. Investment banks, on the other hand, were not backstopped at all under Glass-Steagall, since their activities were construed as a form of high-toned gambling.

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