Wall Streeter's Lament Volcker Rule: "Liquidity Is About To Be Sacrificed At The Altar Of Ignorance & Fear"

Tyler Durden's picture

Another perspective on the Volcker Rule via Colin Burgess of Sterling, authoried by Anthony Peters of SwissInvest

Mario's Law and Volcker's Pandora's Box

Today, Tuesday, is a day rich in headlines from across Europe which confirm that all is well in the garden and that where things are not well they will become well.

Ireland will unquestionably receive its last tranche of bailout money because it has earned it, Cyprus will most likely receive its next tranche despite the fact that in truth it has barely deserved it and Greece continues to miss every deadline which has been set for it but will in the end surely also be found to be worthy – how can it not be?

All this is now a function of “Mario’s Law”. As opposed to Murphy’s Law which determines that whatever can happen will happen, Mario’s Law seems to teach us that whatever can happen won’t. That is the simple new reality which includes a sub-section which adds that sceptics will be flogged by rallying asset prices until they surrender. Spot the way I am holding both hands height in the air?

Meanwhile, while the UK’s Royal Institute of Chartered Surveyors (RICS) reports the highest level of optimism in the country’s residential real estate sector since June 2002 – it reported this morning at 58% – and the euro goes from strength to strength while breaking a five year high against the yen, the future of our industry is up for debate in front of Congress as the Volcker Rule threatens to be enacted into law.

It is no secret that the banks have fought very hard to prevent Volcker from taking effect but it looks suspiciously as though it is now game over and the industry in which we are working will, if it is introduced in the format which is proposed, never be the same again.

I am still of the generation which came into banking because we were not smart enough to get a proper job. The cream of the graduate population either competed for a slot on the British Antarctic Survey or for one of the highly prized positions as a graduate trainee in marketing with one of the principal consumer or pharma groups. The big queues at the graduate job fairs were at the stands for Shell, BP, Unilever, Proctor and Gamble, Coca Cola or Kodak. Banking was for those left over and who neither wanted to join the army or enter the church. Bank shares were for boring pension funds and figured somewhere with utilities, in as much as any of those were listed and not still in public ownership.

Luckily for me, I defaulted into a twenty five year period when banking lit up like shooting star. Deregulation of markets and the creation of so called "products" based on mathematical modelling drove the industry forward and even the smallest boats rose with the tide. Wall Street and the City found themselves full of people who believed that they were worth what they were being paid and the queue of those who wanted a part of it stretched all the way to Oxford and Cambridge and to New Haven and the other Cambridge. If you had a PhD in astro-physics or theoretical chemistry, you simply had to be perfectly qualified to advance in banking. My degree in politics and modern history might have helped me get a slot on the reception desk, no more.

Alas, the growth of the derivative markets along with relatively generous capital rules helped to boost bank earnings and with that their ability to lend. Lending led to growth which fostered further lending and further growth and the miracle of rising living standards which took off in the late 70s/early 80s under Reagan and Thatcher but which was funded more by easy borrowing as it was by higher productivity was up and running.

"Ordinary people" could aspire to possessions they had never been able to dream of before and in their hubris they never appreciated how much they were paying in fees and interest in order to buy the goodies they packed into the house which, in the end, they bought as well.

The culture of estimating how much debt service one could afford was born and with it the culture of worrying how one could ever repay what one had borrowed died. And the banks, bless them, encouraged the nonsense. That's right; if you don't ask borrowers to repay, you reduce the risk of default. Simples!

The entire socio-economic model is now built on this and, whether right or wrong, it demands a very different sort of banking that the "pay 3% on deposits and lend them at 5%" kind of industry which I came into and which prevailed until the late 1970s or early 1980s.

Volcker seemingly wants to go back to the world he oversaw as Chairman of the Federal Reserve but Pandora's Box has been opened and it can't be sensibly closed, post factum. Bond markets are not equity markets and they don't always have buyers and sellers afoot. Bonds tend to be all bid or all ask and the efficiency of the market is based on the banks' ability to act as a huge reservoir taking up the slack in both directions. This is not a matter of simply playing the intermediary - bond markets need much, much more than that in order to function in a manner which protects the ultimate investors', that's the savers' and policyholders' interests.

Minimum clip sizes of 100,000 units or more have driven small private investors out of direct participation bond markets and into institutional funds but these need forms of liquidity which the Volcker Rule risks effectively out-lawing. Sure, many of the trading patterns of the first decade of the century were reckless and crazy but higher capitalisation rules have taken care of most of this. Volcker risks over-egging the pudding and, to mix my metaphors, killing the goose that lays the golden egg.

I have no doubt that investment banking in general and fixed income in particular are still overpopulated and rife with people who still believe that a job in the industry is a free ticket to get rich quick. However, banks and brokers are in the natural Darwinian process of right-sizing and to do that they don't need the Volker Rule. Yet, it is difficult for people outside our industry to truly understand all the mechanics and drivers within it and if they are fuelled by the desire to perform populist legislative acts which they can carry to the hustings or, as Americans say, to the stump, then even less.

I see trouble ahead if Volker is passed and a decade in getting it right again. Liquidity, the holy grail of markets, is possibly about to be sacrificed on the altar of ignorance and fear.

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slightlyskeptical's picture

Time for the industry to change. Sorry that won't work out for you.

kaiserhoff's picture

If this begins to reign in off exchange derivatives, this rubbish of too big to fail will collapse in a pile of steaming wookie doo pretty quickly.  Big if, but we should see adjustments in risk management soon.  Gawdhelpus.

Squid-puppets a-go-go's picture

WTF? This guy nostalgically remembers the more sensibke banking culture of yore, but censures Volker for attempting to reinstate it?

Offer a fuckin reasonable alternative if that's your position, dont just shit on others proposals

imapopulistnow's picture

"..they are fuelled by the desire to perform populist legislative acts..."


Keyser's picture

Volcker risks over-egging the pudding and, to mix my metaphors, killing the goose that lays the golden egg.

Funny, the banksters got all the golden eggs while the rest of us got shat upon. Then they got bailed out. When was the last time you got bailed out? 



Boris Alatovkrap's picture

"Alter of Ignorance and Fearful"

This is integral part of Obama cult of personality, no?

markelshark's picture

"However, banks and brokers are in the natural Darwinian process of right-sizing and to do that they don't need the Volker Rule. "


Where does TARP and TBTF fit into "natural Darwinian process?" Give me a break, this guy basically states he is unqualified and not smart enough to do anything besides squid fuck the US economy via prop trading with other people's money, then goes on to beg us not to change anything or he might have to get a real job.

mumbo_jumbo's picture

yep, that's pretty much how i read that as well......sorry bro, the casino SHOULD be closed.

knukles's picture

There's always herbal tea and sharp needles.

My experience with the Street taught me one thing certain.
That changes to laws and regulations are but a feast for the Street.
Change the paradigm by which a one operates, the result will be new offerings and means of transactions.
To wit:  Back in the olden days, deposit ceiling caps were becoming a problem, viola, the Certificate of Deposit, the Mutual Money Market Fund, etc.
It don't take long.
A more modern twist as oft pointed out here on the Hedge, just say no to prop and call it flow.
Daddy, what's a hedge?
Anything I say it is, son.

The Only Thing That Work is a Clear Separation of Investment from Commercial Banking, a la, Re-imposition of a Clear and Real Glass Stegal.  Not to mention the Investment Banks being removed from the Fed windows, etc....

Let them suck canal water

booboo's picture

waaaaaa, I got sore pussy from that 8 foot tall bald guy with a rule book.

fockewulf190's picture

When the derivatives timebomb explodes...expect him and his buddies to be engaging in a sport not seen since 1929.


Keyser's picture

We aren't that lucky. I am hoping for a Howard Beale moment though. 

Bangin7GramRocks's picture

Get a real job cocksucker! One that has some value to society.

Flakmeister's picture

The only thing that may be sacrificed is ridiculous bonuses for socipathic prop traders...

knukles's picture

Unfortunately, they'll just call it something else, change the lines of oversight and authority, whatever...
Hard for the regulators even when not subsumed by the financial community to keep up with the "innovations" of sociopaths to have fun and make money.

Honey, who can we screw?
How about our buddies?

Like Goldman who so ruthlessly protected their IB clients way back when...
Now they're just part of a Big Grand Muppet Pile for Fucking

Dre4dwolf's picture

The rule doesn't even do anything.

darteaus's picture

Belief/Hype: "If enough detailed regulations are passed, no economic disasters/victims will occur."

Reality: Actually true, but because all legal economic activity will cease.

Keyser's picture

People were engaging in commerce long before the culture of regulation came into being. There is a reason the black market exists. 

RockRiver's picture

Is there a rule about the rule that says that Banks can't own a trading company?


Shouldn't be too hard to get around these good ol' boy rules...

Xibalba's picture

In the words of my father, "NIGGA PLEASE!!"

Xibalba's picture

No, bitch.  His name is many, you might know him as the I Am, Mr. T, or Jesse Pinkman.  

smlbizman's picture

dont make me slap a bitch.....and im sorry u are not sure who ur daddy be...but at least yu have it down to 3...maybe maury can figure it out for you...power to the people...

Rob Jones's picture

Cry me a river...

The banking business model where bankers invest people's hard-earned savings in all sorts of dubious schemes like subprime loans, reap in profits and bonuses, and then go crying to the government for a bailout when their stupid schemes go bust needs to end.

Bankers said Glass-Steagall was outmoded and unnecessary. But look at what happened less than a decade after it was eliminated.

texas sandman's picture

IMHO, the start of the downfall of the financial sector was when the first investment bank went public.  The industry was a lot more focused on risk when the owners had their money on the line, rather than just creating financial instruments designed to produce the largest bonus payout.  


BTW, when do we officially change from Fuck Bernanke to Fuck Yellen.....or do we have to wait for the official passing of the crow......er....torch?

Ham-bone's picture

making fraud more difficult in a fraudulent economy risks destroying the fraudulent growth.

No fraudulent growth...no real bonuses

But seriously, anybody believe the banks don't already have built in back doors, exemptions, and a 1001 ways to get round any small speed bump.

BurningFuld's picture

Could have just said: Please don't shut down my Casino!

NoDebt's picture

I dunno.  Seems the banks have it pretty well watered down already.  Probably even more so by the time it goes live 18 months from now.  

Still I agree it's just a stupid law with even more stupid regulations if for no other reason than it DOES NOTHING TO PREVENT ANOTHER CRISIS.  Just more compliance in the name of "getting something done."

If we only had a system were we could separate boring commercial banks from riskier investment banks.  AND LET THE LOSERS GO BROKE WHEN THEY SCREW UP.  Ah, who cares any more at this point?  Do whatever you want.  Just stop bitching to me about it.  If you're in the banking industry your bleating of imminent doom falls of deaf ears with me.

Ghordius's picture

stop playing in the stock market and you have liquidity for bonds, banker. in fact, stock markets don't need you, banker. you practically admit it. become again facilities, banks. boring facilities

eventually, you will. You know it, it's not the first time in history

ebworthen's picture

Lending does not lead to growth.

Lending is a tool in a tool box; it is not the toolbox nor the hands that use the tools to produce something.

When you have a government that gives free money to non-producers you have a parasitic economy.

When you have a nation of paper pushing mammon lusting parasites - lending facilitates parasitism.

The parasites have flourished as the middle class and the soul of the nation have been bled.

Restore Glass-Steagall, the Rule-of-Law, and the Constitution to start.

The Volcker Rule is meaningless paper and hollow words.

John McCloy's picture

   The Volcker rule is and always will be another nothing..delayed implemenation and a far cry from the forgotten about "TEMPORARILY SUSPENDED" Mark to market. Just a smoke screen. The end result will be a violation of the "Rule" will be a 1% fine on the illicit gains. This Ponz is going to come down long before the rule is actually implemented...at that point with the 10 Year @ 3.50% it will be time for this band of cronys to attempt to shove TARP 2 down the American peoples throats. 

 And once again we will hear "NOBODY SAW IT COMING" as they jetpack away to the Azores and their fortified castles to allow the population to pull a Greece on one another. We all said this is a bubble that would be reflated because it must be and become the bubble to end all bubbles years ago and those responsible will be in their life boats and that is why the goal is too accumulate as much wealth and erode as much law as possible such as Posse Commitatus to prepare the private security, military and police potentially in return for the elites illgotten gains to "QUELL THE REBELLION"...

  Yeah..it is gonna be bad and Tarp signed the U.S. death warrant years ago..there is no coming back for decades.

forwardho's picture

  Yeah..it is gonna be bad and Tarp signed the U.S. death warrant years ago..there is no coming back for decades.


Andre's picture

NAFTA was the US death warrant.

OK, you want to outsource production. That means a lot of middle class jobs are going to other countries. They get the export income, plus there is doubtless some tax income. The US, in the meantime, LOSES tax income.

You can keep this going for a while, but essentially it's looking for the Philosopher's Stone so you can turn base metals (low capital service industries) into gold, or at least more BernankeBucks. Eventually the market destruction exceeds the cost savings, especially as the loss of tax revenue means water, energy, roads, and other public-use infrastructure falls apart.

Some people say the definition of insanity is doing the same thing and expecting a different result. What happens when you do the same thing -and you DO get different results? Think about the paradigm "Layoffs save money, which increases profits." What happens when the appreciation for the scale of the "solution" is lost?

Nid's picture

Wait, is this prick fear-mongering about liquidity?

NoDebt's picture

Yeah, I think he is, Nid.  He's got some balls on him, doesn't he?

texas sandman's picture

And, it would seem, claiming that without derivatives we'd be in the stone age, riding horses and crapping in an outhouse.  


I've known people who have lived in Washington DC and have seen first hand Beltway Syndrome.  By the tenor and tone of missives written by banker insiders, it would seem Bankster Syndrome may be worse.  Their narcissistic tendancies, claiming armageddon if their profligate schemes are in any way hindered, is truly breathtaking....and disturbing.

Squid-puppets a-go-go's picture

if you cant find yerself some liquidity in this QE driven farce you are a total loser crybaby wanker banker dickhead

BKbroiler's picture

Legislate these fuckers out of work.  I have more respect for whores.

joego1's picture

"I am still of the generation which came into banking because we were not smart enough to get a proper job."

Why don't you look at the fucking mess you and your dumb fucking freinds have made of everything all in the name of pure greed.

RaceToTheBottom's picture

After reading this, the only non cussing thought that comes to mind is that this is why there will be violence.  They just don't get it and will not get it.

viator's picture

Wha, wha, wha. And by the way "bond markets need much, much more than that in order to function in a manner which protects the ultimate investors', that's the savers' and policyholders' interests."

My bond funds have been paying interest so low I will be broke in a decade at this rate. Some protection of MY interests.

Debeachesand Jerseyshores's picture

What this country needs is Hyper-Inflation plus another World War and everything will be just  fine.



Another crock of shit article from inside the Casino.

malek's picture

The article began as a very subtle satire, but in the end seemed to start believing itself.

Dre4dwolf's picture



Or Go Home!

Nothing else will work.

Everything else is a pyramid scheme or a supermoney scheme.


You either have NESARA style laws.



You simply have NO LAWS (what we have now).



Its your choice America, Nesara or Lawlessnes.


All that needs to happen for Nesara to take effect is for the Government to Nationalize the Fed and Peg Dollars to Silver at say 100 Dollars to an Oz/*16 for gold

And to wipe out the balance sheets of banks before the transition.