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You Know Who Doesn’t Like the Volcker Rule? Volcker

Not the most promising sign for one of the supposed far-reaching measures of the financial reform bill: the namesake of the measure, Paul Volcker, doesn’t think much of it.

Wall Street firms have spent countless millions of dollars trying to water down the original Volcker proposal and have succeeded in inserting numerous exemptions. Now they’re claiming it’s too complex to understand and too costly to adopt […]

In numerous interviews this week with people across the political spectrum, I couldn’t find anyone who actually supports this behemoth — including Mr. Volcker, whose name it bears.

“I don’t like it, but there it is,” Mr. Volcker told me in his first public comments on the sprawling proposal.

“I’d write a much simpler bill. I’d love to see a four-page bill that bans proprietary trading and makes the board and chief executive responsible for compliance. And I’d have strong regulators. If the banks didn’t comply with the spirit of the bill, they’d go after them.”

He says he likes the fact that the proposed regulations, complex as they are, make top management and boards responsible for compliance. “If they think it’s too complicated, they have no one to blame but themselves,” he said of the banks.

I think Volcker knows that the banks aren’t really complaining about the rule being too complex. They’re using the complexity as a pretext not to comply with it. As Volcker says, they brought this upon themselves. And the additional complexity is simply a layering on of exemptions, according to former Senator Ted Kaufman:

“Here’s the key word in the rules: ‘exemption,’ ” former Senator Ted Kaufman, Democrat of Delaware, told me. “Let me tell you, as soon as you see that, it’s pronounced ‘loophole.’ That’s what it means in English.” Mr. Kaufman, now teaching at Duke University School of Law, earlier proposed a tougher version of the Volcker Rule, which was voted down in the Senate. “We’ve been through this before,” he said. “I know these folks, these Wall Street guys. I went to school with them. They’re smart as hell. You give them the smallest little hole, and they’ll run through it.”

Chris Dodd tried to gamely defend Dodd-Frank today, but there’s no defense for this. The Volcker rule started out pretty simple – it banned the banks from proprietary trading on their own account. It expanded into this beast that’s completely unmanageable, and the attempt to enforce it even a little bit will spur cascades of lawsuits, even with the part making the top execs responsible for compliance.

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David Dayen

David Dayen