"Merkley-Levin is a joke"
Ideally, what the financial reform bill would do is just say, "Proprietary trades are banned; market-making trades are allowed," and then let the regulators work out how to define "market-making trades" and "proprietary trades." This is something that simply can't be done at the statutory level; it has to be done at the regulatory level. Unfortunately, these days it's fashionable for people to bash any sort of regulatory discretion as tantamount to letting Wall Street win. This is where Merkley-Levin comes in, because it's clearly a response to this "anti-regulatory discretion" meme.
The biggest problem with Merkley-Levin is that its authors appear to confuse "definitions with more words" with "more specific definitions" (and thus less of that evil regulatory discretion). Merkley-Levin prohibits "proprietary trading," which it defines very broadly, and then creates 9 categories of "permitted activities" (listed in section (d)(1) of the amendment). The categories of "permitted activities," which function like exceptions to the definition of "proprietary trading," are so ridiculously broad that they completely swallow the amendment's prop trading ban. The most important exceptions are sections (d)(1)(B), (C), and (G).
Can't comment on it myself. I think some sort of "Volker rule" is needed, but the devil's obviously in the details.
(Via Felix Salmon's blog at Reuters)
Cheers,
Scott.
(Who notes that his senator, Mark Warner, is apparently one of those against the amendment.)
