This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

The 5 Dumbest Things on Wall Street: Oct. 14

3. Volcker Rule Ridiculousness

As it pertains to the so-called "Volcker Rule," we'll just borrow Supreme Court Justice Potter Stewart's famous line about pornography and say, 'We'll know a proprietary trade when we see it.'

Or maybe we won't. We have no idea.

Nevertheless, one thing we do know after thumbing through the 300-plus page monstrosity federal regulators released Tuesday is that the Goldman Sachs (GS) legal team has undoubtedly already devised ways to hop through the loopholes in this ridiculous regulation so the bank's vaunted prop desks can continue to bet the house. Or bet somebody else's house. Or whatever vampire squids bet on these days.

Sadly, it was all supposed to be so simple. Respected on both sides of the aisle, former Fed chief Paul Volcker put forth the proposition that big financial companies be restricted from trading their own accounts, thereby eliminating an element of the moral hazards that led to the massive government bailouts at places like AIG (AIG) and Bear Stearns.

But then the Treasury Department, Federal Reserve, Comptroller of the Currency and the FDIC took over and this committee turned this supposedly simple horse into one cock-eyed camel. Regulators have a mind-numbing 400 questions about the material and the comment period has been lengthened to accommodate all the parties seeking to skewer it to bits.

The majority of those questions will most certainly involve the trading "exemptions" from the Volcker Rule and what "short term" actually means. And it's this timing issue which will determine whether Wall Street's biggest banks will need to seriously restructure themselves and excise their profitable in-house casinos.

The authors of the rule kept the terminology vague when it comes to the duration of a trade, realizing that one firm's hedge is another bank's high frequency trade. Unfortunately, by wording the document so ambiguously, it becomes easier for a bank to argue that a trade is not in violation of the Volcker Rule, and harder for a regulator to contend that it is.

You know, it's kind of like when another famous government employee once said: "It depends upon what the meaning of the word 'is' is."

Boy, that guy really had a way with words.

3 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,031.14 +43.63 0.26%
S&P 500 1,984.13 -1.41 -0.07%
NASDAQ 4,518.9020 -48.6960 -1.07%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs