The problem with derivatives is that you cannot put Humpty Dumpty back together again. Here's a simple example:
U.S. Treasury Strips are a derivative that separates the interest payments from the principal of a U.S. Treasury note or bond, as separately traded securities. You can reconstruct the underlying bond after buying all the components, interest payments plus the principal. With the complex structures that have choked the banking system, this is next to impossible.
In my opinion, the "Great Credit Crunch" was not caused by too much proprietary trading. It was caused by allowing Wall Street to create derivative structures that were next to impossible to mark to market. Derivative structures are the product of Wall Street greed. It's time to disband many of the structural designs that we did not have before 1983 when this whole mess slowly began.
With regard to the Volcker Rule, there is a grey differential between proprietary trading and market-making. When you mix in "mark to myth" for derivatives, you have the "time bombs" that are ticking today. Evaluating the risk in a mix of toxic and liquid assets cannot be prudently accomplished.Do you still want to buy JPMorgan? JPMorgan -- ($36.96) was just below my annual pivot at $41.66 on Thursday when the news broke about the $2 billion loss. On Friday, the stock traded down to and held its 200-day simple moving average at $36.66. The intra-day volatility centered on my monthly pivot at $37.46 with the day's close below that level. My quarterly value level is $35.13, with my annual risky level at $41.66.