By David Skeel, author of "The New Financial Deal: Understanding the Dodd-Frank Act and its (Unintended) Consequences" (Wiley, 2011).
NEW YORK ( TheStreet) -- Bobby Fischer, the chess genius who died recently, was famous for audacious moves such as a decision to sacrifice not just a pawn, but a bishop, as part of his strategy for a key early victory. I suspect there may be more than a little Fischer in Goldman Sachs' ( GS) puzzling decision to dismantle its proprietary trading operations even as experts question whether the new ban on proprietary trading can effectively be enforced. The puzzle was nicely laid out in TheStreet's piece on the reinvention of Goldman Sachs. Much of the article detailed the remarkable exodus from Goldman of high profile proprietary traders like Morgan Sze, who in 2009 was "the most valuable man at the most profitable firm on Wall Street," due to the Volcker Rule enacted as part of the Dodd-Frank Act. (The Volcker Rule forbids proprietary trading anywhere in commercial banks, their affiliates, or their holding company, and limits banks' investments in hedge funds or equity funds.) While the Volcker Rule seems to mandate this divestment, many commentators (including former regulators, as TheStreet noted in "Reinventing Goldman Sachs" ) suspect the big banks will have little trouble evading it. While Goldman isn't the only bank that has shed proprietary traders, its move is the most mysterious. This fall, Morgan Stanley announced plans to reduce its stake in the hedge fund Front-Point Partners. It was a dramatic gesture, but Front-Point wasn't particularly profitable for bank. So it wasn't clear whether Morgan Stanley was really giving something up. With Goldman, by contrast, no one doubts the profitability of the traders who are leaving or have left. These traders have made enormous profits, in some cases even during the crisis. Why let them go? Why give away the golden goose if the goose police aren't likely to ever find you? I suspect that the answer lies in the very visibility of the traders. By giving up these lucrative proprietary trading operations, Goldman is -- as with Fischer's knight -- giving up something that really matters. But as with Fischer's knight, it is highly unlikely that Goldman would sacrifice such valuable operations except as part of a larger strategy. One plausible explanation is that Goldman has shed its existing proprietary traders with the thought that it can gradually reintroduce proprietary trading in the future.