New Republic: Hillary Clinton's Wall Street Reform Plan Is to the Right of Bernie Sanders'
New Republic: Hillary Clinton's Wall Street Reform Plan Is to the Right of Bernie Sanders'
Clinton’s plan does not go as far as Sanders’ or her other rivals’—there’s no proposal to reconstitute the firewall between investment and commercial banking, for example.
... Clinton wants to strengthen the Volcker rule, the kludgy step-sister to Glass-Steagall, the investment/commercial bank firewall. The Volcker rule, named for the former Federal Reserve chair, is designed to prevent deposit-taking banks from making proprietary trades with their own funds. But it included several loopholes, including one allowing banks to invest up to three percent of their capital in hedge funds, who then make those trades. Banks haven’t even needed to sell their other stakes in hedge funds and private equity firms to get under that limit. And Goldman Sachs, in particular, has been testing the Volcker rule by redeploying money that used to fund hedge funds and buying the underlying investments outright (known as merchant banking).
Clinton’s tax is intended to attack one type of HFT known as “spoofing,” where the trader feigns interest in a security to run up the price and then cancels the orders after selling their position. The tax, which does not have a defined rate yet, would “hit HFT strategies involving excessive levels of order cancellations,” according to the campaign’s memo on her plans.
This seems extremely easy to game, says economist Dean Baker. “If the tax is on cancelled orders then I can envision that you have arrangements with exchanges where orders are modified, but not cancelled,” he said. Algorithmic traders could also pick what markets and exchanges to probe to avoid the tax and get the information they need to make their profits, Baker added. “As a general rule, this sort of micro-managing of financial markets is almost guaranteed to fail.”
By contrast, a small financial transactions tax on all trades overlays a big prescription over the entire market, which would be infinitesimal for normal traders but a heavy burden for HFT, potentially causing the desired effect of less trading. Regulations that create full employment acts for lawyers and compliance officers to find the loopholes work far less well than structural alterations that cannot be gamed.
Related:
Paula Dwyer: Clinton's plan on Wall Street protects husband's legacy
Sirota and Perez: Hillary Clinton's Wall Street Policy Being Shaped By Two Bankers
Yahoo Politics: Hillary Clinton doesn’t support revival of Glass-Steagall Act
Democracy Now!: Robert Reich on Glass-Steagall and Bernie Sanders
Clinton: Cooperation, not speeches, is needed to regulate Wall Street