Goldman Gets Around Volcker Rule

By Jul 27, 2010, 2:19 PM Author's Blog  

Charlie Gasparino is reporting that Goldman Sachs (GS) has figured out a novel approach to getting around the Volcker Rule’s restrictions on trading: it’s remaking its risk-taking traders into asset managers, and the rest of Wall Street may soon follow.

FBN: “The big Wall Street firm has moved about half of its “proprietary” stock-trading operations — which had made market bets using the firm’s own capital — into its asset management division, where these traders can talk to Goldman clients and then place their market bets.

The move is designed to exploit a loophole in the Volker Rule…[which] is supposed to scale back on Wall Street risk taking by ending what’s known as proprietary trading, where firms use their own ideas and capital to make market bets.

But by having the traders work in asset management, where they will take market positions while dealing with clients, Goldman believes it can meet the rule’s mandates, avoid large-scale layoffs and preserve some of the same risk taking that has earned it enormous profits..

Simply by labeling a trade “customer related” the firm can still make large market bets, and thus engage in some of the same risk taking the [Volcker] rule was designed to eliminate.”

Good luck with that. Gasparino’s report underscores once again the weakness of the Volcker Rule which was supposed to prevent banks from holding too much exposure to risky activities. If the rest of Wall Street follows Goldman’s approach, then the rule will end up being useless.

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