The New Banking "Reform"

“Never have so many stocks fallen so far, in such a short time, over an event of such little consequence.”

After we wrote that sentence, we felt like it deserved Churchill-esque quotes, but found no one but ourselves to attribute it to.

We refer to the 2% tumble the major US indexes took yesterday in response to President Obama’s bank reform plan.

We read the mainstream coverage of this proposal so you wouldn’t have to. Here’s the gist:

  • Banks that take deposits from folks like you and me would no longer be allowed to dabble in hedge funds, high-frequency trading, and the like. The idea is that if Mr. Banker wants to play the markets, he shouldn’t expect a backstop in the form of federal deposit insurance or low-interest loans from the Fed
  • The other part is more gauzy: A cap on the market share of any one firm. How that cap would be measured is something the administration says it’ll work out with Congress later.

Right. If Ron Paul’s effort to make the Fed transparent got chewed up in committee, what do you think’s going to happen to this one?

Three points about the bill’s impact…

  • The timing of this announcement is no accident: According to a poll conducted right after the Senate election in Massachusetts, a majority of people who voted for Obama in 2008 but opted for Republican candidate Scott Brown on Tuesday believe “Democratic policies were doing more to help Wall Street than Main Street”
  • Celebrity banking industry analyst Dick Bove says this bill is great news for Goldman Sachs. Unlike most of its competitors, Goldman doesn’t take deposits from you and me, so it could just keep on keepin’ on
  • Ironically, while major bank stocks took a 5% beating yesterday, regional bank stocks jumped by about as much. Earnings numbers from wobbly regional behemoths like KeyCorp and Fifth Third are looking sharp; all those extend-and-pretend games with commercial real estate are working their magic… for now, anyway.