Wednesday, December 11, 2013
Wall Street About To Be Hit With A Rule It Hates, Thanks To JPMorgan
http://www.huffingtonpost.com/2013/12/05/volcker-rule-jpmorgan_n_4391024.html Due 16 Dec 2013. What is the Volcker Rule? What is portfolio hedging? Should banks be allowed to hedge their portfolios?? Why or why not??
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ReplyDeleteRegulators are expected to soon approve the "Volcker Rule," part of the Dodd-Frank financial-reform act. It prohibits banks from proprietary trading, which is another of talk for "gambling with their own money." Regulators were originally planning to leave a big loophole in the Volcker Rule by letting banks do what's known as "portfolio hedging". This is also known as proprietary trading. It basically lets banks claim that any kind of trading they do is hedging against losses somewhere in their massive, multi-trillion-dollar portfolios. They argue that because they are a bank and that they make loans they need to buy insane amounts of credit default swaps for hedging. I don't believe portfolio hedging should be done by banks because they aren't the best when it comes to trading. The establishment of the Volcker Rule could have saved JPMorgan from its London Whale embarrassment which resulted in them losing 6 billion dollars.
DeleteThe Volcker Rule is part of the Dodd-Frank financial-reform act. This act prevents banks from gambling with their own money. But regulators of this act originally planning to leave a loophole so that it would benefit the banks by allowing them to do what is known as "portfolio hedging". Portfolio hedging is just another name for proprietary trading since it is based off the same idea. I believe that banks should not be able to perform "portfolio hedging" since they are "generally terrible at trading," which, if it is true, would cause losses for the bank, and anyone else involved in the process. With the implementation of the Volcker Rule, banks will be have to resort to doing smaller and less risky transactions, which is exactly what the Rule is trying to do.
ReplyDeleteThe Volcker Rule is a part of the Dodd-Frank financial-reform act that prohibits banks from gambling with their own money, something they are notoriously bad at. Portfolio hedging is when a bank claim that any kind of trading they do is against losses elsewhere in their portfolio. Wall Street regulators were initially going to allow this under the Volcker Rule. I personally don't think banks should be allowed to hedge their portfolios because it only seems to be helping wealthy investors, not the common poor man. However, if the process could be manipulated to increase returns that would up saving account interest rates, then I'd be all for it.
ReplyDeleteEssentially, The Volcker Rule is a measure that prohibits banks from owning, investing in, or sponsoring hedge funds, private equity funds, or any proprietary trading operations for their own profit. The main implications of the rule are that it prevents financial firms from using deposits that are insured by the FDIC to run hedge funds and private equity funds. Portfolio hedging typically entails the use of financial derivatives, such as options and futures, to curtail losses. The practice of hedging uses one investment to minimize the negative impact of adverse price swings in another. The purpose of portfolio hedging is to attempt to curtail potential losses. Banks should most definitely not be allowed to participate in the practice of portfolio hedging, as it can prove to be extremely detrimental. This is evidenced by JP Morgan participating in the practice, and ultimately incurring a loss of upwards of 6 billion$s. This one isolated example provides a startling illustration of why banks should be barred from practicing portfolio hedging, as the ripples of JP Morgan's poorly thought out decisions are felt throughout the financial world. Stopping the practice of portfolio hedging would have prevented the massive London whale embarrassment which resulted in a massive blow to JP Morgans financial integrity.
ReplyDeleteAs part of the Dodd-Frank financial reform act, the Volcker Rule exists to prevent banks from gambling (and often times losing) their own money. Portfolio hedging is more or less another name for propriety trading. Regulators originally planned to leave portfolio hedging as a loop hole in the Volcker Rule, until JPMorgan had their London Whale fail. As the article stated, the Volcker Rule would be one of the first steps and accomplishments for bank regulators. I feel that it would be a good idea overall, in regards to the benefits for the common people.
ReplyDeleteThe Volcker Rule is a specific section of the Dodd-Frank Wall Street Reform and Consumer Protection Act originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of investments that do not benefit their consumers. Portfolio hedging describes a variety of techniques used by investment managers and corporations to reduce risk exposure to an investment portfolio. Hedging uses one investment to minimize the negative impact of adverse price swings in another. Banks shouldn't be allowed to hedge their portfolios because they're generally bad with trading causing losses for anyone involved.
ReplyDeleteVolcker Rule is part of the Dodd-Frank financial-reform act that prohibits banks from gambling with their own money. portfolio hedging is something that lets banks claim that any kind of trading they do is hedging against losses somewhere in their massive, multi-trillion-dollar portfolios. According to the article, banks should not be hedging their portfolio simply because they are very bad at it. The passing of Volcker Rule seem to be the solution here although banks are not quite happy about it.
ReplyDeleteThe Volker Rule is just a fancy term describing a consumer’s safety net. The rule is part of the Dodd-Frank financial-reform act, which was established to protect the banking consumer by prohibiting banks from gambling the (federally insured) consumer’s monies in essentially high-risk investments in the market.
ReplyDeleteGreat, huh? Just wait for it…
As we know, where there are rules…there are these fabulous “Get Out of Jail Free Cards,” or what we call loopholes.
You see, the lovely Wall Street regulators left a loophole allowing banks to use what is known as portfolio hedging or proprietary trading.
In a nutshell portfolio hedging is a means of using one investment to offset the negative impact of price movements, interest rate changes, and currency swings.
Hedging, however comes at a price, as it limits potential profit. Banks shouldn’t be able to practice portfolio hedging, the evidence is in front of your faces! JP Morgan incurring a loss of more than $6 billion is a perfect example of why banks should be banned from practicing hedging.
Those at JP Morgan aren’t the only ones who have to live with their poor decision making skills, but their incompetence and ill-planned strategy affects everyone else in the financial market.
The Volcker Rule prohibits banks from trading/gambling with their money, it was made under the Dodd-Frank financial reform act. In an escape from the Volcker Rule, banks have gone to portfolio hedging, which is just another name for the proprietary trading. Banks should not be able to hedge portfolios, its the SAME thing as what they were doing before, just a different name. What would we solve by letting banks continue to do what we don't want them to ? JPMorgan might find themselves with another portfolio-hedging fail such as the "London Whale." What we need is for the stricter Volcker rule to be pushed forward and to be abided to, or maybe for the current one to have no loopholes for banks. They can't keep getting away with their risky gambling.
ReplyDeleteThe Volcker Rule is part of the Dodd-Frank financial-reform act. This act prevents banks from gambling with their own money.
ReplyDeletePortfolio hedging is when a bank claim that any kind of trading they do is against losses elsewhere in their portfolio.
Banks should not be allowed to hedge their portfolios because it is bad with trading and it causes losses for anyone involved.
As part of the Dodd-Frank financial reform act, the Volcker Rule exists to prevent banks from gambling (and often times losing) their own money. Portfolio hedging typically entails the use of financial derivatives, such as options and futures, to curtail losses. The practice of hedging uses one investment to minimize the negative impact of adverse price swings in another. The purpose of portfolio hedging is to attempt to curtail potential losses. Banks should most definitely not be allowed to participate in the practice of portfolio hedging, as it can prove to be extremely detrimental. They argue that because they are a bank and that they make loans they need to buy insane amounts of credit default swaps for hedging. I don't believe portfolio hedging should be done by banks because they aren't the best when it comes to trading. JPMorgan might find themselves with another portfolio-hedging fail such as the "London Whale." What we need is for the stricter Volcker rule to be pushed forward and to be abided to, or maybe for the current one to have no loopholes for banks. The passing of Volcker Rule seem to be the solution here although banks are not quite happy about it.
ReplyDeleteThe Volcker Rule is part of the Dodd-Frank financial-reform act and prohibits banks from proprietary trading. This basically prohibits big banks from gambling away their own money. Porfolio Hedging is basically propietary trading but under a different name and states that whatever kind o trading they do is hedging against their losses. Banks should not be allowed to hedge their portfolio because when they blow their money it causes losses for the people who are invested.
ReplyDeleteThe Volcker Rule is part of the Dodd-Frank financial-reform act. This act prevents banks from gambling with the money that they have.
ReplyDeleteThis proposal gives me hope that there is a better future for the United States in the near future. Finally the United States government is taking a stand against the ill of our society and the corruption between the rich. The fact that the rich bankers in our country do not even have respect for the low and middle classes' hard earned money, and gamble it away like if it was something of very low significance, absolutely nauseates me.
Personally, I do not wish for banks to have the privilege of hedging their portfolios. Bankers are already wealthy enough, and having this privilege only seems to allow them to get richer. I think that the low and middle class need to be getting wealthier, not those individuals who are already lavished in wealth.
-Anita Pizzirani (Pizza) Period: 1
The Volcker Rule is a part of the Dodd-Frank act that is essentially a 21st century version of the Glass-Steagull Act that was repealed during the Clinton Administration. It prevents banks from proprietary trading, effectively separating commercial banks from investment banks. Portfolio hedging is the use of an investment to minimize loss when another investment has a negative return, which is typically done by investing in multiple firms that are in competition. This, however, is against the notion of capitalism because it allows banks to profit off of a market regardless of that market is doing, meaning these banks are taking advantage of one of the fundamental aspects of the system. This constant growth is dangerous for the market and should not be allowed. The spirit of capitalism is grounded in competition. Hedging allows banks to sidestep competition and make money off of the market regardless of it's success or failure, meaning the banks will gather a continuously increasing portion of the nations capital unless something is done to prevent the activity.
ReplyDeleteThe Volcker Rule is a part of the Dodd-Frank financial reform act which prohibits banks from proprietary trading or “gambling their own money.” Portfolio hedging is pretty much proprietary trading because it lets banks claim that any kind of trading they do is hedging against loses. No, banks should not be allowed to hedge their portfolios, because they risk so much of their money and more often than not, lose it. The Volcker Rule is a good rule that will help many banks limit their gambling.
ReplyDeleteThe Volcker Rule is a proposed regulation that will prohibit banks from investing with their own money. Banks do this through portfolio hedging. Portfolio hedging is investing to counter act losses in their portfolios. If banks have their own money and assets to invest and risk, then they should be able to do whatever with it as long as they aren't messing with customer's money.
ReplyDeleteJPMorgan Chase, America’s biggest bank, has led U.S. financial regulators to take action on large banks through the Volcker Rule.
ReplyDeleteThe Volcker Rule is a part of the Dodd-Frank financial-reform act. The Rule prevents banks from using their own money for trading purposes, such as investing in stocks.
When Wall Street bankers complained about this new act, regulators were going to allow a loophole known as “portfolio hedging”. Portfolio hedging essentially allows them to do what the Volcker Rule was created to prohibit: the banks trading of their own money. It is done through an exception that allows banks to say they by trading, they are hedging against any losses that may come. Portfolio hedging should not be allowed because it not only defeats the purpose of the Volcker Rule, but it would allow banks to define to risk broadly.
As seen in the “London Whale” trade, JPMorgan Chase failed at using “portfolio hedging” in hopes to gain profits. They bought credit-default swaps and ended up losing over $6 billion. Without this loophole, the trade would not have been possible and Chase would have not lost billions of dollars in the first place.
The aim of the Volcker Rule is to force larger size banks to downsize and take fewer risks as they cannot protect themselves from losses.
The Volcker Rule, part of the Dodd-Frank financial reform act, stops banks from making risky investments by separating investment banks from commercial banks, also known as proprietary trading. Originally, before JP Morgan screwed up, there was meant to be a loop hole to the act called portfolio hedging which allowed banks to more or less continue proprietary trading under the guise of “hedging” against losses in their large portfolios. There should be no room for portfolio hedging in the new rule. What exactly is the point of creating a rule if no one is expected to follow it and can continue on with bad activities under a different name? The problem these days is that weak laws are passed and no actual change is happening in the system. Recently, JP Morgan lost over six billion dollars in the “London Whale Debacle” through portfolio hedging. This proves that leaving such a loophole in the law will be bringing us right back to point A.
ReplyDeleteThe Volcker Rule prevents banks from gambling with their own money. Portfolio hedging is another name for proprietary trading. I believe that banks should not be able to perform portfolio hedging because the bankers have enough money. Instead of letting the rich get richer, helping the middle class become wealthy would be a better strategy.
ReplyDeleteWhen Wall Street bankers complained about this new act, regulators were going to allow a loophole known as “portfolio hedging”. Portfolio hedging essentially allows them to do what the Volcker Rule was created to prohibit: the banks trading of their own money. It is done through an exception that allows banks to say they by trading, they are hedging against any losses that may come. Portfolio hedging should not be allowed because it not only defeats the purpose of the Volcker Rule, but it would allow banks to define to risk broadly.
ReplyDeleteThe Volcker Rule was created in order to prevent the big national banks, who are notoriously bad at this, from "investing" YOUR money. Portfolio hedging is the fine print to this rule; it allows banks to trade and invest their money. Banks should absolutely not be allowed to invest money that you lock up with them. There are financial firms, who are actually good at what they do, for investing and trading your money.
ReplyDeleteAs part of the Dodd-Frank financial reform act, the Volcker Rule exists to prevent banks from gambling (and often times losing) their own money. Portfolio hedging is more or less another name for propriety trading. Regulators originally planned to leave portfolio hedging as a loop hole in the Volcker Rule, until JPMorgan had their London Whale fail. As the article stated, the Volcker Rule would be one of the first steps and accomplishments for bank regulators. I feel that it would be a good idea overall, in regards to the benefits for the common people.
ReplyDelete