...Mr. Obama says that some firms should be prohibited from engaging in "proprietary trading." The White House announcement seems to apply to both banks and bank holding companies, but there is a huge difference between them. A bank is chartered by the government, its deposits are insured, it can participate in the U.S. payment system, and it has access to the Fed's discount window. None of these things is true of a bank holding company—which is an ordinary corporation that controls a bank.
Because banks are government-backed, and privileged in many ways, their activities are limited by law and regulation. They are restricted in how they can use their insured deposits. The Glass-Steagall Act, despite what we constantly hear in the media and from people who should know better, still applies to banks; it forbids them from engaging in underwriting or dealing in securities. This should prohibit them from engaging in proprietary trading to the extent that this is dealing in securities. Bank holding companies, however, because they are not banks and not government-backed, can engage in any financial activity, including securities dealing. Why would we prohibit them from doing so when they are using their own funds?
Oh, I don't know. Maybe because when they got their collective butts in a crack they simply removed the necessary cash-infusion from the pockets of the TAXPAYERS?
Maybe Goldman Sachs is a bank-holding company. Maybe it is one under a different corporate name.
Does anyone, aside from Mr. Wallison, seriously believe that nobody in the GS-owned bank knows anything at all about GS' investment-house deals? Does anyone, aside from Wallison, seriously believe that "separate entities" means "discrete knowledge"?
Not on this planet, Mr. Wallison.