The Good News …
Volckerization

In a remarkable development, a Volcker plan for Glass-Steagall-lite has been proposed by the Administration. One minute Paul Volcker, the only financial administrator not called Brooksley Born who has shown any real backbone in the last 30 years, is so out in the cold that his toes must have frozen off, and the next - hey, Presto! - his ideas are put forward lock, stock, and barrel and Geithner and Summers are left scrambling to take some credit for the plan and pretend they hadn't been dissing Volcker up until eight seconds ago for what they thought were his antique and unnecessary ideas that were far too harsh on our poor banking system. Wow! Well, these new ideas are all good stuff as far as I'm concerned, and entirely justified. Everyone in Congress, and anywhere else for that matter, knows prop desk trading (banks trading their own capital like a hedge fund) is a conflict of interest. They may or may not think it important or that it caused this or that problem, but they know it's a real conflict. Congressmen, since when wasn't conflict of interest and poor ethical standards reason enough to change the law? But since we bring it up, of course prop trading was indeed the rot at the heart of our financial problems (see last quarter's Letter). Watching traders take home their $28 million bonus sent a powerful message to lowly salesmen and packagers of asset-backed securities, for example, to get out there and really take some risk. This rot spread to the very top, and pretty soon chairmen of boards were exhorting CEOs to leverage up and look more like some much more profitable rival that resembled a hedge fund rather than an investment bank. Thus encouraged - or intimidated - some CEOs just kept on dancing right off the cliff. Let's learn from our near disaster. Viva Volcker!

… and the Bad News
Supremely Extreme: Another "Day That Will Live in Infamy"

Five Supreme Court justices today announced that not only are corporations people and that their money is free speech - this is old hat and a very ugly hat at that - but now, there should be no limit to the money they spend to influence political outcomes. This would be one thing if corporations really were "democratic associations" of humans that the Founding Fathers may have wanted to protect. They are, instead, small oligarchies of top management. Thus, the top management of major oil and coal companies can decide what political outcomes they want to promote, say, unlimited production of carbon dioxide (none of their CEOs apparently has grandchildren!), utterly without any approval of their decisions by the millions of actual owners. The financial power of corporations was already in danger of overwhelming the democratic process in Congress and this makes the damage potentially unlimited and puts the Court's seal of approval on it. So let's do it in style and have a name change. The U.C.A. has a familiar look: The United Corporations of America!

David Fuller's view I too remain an admirer of Paul Volcker and have said so on many occasions, so I agree with Jeremy Grantham's assessment above. I also expect the debate over Volcker's proposals, not to mention political horse trading, to continue for many months.

Jeremy Grantham's item on the five Supreme Court justices is inspired, in my opinion. In case you missed it, they have effectively ruled that corporations can bribe politicians as much as they like. The ruling is a disgrace, especially for a country which should and could represent the best of democracy.