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Key financial reform gets push back

To start to understand the Volcker Rule, Marketplace's Heidi Moore says, think of rugs and rug dealers.

Kai Ryssdal: Also in Washington today, financial regulators began the unenviable task of reading through more than 170,000 words of public comments about a slice of the Dodd Frank financial reform bill known as the Volcker Rule. It aims to limit the risk of another financial meltdown by preventing banks from making bets with their own money. Proprietary trading, as they say on Wall Street.

Our New York bureau chief Heidi Moore makes it make sense.


Heidi Moore: To start to understand the Volcker Rule, think of rugs. A rug merchant buys rugs and he sells some of them to you. So think of stocks and bonds as those rugs and banks as the rug dealers.

Ernie Patrikis: If some people say, I’m a very good rug trader, and I can buy and sell quickly for profit, that’s good.

That was Ernie Patrikis, a former Federal Reserve official who is now a lawyer with White & Case. Patrikis has seen that most rug merchants – and banks – don’t just help buyers and sellers. Sometimes they just buy rugs for themselves to speculate that prices will rise. When a banks do it, it’s called proprietary trading. And it changes their interests. 

Patrikis: The proprietary trader does what’s good for the proprietary trader.

The Volcker Rule wants banks to be middlemen in the markets. They should be focused on their clients, not speculating on those rugs – or rather, stocks and bonds.  

But the banks, like the Dude in the cult movie "The Big Lebowski," will go to extreme lengths to keep their rugs.

"The Big Lebowski" clip: It really tied the room together, did it not?

So banks are fighting the Volcker Rule. They say they say they’re the only ones in the market willing to buy some of those rugs. European governments are helping the banks make their case.

Matthew Czepliewicz is an analyst with Collins Stewart. 

Matthew Czepliewicz: What you’ve had is pushback from foreign finance ministers, central bank governors and banking associations.

Why is that? Because European leaders need the banks to buy some of those risky government bonds that are looking a lot like unwanted rugs.

In New York, I’m Heidi Moore with Marketplace.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.

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