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[Suresh]

The Volcker Rule is being trotted out as an attempt to correct the mistake of repealing Glass-Steagall. But, it does make you wonder whether the Primary Dealers were given a choice: spin off your proprietary trading operations or force the government to regulate over the counter derivatives and undercapitalized credit default swaps.

To Joe Six-Packs like myself, what are we to think? It sure looks like the federal government is coming down on Wall Street with both feet. But, in reality, the real danger of OTC derivatives and credit default swaps has not been eliminated.
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Zero Hedge: The Volcker Rule & AIG: It’s Not About Prop Trading
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The Volcker Rule, at least as articulated today, does not solve the problem. And what is the problem?

The poster child victim for this latest round of rape and pillage by the large dealer banks is, of course, American International Group (AIG) along with many, many other public and private Buy Side investors. The FDIC and the Deposit Insurance Fund is another large, perhaps the largest victim of the structured finance shell game. Prop trading was not the problem with AIG nor the cause of the financial crisis, but instead the rancid production from the securities underwriting side of the business.

Not a single major securities firm or bank failed due to prop trading during the past several years. Instead, it was the customer side of the business, usually the mortgage conduit, that was the problem, the securities underwriting side of the business that the Volcker Rule conveniently ignores. And this is the one area that you will most certainly not hear President Obama or Bill Donaldson or Chairman Volcker or HFS Committee Chairman Barney Frank mention. You can torment prop traders, but leave the syndicate desk alone.

The dealers, starting with Goldman Sachs (GS) and Deutsche Bank (DB) were seemingly sucking AIG’s blood for years, one reason why the latest response by Washington has nothing to do with either OTC derivatives, structured assets or OBS financial vehicles. And this is why, IMHO, the continuing inquiry into the AIG mess presents a terrible risk to GS, DB and the other dealers, especially when you recall that the AIG insurance underwriting units were lending collateral to support some of the derivatives trades. Deliberately causing a loss to a regulated insurance underwriter is a felony in New York and most other states in the US. Thus the necessity of the bailout.
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Suresh

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[Suresh]

. . . and in due course, the owners of the proprietary trading desk will take the entity public again. In the meantime, the trick before the sale will be to drive down the value of Citigroup as a whole and/or the proprietary trading desk in particular.
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Bloomberg: Citigroup Said to Plan Sale of $10 Billion Private-Equity Unit
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Citigroup Inc. plans to sell or split off its $10 billion Citi Private Equity unit, expanding the list of money-management businesses the U.S. bank is disposing of to reduce debt, people familiar with the matter said.

Citi Private Equity, which takes minority stakes in companies and invests in other buyout funds, oversees about $2 billion of Citigroup’s money, said the people, who declined to be identified because the sale talks are private. The rest is from outside investors. Managers of the decade-old unit, led by Todd Benson and Darren Friedman, have discussed buying it for themselves alongside new partners or with other financing, one person said.
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Other money-management units marked for sale or closure include the Citi Property Investors real-estate unit, which oversees $12.5 billion; and the Hedge Fund Management Group, which allocates money to hedge funds on behalf of its own investors, the people said.
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Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.