From the NYT Dealbook:
"Joseph E. Stiglitz, the Nobel Prize-winning economist, wants the financial regulatory bill to bar financial firms that give up their government-backed bank charters from ever being able to seek government assistance again.
The proposed rule, which Mr. Stiglitz said should be called the “Goldman Sachs Amendment,” would force these firms to choose whether they want to be regulated banks, with all the government protections and restrictions, or unregulated investment banks, allowed to trade as they wish without a safety net."
Absolutely. But it should be much more than that - any firm that paid back TARP should be barred from ever being able to seek government assistance again. Unfortunately, since the big boys are now "too bigger to fail," in reality I worry that the Government will be there with a backstop next time as well. Back to the article:
"Mr. Stiglitz is concerned that banks like Goldman Sachs and Morgan Stanley, which do not have large retail banking operations, could switch back and forth, giving up their charters as bank holding companies to partake in risky activity on one day and then reapplying for it the next if things go wrong and they need government help."
Well, I'm really not worried about GS and MS giving up their BHC charters and then re-applying for them constantly, but anyway, make it a one way ticket once they give them up (which they may be incented to do, if any sort of semi-strict Volcker Rule is passed.)
"Goldman Sachs and Morgan Stanley became bank holding companies in the fall of 2008, at the height of the financial crisis, in order to gain access to cheap federal funds as liquidity dried up in the market. The government quickly granted the bank charters, even though the two investment firms did not have a significant retail banking presence, in order to prevent them from going under. They remain bank holding companies today, benefiting from cheap funding from the discount window. This has allowed them to juice up their returns in their trading and investment banking divisions."
As many people have already noted, this seems completely absurd. The point of the protections for bank holding companies (commercial banks!) is to protect retail depositors! That goal has been totally bastardized under the guise of bailing out these investment banks.
Stiglitz's rule is just the beginning - we need to make sure that there is no TARP II. The big boys paid back their TARP funds because they said they were healthy and didn't need the money. There should be no second chance.
disclosure: long a GS July 1x2 call spread (155-170) that is destined to expire worthless.