The Volcker Rule and Dodd-Frank Act

The Volcker Rule is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into federal law in 2010.  The Dodd-Frank Act was a direct response to the financial crisis and Great Recession.  The Volcker Rule is named after Paul Volcker, former Chairman of the U.S. Federal Reserve and chair of President Barack Obama’s Economic Recovery Advisory Board, who proposed the rule.  Under the Volcker Rule, banks and federally backed financial institutions are, with certain exceptions, prohibited from proprietary trading.  Essentially, any trading that does not support the economy or a bank’s consumers is outlawed.  However, even though the Volcker Rule is meant to user in new consumer protections, banks will feel more of the affects than consumers.

Proprietary trading is investment made with a bank or financial institution as the principal.  As the principal, the institution keeps all profit.  Proprietary trading uses consumers’ deposits to make the investment.  Any gains or profits do not directly benefit the consumer; rather, these profits are kept by the institution.  Proprietary trading has been named as one of the causes of the financial crisis that led to the Great Recession. 

Financial institutions have indicated that because of the new report requirements and loss of avenues for profit, that consumer fees will either be introduced or raised.   All investments must now be explained as to their rationale of the investment and also whose money is being used to make the investment.  Regulators, from five agencies, will be charged with implement and executive the new rules and reporting procedures.   Banks and agencies will, therefore, be required to hire additional workers to ensure adherence to the law.  With restrictions on trading, institutions must avail themselves of alternative outlets for profit making.  Charges for new employees and recouping of profits will be passed onto consumers in the forms of ATM fees, checking account fees, and lower interest rates on interest bearing accounts, just to name a few.  These fees are limited only by the imagination of institutions.

The Volcker Rule could also affect any company’s efforts to raise capital.  Many businesses rely on loans and investments to build new facilities, supply research and development, and hire additional employees.  With new restrictions on investment and trading, financial institutions speculate that it may be harder to raise the money needed to fund capital investments.  This would affect anyone from the construction industry to manufacturers to those looking for employment. 

The Dodd-Frank Act was passed in 2010.  The implementation of the Volcker Rule was delayed.  Then it was delayed again.  Regulators and banking lobbies pushed back the date of implementation.  Lobbies, not in favor of the rule, tried to delay as much as possible, if not trying to abolish the rule.  Regulators have revised how they will administer and execute the rule, again causing delays.  Currently, financial institutions have until the middle of 2015 to fully comply with the new regulations.  As such, the effects that consumers will feel can only be spoken subjectively and in possibilities.  It remains to be seen the full extent of the Volcker Rule, on institutions, on the economy, and the public.  

The Market Abuse Directive II (MAD II)

The Market Abuse Directive II (MAD II) is a new European community wide set or rules that prohibit insider trading and market manipulation.  MAD II is a more expansive and restrictive revision of the original Market Abuse Directive (MAD) enacted in 2003.  New technologies and platforms for trading as well as loopholes in MAD have proven the original directive inadequate.    MAD II rectifies these issues and strengthens efforts to ensure market integrity and investor protection. 

As the shortcomings of the original 2003 legislation became apparent, the European Commission began a consultative process across its member states.  The process revealed deficiencies.  New legislation was crafted that covered a wider scope.  Included in the new directive was everything from emission allowances to commodities and all aspects of financial trading.  Specifically spelled out in MAD II is a new criminal charge of attempted market manipulation, where even the attempt of manipulating markets, regardless of the actual outcome, is criminalized.  Furthermore, greater oversight and enforcement policies were established to harmonize criminal and administrative sanctions across the EU.

One glaring inadequacy of MAD was the fact that each member country of the EU had different laws governing trading on insider information and the manipulation of markets.  Under the old legislation, investors and traders wanted to use proprietary information to their benefit could shield themselves by taking advantage of the differences in legislation between countries.  Some country’s authorities were vested with less effective sanctioning powers while other countries lacked criminal sanctions for certain offences.  MAD II rectifies this situation by creating sanctions that all member states must adopt.  Each country will have a regulator to implement the new directive.  Effective and parallel legislation across all member states is essential for the stability of European markets.  MAD II also strengthens the cooperation between regulators in the financial and commodities markets and their investigative powers, ensuring even greater oversight and execution. 

Execution is nothing without sanctions.  The old directive allowed for varying sanctions to be implemented on individuals and entities accused and convicted of market manipulation.  This allowed investors to manipulate financial prices and indices, causing severe losses to consumers, from a safe haven.  MAD II institutes minimum sanctions against individuals and business entities across the European community.  The directive requires all member states to have national legislation that is consistent across the EU.  These sanctions are meant to have a deterrent effect.  Legal persons, including businesses, will be punished by proportionate fines and may include exclusion from public benefits and aid, disqualification from carrying out business activities, and permanent closure of the business.

MAD II, when fully implemented over the next few years, will usher in far reaching legislation designed to maintain the integrity of the European markets.  The new directive will also harmonize criminal and administrative sanctions, provide oversight and enforcement, and, ultimately, attempt to protect consumers from fraudulent market activities.  A key feature of MAD II is the enduring legacy it will provide.  Included in the legislation is a review clause that legally requires the European Commission to report to the European Parliament on the directive’s functioning and any changes that are required.  This report must be filed within four years.  While technology continues to advance, legislations to protect markets and consumers will follow.  

The Implementation and Effect of CRD IV

The Basel Committee on Banking Supervision agreed on voluntary financial regulatory standards in 2010 and 2011.  These standards have been adopted by the European Union and implemented under the fourth amendment to the Capital Requirements Directive (CRD IV).  CRD IV requires financial institutions to increase their reserves to protect against losses.  The implementation deadline was originally set for March of 2013 but has currently been extended until March 2019.  CRD IV allows flexibility in its implementation while maintaining broad minimum standards.

The financial crisis of 2007 exposed further possible flaws in the global banking structure.  Because of the crisis, the Basel Committee recommended regulations that require financial institutions to carry more capital reserves and increase liquidity.  Greater access to liquid assets, the committee argues, will provide greater security for the institution during times of economic and financial crisis.  The reserves banks are required to hold are a set percentage of that institutions risk assets.  That percentage can be increased during stable periods of high growth.  Whether it is increased is at the discretion of the country or regulatory body. 

The Basel Committee regulatory standards were drafted based on voluntary enforcement.  CRD IV and its corresponding European Union regulation give the standards the force of law across EU member states.  Member states do have discretion on certain aspects of implementation.  Not all financial institutions are required to maintain the same percentage of reserves.  Small and medium sized investment firms may be exempt from implementing reserve quotas.  Large multinational banks are the focal point of the legislation.  However, the definition of global systemically important institutions is left up to the national central banks.  Buffers against long term, systemic risk are at the discretion of each member state. 

CRD IV implementation has been extended until March 2019.  A phased approach will be undertaken than what was originally planned.  Milestones will slowly be phased in until full implementation in 2019.  Because of this delay, the impact of CRD IV is partly theoretical at the moment.  An Organisation for Economic Cooperation and Development study predicts a medium term average drop in gross domestic product of 1%.  Such economic output could be offset by a reduction, or at least a delayed increase, in monetary policy rates.  Further, to meet the new reserve and capital requirements, banks and financial institutions will, most likely, pass that cost on to customers.  As with all forms of legislation prior to implementation, critics have argued that regulation will slow grown while others argue that the regulation does not go far enough to protect consumers, financial institutions, and global markets and economic systems.

The intended effect of CRD IV is to strengthen the financial institutions that have a multinational or global influence.  Ultimately, the aim is to prevent another recurrence of a financial crisis that the world experienced in the 2000s.  It is difficult to tell whether CRD IV will succeed in these terms.  A global economic downturn will prove the legislation’s worth.  But, given the flexibility in implementation, based on local economic conditions, and the maintenance of minimum reserve requirements across the EU, CRD IV stands a fair chance of dampening the fallout of future financial crises.   

Hyphenated Americans

While coaching at a youth summer sports camp in Ireland, I was asked if my last name was American.  It certainly wasn’t Irish, much to the shock of the kids, after all, how could I be in Ireland without an Irish name?  The conversation was as follows:

Girl:  Is your last name American?

Me:  No.

Girl:  What kind of name is it?

Me:  German

Girl:  So, you’re German?

Me:  No, I’m an American.

Girl:  So, your parents are German?

Me:  No, they’re American as well.

Girl:  How are you an American if you have a German name?

Many people who go to the United States, especially those from Ireland, find it odd, irritating, and even ignorant to hear Americans say they are ‘Irish’ or ‘German.’  So, are they?

Yes.  And, no.  The demographic history of the United States tells the tales or world oppression, pestilence, conflict, and greed.  Those born in the U.S. are not, categorically, anything other than American.  But, we are more than where we are born or our last name.  Native Americans are the only real, true Americans.  They roamed the Great Plains long before European ‘discovery.’  The rest of us are immigrants, or descendants of immigrants. 

It would be foolish to believe that once immigrants land on American shores they lose the identity and culture of their homeland.  Euphemisms and colloquialisms may change, but the core remains intact.  A son of Polish immigrants growing up in Chicago will be taught the Polish language and will be raised nearly identical to the way his parents were.  Likewise the daughter of Swedish immigrants, and so on. 

So, who am I?  Am I German?  Am I American?  The answer is, I am the combination of my entire heritage.  Am I German?  Partly.  Am I American?  No.  My ancestors came to this country from across an ocean.

If, on your travels in the United States, you come across one of the many claiming to be ‘German’ or ‘Irish,’ keep it in perspective.  Accept the fact that culture can transcend generations and that we can be more ‘German’ than ‘American.’   

What a Watch Can Say About a Man

Watches are indicative of the people they adorn.  Regardless of whether a watch turns into a little robot (I was the coolest kid at school when I was 5) or shoots lasers like James Bond, they can still be used to tell time.  But, they are also so much more.  After all, what is the point of telling time if you cannot chime it out like Big Ben?

Omega

While Omega may not have the worldwide recognition of its competitor, Rolex, it boasts a far more spectacular lineage.  Omega watches are known for their precision and durability, especially the Omega Speedmaster Professional.  They are a luxury brand not for the status seekers.  Rather, Omega’s are for the real men who make decisions that affect life and death.  It is the brand of powerful men.  If you are seated next to someone wearing one, you are at the big boys table.  That timepiece belongs to American presidents and British princes alike, and even favored by 007 himself.  However, more telling is the fact that Omega’s were, and are, the only trusted watches to be taken to the moon.

Pocket Watch

The pocket watch is iconic.  For centuries, it was the standard.  Today, the watch is mainly used by hipsters, train conductors, and psychotherapists.  In today’s busy world, one can hardly be pressed to pull a watch from their pocket and open the case just to tell the time.  Unless it is a Patek Philippe: an iconic watch from an iconic watchmaker.  If the wearer has an opulent chain then they are just showing off.  But, if their Patek Philippe is modestly adorned, the wearer is cool under pressure, mentally collected, and, above all, iconic.

Rolex

What can anyone say about Rolex that counterfeiters the world over have not done so already?  More likely than not, one brandishes a Rolex so that everyone knows they have a Rolex.  It is a status symbol.  Certainly, they are quality watches, but the name has eclipsed their utility.  The wearer plays golf with tycoons and rap stars.  Time does not matter, those pesky minute and hour hands only get in the way of the name on the face of the watch.  Nonetheless, Rolex’s are a trusted brand, with a great history (see the Great Escape) and are deserving of their reputation.

IWC

The International Watch Company was created in the mid-1800s with the idea of fusing Swiss craftsmanship with American engineering technology.  Today, IWC crafts high end timepieces for people who actually want a watch.  Who buys an IWC?  The philosophers.  They think about what a watch actually means.  The wearer desires the safety of knowing that when they cease thinking, time will march on: a timepiece for the end of time. 

There is a watch for everyone.  Some opt for clocks around their necks; some for one that turns into a robot.  Many others will be content to rely on their satellite adjusted cell phone for the time.  But, to many, their watch is one item they carry with them on a daily basis.  Look at your wrist, or in your pocket.  What does your timepiece say about you?  If you are looking for a new watch, what do you want it to say about who you are?  

The Terrible Passions of Humanity

“I have tried to express the terrible passions of humanity.”  Vincent Van Gogh wrote these words in a letter to his brother about his painting The Night Café, one of his most well-known works.  It is this idea that underlies Van Gogh’s art.  He, the artist, sees this particular café as the embodiment of ruinous human desires.  However, we can only see the outcome of humanity’s darkness; “night prowlers,” the destitute, the drunks take up residence in the all night café.  The desolation is not conveyed in the details.  Van Gogh chooses to use the contrast between colors to create the loneliness and despair of the scene.  The viewer is left dispirited and alone. 

Van Gogh is considered a post-impressionist painter.  He used color and thick brush strokes to evoke feelings and his perception of the scene.  Impressionism sought to recreate sensation in the viewer.  Through stylistic techniques, ordinary subject matter, and emphasis on light and angles, painters presented elements of human perception and experience.  Van Gogh derived his art from this style.  Having been born in March of 1853 in the Netherlands and spending most of his career in France, he would have had great exposure to the impressionists of the time.  While he was influenced by impressionism, he expanded on some of the techniques, colors, and subject matter to create a more expressive effect. 

Vincent began drawing as a child and never stopped.  He took up professional painting relatively late in his life.  The last two years of his life saw the production of some his best known and critically acclaimed work.  He painted extensively including oils, watercolors, drawings, sketches, and prints.  In his nearly ten years as a painter Van Gogh produced more than 2,100 works of art.  His work covers a wide variety of subject matter including portraits, self-portraits, and landscapes.  One of the theories Van Gogh held about art was that “real painters do not paint things as they are . . . They paint them as they themselves feel them to be.”  This emotion and perspective forms the basis of his work.

Van Gogh suffered years of painful anxiety and frequent bouts of mental instability.  The well-known incident of Vincent cutting off his own ear, while shrouded in mystery as to the motive and precise timeline of events, is a clear indication that he was not mentally well.  The sheer volume of his productions is even more astonishing considering that he would, from time to time, enter periods where he was unable to work due to despair and mental illness.  The demons in his mind could, and would, shout down the artistic angels.  Perhaps the greatest gift Van Gogh documented for us was the emotional honesty he was able to convey in his works.  Today, we can only speculate the extent his mental health influenced his paintings.  But, for an artist who wanted to paint the world as he saw it, we can only surmise that his art does not necessarily speak for itself, rather, for himself. 

At the early age of 37, Vincent Van Gogh died.  Again, the exact series of events is shrouded in mystery and conspiracy.  However, death is death, regardless of the cause.  On July 27, 1890, he was shot in chest with a revolver.  There were no witnesses and it is unclear where the event even took place.  He died on the 29^th of July.  Thus ended a tormented life. 

Van Gogh only ever sold a couple paintings, and those he did sell were to family members.  He was not celebrated as a great artist in his lifetime.  Through all the uncertainties of his life, we can be certain of this: he used all of his passion and all of his pain to portray the magnificence of our world.  We see the world slightly different after viewing his work.  He was, and continues to be, one of the world’s greatest artists who has ever lived. 

Vincent Van Gogh did not have any children.  He viewed his paintings as his progeny, a piece of himself.  In this regard, he is the father of modern art.  His work has influenced generations of painters producing heirs that paint today.  

Spring Break: Who Needs Panama City

It was a good train ride.  The majestic Rhine Valley gave rise to evergreens thawing from a cold continental winter; the vineyard's terrace highlighted only by the contrast of soil and vine.  The castle remains, though in ruins, cast haunting regal stares on us below, still waiting for the next wave of North men, vigilant to the last.  But we are from the west.  And the horseless carriage plowing along the west bank of the river shielded us at times from the years of long ago.  We were not there for a history lesson, I had studied that enough in my classes, it was Spring Break.  Being March, I had a parka over my swimwear. 

Now, I can hear the question: why would you go to Germany for Spring Break?  Why not Miami, Panama City, or South Padre Island perhaps?  Oh sure, I missed the hedonistic right of passage for jail bait and collegiate brass polisher alike.  Hilariously embarrassing after stories aside, what do I want with a bunch of inebriated, and often underage, hooligans whose quest for liquid divinity supersedes common sense and human courtesy?  If I wanted to be subject to the whims of mass appeal, I'd turn on a TV.  And in reality, Germany has everything that the usual Spring Break haunts have but with better accents.  So it was, with a sense of adventure, an escape of the routine and an addiction to not be like everyone else, I set off with the cheapest tickets to Europe: Chicago to Frankfurt, Germany. 

So, for this Spring Break, avoid the temptation of the Gulf.  The usual hot spots are just an extension of the parties you have already and will continue to attend on campus.  Try the less traditional locales.  Bars and clubs are still more than happy to entertain you and take your money.  You can still meet others you can hang out with throughout the week.  So, go on, pack your parka and gain a unique experience.  Remembrances and sobriety are optional.