Even Under New Rules Lenders Will Continue to Make same Risky Bets caused 2008 Meltdown

source http://bulldogreporter.com/ME2/Audiences/dirmod.asp?sid=2436B6EB9392483ABB0A373E8B823A24&nm=&type=Publishing&mod=Publications%3A%3AArticle&mid=53D88D74A99849C185183B336A3F3B02&AudID=213D92F8BE0D4A1BB62EB3DF18FCCC68&tier=4&id=34CB7D1416D6435AA0E8BC60D806D5F6

Issue Date: Daily Dog - August 30, 2010,  Even Under New Reform Rules, Lenders Will Continue to Be Allowed to Make Risky Bets On Behalf of Clients — Taking the Same Speculative Risks that Spearheaded the 2008 Meltdown

The recently enacted financial regulatory reform includes provisions seeking to prevent federally insured banks from making speculative bets using their own money. But that will not stop banks from making bets that some critics deem risky, even as the rules go into effect over the next few years. That is because many such bets — on the direction of the stock market or the price of coal, for example — are done on behalf of clients. So, the banks say, they will continue to be allowable despite the new restrictions — potentially leading to the same kinds of blowups that contributed to the financial crisis and forced the federal government to spend billions of dollars to bail out financial institutions, the NY Times reports. Indeed, several trades that were made on behalf of clients went bad for the banks even as the new rules were being debated in Washington this year. JPMorgan Chase and Goldman Sachs, for example, each lost more than $100 million on transactions handled for customers in the period from April to July. Yet analysts are quick to point out that many of the similar transactions that kick-started the meltdown were handled by the banks, ostensibly to serve clients, the NY Times reports. "You can use client activity as a cover for basically anything you are doing," said Janet Tavakoli, who runs her own structured finance consulting firm. "It's very problematic that losses like this are showing up. It's a prime example of what the financial reform bill doesn't address," she added, report Times writers Nelson D. Schwartz and Eric Dash.