Obama our savior!...wait not so fast

This past week has seen the American government make serious actions towards improving the financial system in te United States by proposing reforms to curb risky proprietary trading, to increase capital requirements, and finally to limit the investment in and support of hedge funds and private equity. I will focus particularly on the situation regarding the new limits to hedge fund and private equity investment. The new Bill concerning hedge fund investment, coined the Volcker Rule, limits banks participation in private equity and hedge funds to 3%, which seems like a huge victory for the Obama administration. Finally the banks cannot risk huge amounts of money! On first inspection this rule seems great, but looking at the finer details of the Rule, many banks will not be affected by this change for a decade. According to the Bill, banks would have two years to comply to withdraw from these types of investments, with potential for a three year extension further to those original two years. After this five year period banks could seek another five years from the American government for illiquid assets like real estate and other less frequently traded investments. So before everyone gets excited about the government's ability to lower the risk of bank investments look at some of the finer details of the Bill. Maybe there could be penalties for not dumping these assets by a certain time? Just a thought.