If passed, the proposal would mean that banks would most likely close down their gambling operations and stick to good, old-fashioned banking. As you might guess, banks are jumping up and down in opposition to this move.
They claim that it will interfere with their trading and swaps. Banks use swaps to hedge some positions. The proposal would bring an end to the crazy trades where banks have one position and then trade against it. Banks bet that the trades will lose by short selling, thus driving down the price of the security. It no longer becomes a hedge but a way to slam a security, thus causing losses to those who hold it.
Also, keep in mind that banks can now borrow from the Federal Reserve at zero or .5% interest and use the money to finance their gambling operations.
One blatant example of what can happen actually occurred last week when short-sellers slammed the Dow down 998 points or $1 trillion dollars in just a few minutes. Traders can crash any market at will. The investor has no protection against the high volume and high speed of these trades.
The next step is that the Senate and House versions of the bill will be merged and sent to President Obama for his signature.
Do you agree that banks must spin off their swap business and stick to regular banking?