Cramer: Why Volcker Rule Is Wrong

There’s a reason that parents often don’t understand their teenaged children. New generations are faced with never-before-seen challenges, challenges that require solution the parent just can’t wrap their heads around. This age-old dilemma was the reason Cramer on Monday took issue with a certain letter to the editor of The Wall Street Journal.

Five former Treasury secretaries W. Michael Blumenthal, Nick Brady, George Schultz, John Snow and Paul O’Neill signed a letter to the WSJ, endorsing former Federal Reserve Chairman Paul Volcker’s proposed banking reforms. Volcker has called for an end to proprietary trading by banks, or their practice of investing for the company itself rather than clients, and these department alumni agree.

The problem as Cramer sees it, though, is that at least some of the signatories served in “a very different era,” one where private equity and hedge funds didn’t exist as they do today. So they may lack a modern understanding of how the markets work.

Also, Blumenthal, John Snow and Paul O’Neill aren’t exactly of the same caliber as, say, Alexander Hamilton, Cramer said. Blumenthal served under President Jimmy Carter, at the time a Treasury Department that Cramer called “a terrible realm.” Snow presided over the housing boom that turned into a bust,” Cramer said. And O’Neill was fired.

At first glance these names may look like a “powerful list” that “seems very compelling,” Cramer said during Monday’s Stop Trading!, but “when you delve down into it, you tend to realize that perhaps this is just part of that same out-of-touch group who’s trying to stop what is considered to be Barney Frank’s excellent reform.”

Rep. Frank, D-Mass., chairman of the House Financial Services Committee, disagrees with President Obama, who has taken up Volcker’s cause, and his suggestion that commercial banks should immediately liquidate their respective internal hedge funds and private equity funds. Frank told “Street Signs” in January that a quick end to proprietary trading would be OK, but a more measured approach is needed when breaking up these banks’ investing funds.

Cramer said Frank’s reforms have been “derailed” by Volcker’s ideas and his supporters.

Should derivative insurance be allowed? Watch the video for Cramer’s take on the issue.

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