Reports that JPMorgan is shutting down its prop trading desk has market watchers wringing their hands about liquidity. “Kiss liquidity goodbye” was the subject of one email I got from a trader. Really?
If there is money to be made, there will be traders and markets and liquidity. The big difference is that it will no longer be done at banks with cheap money and a government backstop. Apart from redesigning Wall Street, the legacy of Paul Volcker perhaps will be more boring cable television — bankers are generally thoughtful and plodding and do not necessarily make good TV.
We like cowboys who start out as traders and learn to put on suits and say things like they are just bankers 'doing God’s work' (thank you Lloyd Blainkfein). But the end of liquidity? Don’t think so.
Remove the proprietary trading desks from the big banks on Wall Street and you may relocate the liquidity. But, you are definitely removing a part of the culture that gave Wall Street its reputation. And hey, maybe that’s the point.