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Glass-Steagall Redux

President Barack Obama is in a mean mood. Furious that his Democrats were unable to hold one of the safest seats in the Senate, he allocates at least some of the blame for this on the large bonuses that the Wall St. bankers paid themselves in the middle of the election campaign. In the battle between America's Main Street and Wall Street- the votes are largely on Main Street.

Yesterday the President made his move: He has announced that he intended to restrict the ability of banks to use their own capital to take positions in the market, so-called proprietary trading. This is not exactly reimposing the highly restrictive Glass-Steagall Act, but it is being seen as a serious attempt to bring the bankers under control.

So serious, in fact, that the markets have fallen sharply in response. However, despite the approving noises made by George Osborne this morning, it will be quite difficult to enact these restrictions. The German model of Allfinanz or French Bancassurance is explicitly based on the ability of deposit takers to trade on markets. However, the way in which these institutions trade is rather different from the Anglo-Saxon model. Even still, the intervention by President Obama will be exceptionally difficult to enact internationally- even with the support of "Squeeky" Osborne.

I think Mr. Obama's challenge to the banks will be resisted tooth and nail. The resistance will come not only from the bankers themselves, but also from Europeans and Asians who have operated under different financial models.

President Obama, facing defeat on his health care proposals in Congress as the result of the Massachusetts special election, may find that he is picking up an even more difficult battle.

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