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Obama proposes tough new rules on banks

Fresh from proposing new fees on banks last week, President Obama proposed tough new rules on banks that he says are meant to restrain excessive risk but that the banks surely will see as excessive government involvement in the private sector.

Banks should not "stray too far" from their mission of serving their customers. Examples Obama used include banks that set up hedge funds yet take advantage of privileges set up to help traditional banks. These include getting access to "cheap money."

"It is not appropriate for them to turn around and use that cheap money to trade for profit," he said.

Banks will no longer be allowed to own, invest or sponsor hedge funds, private equity funds and proprietary trading funds that "are unrelated" to serving their customers, Obama said.

"Work with us, not against us," Obama warned the banks. "If these folks want a fight, it's a fight I'm ready to have."

Obama is proposing trading limit targets on banks covered by the FDIC.

Obama said that the restrictions are designed to rein in excessive risk-taking. He said these proposals will end risky practices that led to excess. Of course, this will not happen. Banks are run by smart people, and smart people find workarounds to every regulation you can come up with, the same way political donors found ways to get around any campaign spending-limit bill.

All of these proposals will have to taken up by Congress and passed before they can reach the president's desk to be signed into law.

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By Frank Ahrens  |  January 21, 2010; 11:38 AM ET
Categories:  The Ticker  | Tags: Obama, banks, financial system  
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