Combine an election year, a highly disputed and complex regulatory law, a massive and freaky trading loss by a respected bank, and a multimillionaire Republican candidate, and you get a delicious stew of overly politicized regulatory arcania. The Wall Street Journal on Thursday reports that the White House is pushing for a tougher version of the Volcker rule, and that it might have something to do with November.

Walter G Arce / source

The Journal reports that President Obama’s financial team from his election campaign is interested in toughening up the Volcker rule — the part of the Dodd-Frank Act that puts limits on the amount of risk that depository institutions can take on in financial markets. Though it is not yet in effect, and won’t be until July, the rule’s efficacy has come into question in the aftermath of JP Morgan Chase’s “London Whale” trading loss.

The fear is that banks, which are essentially governmentally-backstopped due to the implicit understanding that they are too big for the government to allow them to fail, will be able to continue to make risky bets. It’s still unclear whether JPM’s trade was a hedge to offset risk or a bet to increase revenue, but some think it was the latter disguised as the former. This, critics say, is the gaping loophole in the Volcker rule: that banks can continue to make risky bets with an implicit guarantee from American taxpayers, while telling regulators that they are merely hedging, or being market-makers.

From the Journal:

In this year’s election, the president’s advisers want to champion tougher Wall Street regulations passed in 2010, and worry the argument could be diminished if elements of the law—including the “Volcker rule” restricting speculative investments by banks—end up looking weak.

It doesn’t hurt that his political opponent, Mitt Romney, has millions of dollars and opposes Dodd-Frank.

So this could be the way that the Volcker rule gets toughened: purely as an election year ploy to make the President’s opponent look like an out-of-touch rich guy (which, well, he is). Is it too much to ask for a Washington that might regulate for regulation’s sake? Not as a cheap political tool to trot out during an election year?

After all, a market collapse can happen at any time, not just around the election cycle.

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