lost at least $2 billion on high risk derivatives trading, his advice for Dimon during this interview is downright prescient; If you want to participate in proprietary trading, give up your banking license.

Paul Volcker on the Volcker Rule:

You’d think after such a calamitous economic fall, there’d be a strong consensus on reinforcing the protections that keep us out of harm’s way. But in some powerful corners, the opposite is happening. Business and political forces, including hordes of lobbyists, are working hard to diminish or destroy these protections. One of the biggest bull’s-eyes is on the Volcker Rule, a section of the Dodd-Frank Act that aims to keep the banks in which you deposit your money from gambling it on their own — sometimes risky — investments. [...]

Volcker contends the rule aims to curb conflicts of interest between bankers and their customers. He suggests that former investment companies like Goldman Sachs and Morgan Stanley, which sought banking licenses during the economic crisis in order to access federal protection against failing, should now turn in those licenses if they want to do speculative trading.

“You shouldn’t run a financial system on the expectation of government support. We’re supposed to be a free enterprise system,” Volcker tells Moyers. “The problem of course is once they get rescued, does that lead to the conclusion they’ll get rescued in the future?”

Transcript of the clip below the fold and you can watch the entire interview at the link above.

BILL MOYERS: Let me play for you something that Jamie Dimon, the CEO of JPMorgan Chase said the other day on Fox News.

MELISSA FRANCIS: A lot of people wanted me to ask you about the Volker Rule. I know you wrote comments on how it should be different. What do you think?

JAMIE DIMON: So there are two parts. The part where they said no proprietary trading we're fine with. We've never had an issue with that. The part about market making is the part that everybody's writing long issues about. Like being an aggressive market maker. We are a store. Okay, we-- when you come to JPMorgan, we give you great prices in corporate bonds, you know, FX, interest rates.

Most of the business is driven by clients and we have the widest and deepest capital markets in the world. And so, remember, when the client calls up JPMorgan, if we don’t give them the best price, we don’t get the business. But the best price is a huge benefit for them. That’s not insult.

And we don't make huge bets. So I understand the goal to make sure that these companies don't take huge bets with their balance sheets, but market making, just like these stores down the street, when they buy a lot of polka dot dresses they hope they're going to sell. They're making a judgment call. They may be wrong.

So protecting the system, I agree with. But, you know, starting to talk about the intent, I tell every trader we have to have a lawyer, compliance officer, doctor, to see what their testosterone levels are, and shrink. "What's your intent?" No, we're going to make markets for our clients to give them the best products, the best services, the best research and the best prices. That's a good thing in spite of what Paul Volcker says.

PAUL VOLCKER: Despite what I say. Comparing these banks with putting polka dot dresses in the store for the Christmas season-- that's not the business banks are in. They're not in the business of stocking and this kind of stuff. They are buying and selling. If they're buying and selling in response to the customer, they can do it. That's what the law says.

BILL MOYERS: Well, what did you hear his chief objection to being?

PAUL VOLCKER: Well, I didn't hear it because he said, "We want to do market making," and I say, "Yeah, okay, do your market making, but don't mix up proprietary trading in the market making." You know, he's a very responsible banker, really. But he's gotten, I think a little overboard here because we're going to permit market making. But the United States government isn't protecting the dress shop. That's a big difference.

BILL MOYERS: But if you were a banker would you want the government to force you out of proprietary trading?

PAUL VOLCKER: No. If I was a banker I wouldn't want to-- of course I wouldn't. But you've got great advantages if you're a government regulated bank. Take the two big remaining investment banks. We used to call them investment banks. Goldman Sachs and Morgan Stanley. Both during the crisis got a banking license. Why'd they get a banking license? They wanted the protection of the government in the middle of the crisis. Now the crisis is over. If they want to do proprietary trading, they want to do a lot of other things, very simple, give up their banking license. They never had it before. So--

BILL MOYERS: Surrender their government umbrella?

PAUL VOLCKER: Yeah, get rid of the government umbrella if you want to do this.

BILL MOYERS: So your main point is that if they want to engage in speculation they just should not expect the government to cover their losses?

PAUL VOLCKER: They shouldn't be a bank. Yes. Because the implication is that government provides some protection. And before the investment banks got a banking license, there may have been five banks in the United States, very big ones, that carried on this business in a very active way. It's not the whole banking system. There's lots of trading that goes on by non-banks. You're not inhibiting market trading. You're not inhibiting making a market for customers. That was not the intent of the rule.

BILL MOYERS: I read, I actually read a statement by the community banks, small banks, in support of the Volker Rule.

PAUL VOLCKER: Yes. Yeah. Look, I find lots of bankers coming up to me kind of on QTC, you know, "We really think it's a good idea," but, you know, they're not hiring lobbyists at the-- running the banks. But, you know, there's a lot of support for it.

BILL MOYERS: After the calamity of 2008, the public clearly wanted to prevent banks from engaging in the same kind of risky activities that brought on-

PAUL VOLCKER: Right.

BILL MOYERS: And yet here the public still wants that and yet the lawyers-

PAUL VOLCKER: The public wants the Volker Rule. No doubt about that. I have not yet found an audience, and I address a lot of audiences that say, “No, you're wrong. We don't like that.” They recognize the simple argument when you talk about the general public.

BILL MOYERS: What's the argument they recognize?

PAUL VOLCKER: They recognize that banks shouldn't be speculating in their money, as you put it.

BILL MOYERS: “Forbes” magazine has a good word for you. There was an article last month, and I'll quote it, “While the Volker Rule will surely put a damper on bank trading profits, it will force many firms to go back to the basic blocking and tackling of the financial services business, acting as intermediaries for their clients. It may also help the Fed, shareholders and taxpayers sleep better at night.” How about that?

PAUL VOLCKER: God bless Mr. Forbes or whoever wrote that.

BILL MOYERS: Are you--

PAUL VOLCKER: That kind of captures the essence of it, yeah.

BILL MOYERS: I like that term, going back to the “basic blocking and tackling of the financial services business.” That's what you've been calling it.

PAUL VOLCKER: That’s what I’m saying. And you shouldn't run a financial system on the expectation of dependence of government support. We're supposed to be a free enterprise system we're running. And the problem of course is once they get rescued, does that lead to the conclusion they'll get rescued in the future?

It's a tremendous worry about that. Called moral hazard. They will act in a risky way because they're going to be protected. And, put it very simply, the great cry, “too-big-to-fail,” the government had to rescue them. So let's get rid of too-big-to-fail. Very popular cry and call for reform, which the Volker Rule is one little part of that.