Suddenly, to the widespread surprise of the economic punditry, United States President Barack Obama appeared on Thursday with Paul Volcker pointedly looming large behind him on his right to announce new plans to cut big banks down to size. He called his new plan 'the Volcker Rule' in tribute to the former chairman of the Federal Reserve, who had been arguing valiantly and previously in vain to separate the strictly banking functions from 'excessive' financial risk-taking. Wall Street dropped 2 per cent on Thursday and fell another 2 per cent on Friday, fearing new attacks on financial privileges. Supporters and sceptics alike, however, raised a series of questions, notably: Will the plan work? Will it be watered down or argued out in Congress? And, most important, will it prevent a future financial crisis? Beyond all this there is a more fundamental question yet to be addressed - which is whether the very dominance of finance is a sign of the decadence and the failure of capitalism, or at least the US version or perversion of it? There were lots of questions about why Obama had changed his mind and decided to support Volcker's ideas rather than the softer approach advocated by his treasury secretary, Timothy Geithner. The Democrats' loss of Edward Kennedy's Massachusetts senate seat to Republican Scott Brown was a mind-clearing moment: American voters had expressed anger indeed to hand the Kennedy family seat to the Republicans. More important is what the new proposals portend. The immediate reaction, except from the bankers themselves and Wall Street, was positive. Henry Kaufman, a former vice-chairman of Salomon Brothers and now head of his own firm, said: 'It's the right direction.' Simon Johnson, a former chief economist of the International Monetary Fund who has been damningly critical of the role of the big financial institutions in causing the economic crisis, made positive noises, saying: 'This is a complete change of policy that was announced today. It's a fundamental shift.' But once the bold headlines had been read, doubts began to filter through the finer print of the details of the new plan, and indeed the lack of details. The Lex column in the Financial Times was quick to point to the vagueness answering its own question about how the proposals would affect US banks by replying: 'Unfortunate answer: no one yet knows.' Another difficulty for Obama is that his plans have to go through Congress, and the big banks are already gearing up to fight just as hard as the health-care industry has fought the president's plans to extend health-care coverage to all Americans. Although they are licking their wounds, the big financial institutions will be a formidable foe. Some banks indeed have threatened to challenge Obama's levies to claw back some of the super bonuses all the way to the Supreme Court. Volcker himself has campaigned long to protect basic banking services and making sure that deposit-taking and the flow of loans to individuals and businesses are not caught up in excessive or reckless risk-taking. The proposals revealed last week were to prevent banks with deposits insured by the government from making risky bets in the market and to prevent further consolidation in the financial industry. At the heart of the plan is to restrict banks making speculative investments that do not benefit their customers or to use borrowed money to pay for expansion plans. Insiders calculated that a complete ban on 'proprietary trading' would cover from 1 per cent of revenues in the case of Bank of America and JP Morgan Chase, to 5 per cent at Citi and Morgan Stanley and about 10 per cent at Goldman Sachs. Even then, there has been no definition of what 'proprietary trading' is. Some commentators thought that there was undue alarm about hedge funds and not enough about plain vanilla qualities of bank management. However, in the days since Volcker's Rule there have been background briefings and spin that should alarm anyone who is serious about bank reform. Geithner made television appearances in which he claimed that he was buddy-buddy with Volcker and played down any radicalism in the new measures. A White House background briefing said the new proposals would freeze the size of the biggest banks as they are. Large hints were dropped that some institutions would be allowed to drop their newly won status as bank-holding companies, so that they could continue their trading and investment activities. Johnson was almost apoplectic. To him, the litmus test of success would be the break-up of Goldman Sachs into four or five independent pieces, the biggest being no more than 1 per cent of gross domestic product or US$150 billion.