The Main Problem With the Volcker Rule

The Volcker Rule, designed by former central banker Paul Volcker, is one of many debated solutions to protecting the banking system from financial contagion. Put simply, the Volcker Rule limits banks from engaging in proprietary trading with their own money that may be against trades being made by the firm's clients. Another alternative outcome I've heard about the Volcker Rule is that it is designed to limit risky trading by requiring higher capital requirements for 'risky' trades in hedge funds, options, etc. Here's the main problem, risk is a relative term and few people, especially regulators and members of our government know what risk is. Risk is not a 'set in stone' concept where we know that trade types A, B, and C are risky, types D and E are safe, and types F and G are somewhere in between. Risk changes with the changes in the marketplace. Would housing have been considered a risky investment in 2006? Would European debt have been considered a risky investment in 2008? They weren't and a few years later, these investments showed their true colors. Do you think if the Volcker Rule had been enacted in 2004, the government and our regulators would have picked up on the risk of these investments before the marketplace? If not, how is the Volcker Rule going to change and adapt with the dynamic marketplace? Therein lies the problem, risk is relative, the Volcker Rule and the government are not.