CONNECT
NationofChange / Op-Ed
Published: Thursday 21 June 2012
“Dimon’s foreign affair is itself proof that unless the overseas operations of Wall Street banks are covered by U.S. regulations, giant banks like JPMorgan will just move more of their betting abroad – hiding their wildly-risky bets overseas so U.S. regulators can’t control them.”
Dimon in the Rough: How Wall Street Aims to Keep U.S. Regulators Out of Its Global Betting Parlor
The Commodity Futures Trading Commission, the main regular of derivatives (bets on bets), wants to extend Dodd-Frank regulations to the foreign branches and subsidiaries of Wall Street banks.
Horror of horrors, say the banks.
“If JPMorgan overseas operates under different rules than our foreign competitors,” warned Jamie Dimon, chair and CEO of JP Morgan, Wall Street would lose financial business to the banks of nations with fewer regulations, allowing “Deutsche Bank to make the better deal.”
This is the same Jamie Dimon who chose London as the place to make highly-risky derivatives trades that have lost the firm upwards of $2 billion so far – and could leave American taxpayers holding the bag if JPMorgan’s exposure to tottering European banks gets much worse.
Dimon’s foreign affair is itself proof that unless the overseas operations of Wall Street banks are covered by U.S. regulations, giant banks like JPMorgan will just move more of their betting abroad – hiding their wildly-risky bets overseas so U.S. regulators can’t control them. Even now no one knows how badly JPMorgan or any other Wall Street bank will be shaken if major banks in Spain or elsewhere in Europe go down.
Call it the Dimon loophole.
This is the same Jamie Dimon, by the way, who at a financial conference a year ago told Fed chief Ben Bernanke there was no longer any reason to crack down on Wall Street. “Most of the bad actors are gone,” he said. “[O]ff-balance-sheet businesses are virtually obliterated, … money market funds are far more transparent” and “most very exotic derivatives are gone.”
One advantage of being a huge Wall Street bank is you get bailed out by the federal government when you make dumb bets. Another is you can choose where around the world to make the dumb bets, thereby dodging U.S. regulations. It’s a win-win.
Wall Street would like to keep it that way.
For two years now, squadrons of Wall Street lawyers and lobbyists have been pressing the Treasury, Comptroller of the Currency, Commodity Futures Trading Commission, SEC, and the Fed to go easier on the Street for fear that if regulations are too tight, the big banks will be less competitive internationally.
Translated: They’ll move more of their business to London and Frankfurt, where regulations are looser.
Meanwhile, the Street has been warning Europeans that if their financial regulations are too tight, the big banks will move more of their business to the US, where regulations will (they hope) be looser.
After the Basel Committee on Banking Supervision (a global financial regulatory oversight body) came up with a new set of rules to toughen bank capital and liquidity requirements, European officials threatened to get even tougher. They approved a new system of European regulatory bodies with added powers to ban certain financial products or activities in times of market stress.
This prompted Lloyd Blankfein, CEO of Goldman Sachs, to issue — in the words of the Financial Times — “a clear warning that the bank could shift its operations around the world if the regulatory crackdown becomes too tough.”
Blankfein told a European financial conference that while Europe remains of vital importance to Goldman, with less than half of the bank’s business now generated in the U.S., the introduction of “mismatched regulation” across different regions (that is, tougher regulations in Europe than in the U.S.) would tempt banks to search out the cheapest and least intrusive jurisdiction in which to operate.
“Operations can be moved globally and capital can be accessed globally,” he warned.
Someone should remind Dimon and Blankfein that a few years ago they and their colleagues on the Street almost eviscerated the American economy, and that of much of the rest of the world. The Street’s antics required a giant taxpayer-funded bailout. Most Americans are still living with the results, as are millions of Europeans.
Wall Street can’t have it both ways – too big to fail, and also able to make wild bets anywhere around the world.
If Wall Street banks demand a free rein overseas, the least we should demand is they be broken up here.
This article was originally posted on Robert Reich's blog.
Get Email Alerts from NationofChange
ABOUT Robert Reich
ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.
Top Stories
By Kiley Kroh
15 comments on "Dimon in the Rough: How Wall Street Aims to Keep U.S. Regulators Out of Its Global Betting Parlor"
July 04, 2012 12:21pm
Excellent distillation, but it only re-infuriates me about the duplicity of Obama/Dems, which even the good professor Reich stops short of making plain. The eruption of catastrophe late in 2008 was also a golden opportunity for Obama/Dems to hard-ball Wall Street with popular support. The public was enraged, and wanted "never again" action and bankster heads on pikes. The oligarchy's entire wealth-transfer schema inclusive of tax cuts for the wealthy could have been reversed. Instead we heard Obama throwing water on the spreading public ire-fire, and saw a Dem White House and Congressional majority pass a bogus reform bill, acquiesce to bankster bonuses, pump one-time stimulus chiefly into jobs for its govt union base, squander public support on priority to "Obamacare" without single-payor, and then punt repeal of tax cuts for the wealthy into the future, which they will do again in 2012. The blood-sucking workings of Wall Street and the financial industry as a whole are too complex and obscure for the average person to follow except as to perennial net effect, allowing Dem corporatist duplicity with wealth transfer to continue unabated. I fear there will now be no chance whatsoever to reverse the wealth transfer until the "recession for the 80%" leaps or evolves to a "depression for the 80%". And even then there's a risk that war-mongering nationalistic demagogues (read fascists) will replace the current ilk in service of themselves and the oligarchs.
June 26, 2012 7:17pm
Too damn bad if they weren't such a bunch of crooks and swindlers then maybe they would be allowed more space but for now they need to act responsibly. They need to earn it.
June 24, 2012 3:00am
That banks must innovate to compete is no secret, but the creation of credit default swaps have proven to be a real "Frankenstein". This monster acquires its horror as a result of opaque "black market" transactions where knowledge of pricing and volume is kept private; the resulting sense of risk mitigation induces a disproportionate amount of liquidity which then narrows spreads in the underlying products traded in the public markets. As information necessary to price risk effectively is absent, financial assets grow dangerously large and ultimately, the public bares all the risk -- witnesses euro bonds today or the AAA-rated CMOs holding copious amounts of Alt-A mortgage in 2007. This is the monster the new regulations are targeting.
Banks would love to have both the protections and odds that Casinos enjoy and, in a limited way, can by preventing regulation in CDS products, But inevitably CDSs turn the capital markets into hyper-casinos where systemic risk reigns. Jamie, Lloyd and al., simply won't support or advocate anything that can be seen as "tying their hands" against competition -- their shareholders simply do not permit weak leadership and CDS play a central role in their strength. So, for now, the global black market in derivative trading is seen as advantageous. As world citizens, we are on collision course with these bankers as their survival now threatens ours.
Unregulated, banks will escalate their competitive innovation and the mechanics of how money is created and distributed will come into question. Maybe soon there we'll reach a point where revolution, rather than evolution, becomes the dynamic. If so, CDS's tying up $65-trillion in obligations, will likely be the catalyst and the pendulum will swing the other way. The strain of 7-billion economic units, united in similar needs all fighting for a finite set of resources and opportunities make this something banks should consider in their fight against regulation.
June 22, 2012 7:47am
They should be allowed to risk their own money wherever they wish to. They should NOT be allowed to risk depositors' money insured by FDIC, except as regulated by the FDIC. If the FDIC wants to endorse the regulations of the Commodity Futures Trading Commission or the SEC, that is the FDIC's privilege.
June 22, 2012 5:18am
Why oh why do we keep putting up with this bulls##t from these a##holes, we get the same over here in the UK, leave us alone or we'll leave, well its about time the Politico's grew a pair and called their bluff, and while we're at it, break them up and take the Casino Operations away from the Savings and Loan, so the High St Banks can get back to doing what they were designed for and the Cowboys can go their own way and if they fail so be it, they got themselves into the s##t and they can get themselves out of it . BTW love your articles Prof Reich. Mike Brogan
June 22, 2012 1:34am
As I often posted on Gather.com the banks are gambling most often against currencies with the insurance to profit and pay high bonuses if successful and to be bailed out by the taxpayer if they fail.
The sole solution available is the Tobin tax which will help to record who is betting against what. This will help the FED and the Central banks to fight against speculations and attacks against their currencies.
However this implies a worldwide agreement which was even not mentioned in the last G20 report.
Taxpayers of the whole world need such a Tobin tax in order to be protected and in order for the banks to pay fair taxes on gross profits.
If the taxpayer money should be used by the banks is not to speculate against the currencies but to help innovative industries and R&D while showing to the FED and central banks "real" positions.
June 21, 2012 9:56pm
I wouldn't worry too much about getting thr regulators rushing towards Wall Street. It's all about to come apart sooner or not much later. The Morgue Bank situation shows that somewhere deep inside the matrix a detonation has taken place and events will now start progress. Will it be contained or will the meltdown of interest rate swaps and then Treasury bonds take place?(think of as a U.S. debt default, just like in Greece) How many of the big banks around the world will fail? This time they'll just have to go bankrupt.
June 21, 2012 7:27pm
Wall Street MUST CRASH and the US, MUST hit the 'Skids' with a DEPRESSION!
We MUST get out of this slump!!
Thank that no good POS CHIMP for putting us in this mess to begin with!
June 21, 2012 2:06pm
Let them bet over there! but there risk stays there. No hand outs remember!!!! If they risk, they reap the reward, but if they fail at the risk, we bail them out? Never again! to big to fail? if that industry is that important some other bank will step up and service those customers that got ripped off! Let them burn in there own ashes. There should be a lynch squad for the next elected official that wants to bail out any bank. Lets see, we give them billions for a risk that went belly up, and they paid themselves bonuses???? When there risk does not have a back stop, they will stop betting. Right now they are betting with the house money, hell I'd do that!
June 21, 2012 10:37am
As Robert Scheer just wrote in Nation of Change ('See you at the Club...'): "One of those Fed directors, Jamie Dimon, chairman and CEO of JPMorgan Chase, who has been on the New York Fed board since 2007, ..."
With the megafoxes in the henhouse, what do they have to worry about? They're bigger and fatter than ever...
We need to bring back Glass-Steagall and break up these 'too big to fail' (but guaranteed to gobble us up) monsters.
June 21, 2012 4:56pm
Exactly right.
June 21, 2012 10:24am
The financial sector controls SCOTUS, the Congress, the Senate and soon the presidency through campaign contributions. If I were a Canadian, I'd say were facked. Eh?
June 21, 2012 10:11am
The invisible hand of the free market needs to bitch slap the sh*t out of the Wall Street thieves.
June 21, 2012 1:15pm
It did and as Thomas Frank would say, they're doubling down on it.
June 21, 2012 9:29am
These are the same Legalized Bookmakers calling themselves "Speculators" who continue to profit from loans made to governments at excessively high interest rates whose taxpayers end up being blackmailed into strong-armed payback to those Same Old Bad Actors - aka B0fA/CitiCorp/JPMorgan/WellFargo et.al.-, then fraudulently spread the rumor of failure to force that Big Lie of "Austerity", starting most recently with the "Argentine Miracle" in 1991.
This Taxpayer Funded Bailout Money ends up being looted from the Treasuries by Brute Force, then whisked away, (using government tanks and helicopters in Argentina and Ireland), and follow-up with that Same Old Press Release: "For the Greater Good of the People", never stating truthfully that tricksters are called "A Few Bad Actors" only because they got caught. It's Win/Win both ways for them!
It's too late for regulations, Perfessor! Wall Street can, and always will, have its Hairy Way with us, sans Reach-Around, because that Same Old False Promise of "Un-Regulated Free Market American Dream" is Capitalism's "Dimon in the Rough"!