Travis Waldron
Think Progress / Op-Ed
Published: Wednesday 23 May 2012
“Though it is unclear whether JP Morgan’s trade would have been subject to the rule, it is clear that the Volcker Rule as proposed was stronger than it is in its latest draft form.”

GOP Senator Worries JP Morgan’s Losses Will Lead To Efforts To Strengthen Financial Regulations

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When JP Morgan Chase CEO Jamie Dimon dropped a bomb on the financial world two weeks ago by announcing that the bank had lost at least $2 billion on a series of trades that went bad on a London-based investment desk, Tennessee Sen. Bob Corker (R) was among the first lawmakers to call for investigations and hearings into the trade. Today, Corker got his first chance to get some answers, as the top regulators from the Commodities Futures Trading Commission and Securities and Exchange Commission appeared before the Senate Banking Committee.

But it wasn’t JP Morgan’s losses that Corker seemed concerned with. Instead, with advocates for stronger financial rules (including President Obama himself) pushing for a re-examination of pending regulations instituted by the 2010 Dodd-Frank Wall Street Reform Act, Corker was worried that the JP Morgan losses would bolster the case for a stronger Volcker Rule — the yet-to-be-finalized regulation that would ban federally-insured banks from engaging in certain types of risky trading:

CORKER: I fear that you’re under pressure, that a lot of calls are being made, that the administration is concerned that the American people are going to wake up and look at the last three years as a bad dream. … This big Dodd-Frank bill really doesn’t address real-time issues. And what you’re going to do is cause this Volcker Rule to become something that it was never intended to be.

Watch it:

Regulators are indeed facing pressure to strengthen the Volcker Rule, and as I wrote yesterday,that pressure is legitimate. Though it is unclear whether JP Morgan’s trade would have been subject to the rule, it is clear that the Volcker Rule as proposed was stronger than it is in its latest draft form. But JP Morgan and its cohorts on Wall Street played a >major role in watering it down. That lobbying created a loophole that may have kept JP Morgan’s trade legal even under the rule.

Risky trades designed to make bank’s massive profits — known as proprietary trades — were at the center of the financial crisis that ultimately ended with taxpayers bailing out America’s biggest banks. Regulations like the Volcker Rule (and others included in Dodd-Frank) are aimed preventing taxpayers from having to foot the bill again in the future. The JP Morgan loss has given regulators and policymakers a golden opportunity to re-examine those rules and make sure they are sufficiently strong.

That may seem an inconvenience to lawmakers, like Corker, who opposed the regulations in the first place. To Americans who have to backstop this risky trading even when it goes drastically wrong, though, the chance to strengthen the rules should be a welcome one.

Originally published on ThinkProgress


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ABOUT Travis Waldron

Travis Waldron is a reporter/blogger for ThinkProgress.org at the Center for American Progress Action Fund. Travis grew up in Louisville, Kentucky, and holds a BA in journalism and political science from the University of Kentucky. Before coming to ThinkProgress, he worked as a press aide at the Health Information Center and as a staffer on Kentucky Attorney General Jack Conway’s 2010 Senate campaign. He also interned at National Journal’s Hotline and was a sports writer and political columnist at the Kentucky Kernel, the University of Kentucky’s daily student newspaper.

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6 comments on "GOP Senator Worries JP Morgan’s Losses Will Lead To Efforts To Strengthen Financial Regulations"

Livemike

May 25, 2012 10:43pm

"were at the center of the financial crisis that ultimately ended with taxpayers bailing out America’s biggest banks. "

Well no actually. What was at the centre of the financial crisis was mortgages, which were supposed to be the safest things to invest in. It wasn't complex derivatives that turned out to be useless, it was promises by homeowners to pay back their homeloans. Any weakness in the derivative were a result of that. Of course two of the biggest investors in Mortgage Backed Securities (the kind of derivative that transmitted the most harm to the real economy) were government sponsored entities Fannie Mae and Freddie Mac.

Currently the real problem is banks lending money to governments, which the regulations treated as safe as houses, to use an aussie expression. The problem is that turned out to be true. If American banks lose only $3B on from the Greek fiasco alone you won't be able to drive down Wall Street for dancing financiers. In fact if the Federal Reserve loses less than $100B by itself in the European debacle you'll see Ben Benanke strutting like a peacock.

Look bottom line, regulations made it worse. They made it worse before the GFC, they made it worse during the GFC and they're making it worse now, just like they did in the Great Depression (especially that rancid piece of corporate competitor crippling Glass-Steagall.

Ronni85

May 23, 2012 3:45pm

How much is Corker and his buddies being paid by the banksters? I has to be a lot!
WE NEED to reinstate Glass-Steagall , along with the Dodd-Frank and Volker rules.These banks "too big to fail" need to be broken up - PERMANENTLY.

Btrwy

May 23, 2012 12:11pm

Reinstate Glass-Steagall!! It worked well for years and will work again. If Glass-Steagall is too weak, add the best of Dodd-Frank and the Volcker Rule on top of it. The madness has to end.

Livemike

May 25, 2012 10:45pm

No Glass-Steagall didn't work well. In fact it outlawed the most efficient and safest banking business model. That's why bank after bank that WASN'T consolidated went down, Lehman Brothers, Wachovia etc. and the combined investment/commercial banks stayed up. But the truth is that this had been known for years. That's part of the reason G-S was a dead letter for decades before it was actually repealed.

Jeffrey Hill

May 23, 2012 11:39am

We can't allow the reinstatement of Glass-Steagall because it offends rethugs and teabaggers and protects consumers while hurting Amerika's billionaire "job creators" who fund the Republican Party.

Livemike

May 25, 2012 10:47pm

Yeah that and the fact that nobody who actually understands what it did thinks it works. Quick quiz, of the first 3 banks that went bust starting the GFC how many were combined commercial and investment banks?