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NationofChange / Op-Ed
Published: Saturday 12 May 2012
“Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money.”
How J.P. Morgan Chase has Made the Case for Breaking Up the Big Banks and Resurrecting Glass-Steagall
J.P. Morgan Chase & Co., the nation’s largest bank, whose chief executive, Jamie Dimon, has lead Wall Street’s war against regulation, announced Thursday it had lost $2 billion in trades over the past six weeks and could face an additional $1 billion of losses, due to excessively risky bets.
The bets were “poorly executed” and “poorly monitored,” said Dimon, a result of “many errors, “sloppiness,” and “bad judgment.” But not to worry. “We will admit it, we will fix it and move on.”
Move on? Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.
Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets).
Dimon argued that the financial system could be trusted; that the near-meltdown of 2008 was a perfect storm that would never happen again.
Since then, J.P. Morgan’s lobbyists and lawyers have done everything in their power to eviscerate the Volcker rule — creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near-meltdown.
And now — only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent and pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression — J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, excessively risky trades poorly-executed and poorly-monitored, that caused the crisis in the first place.
In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.
The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?
Several weeks ago there were rumors about a London-based Morgan trader making huge high-stakes bets, causing excessive volatility in derivatives markets. When asked about it then, Dimon called it “a complete tempest in a teapot.” Using the same argument he has used to fend off regulation of derivatives, he told investors that “every bank has a major portfolio” and “in those portfolios you make investments that you think are wise to offset your exposures.”
Let’s hope Morgan’s losses don’t turn into another crisis of confidence and they don’t spread to the rest of the financial sector.
But let’s also stop hoping Wall Street will mend itself. What just happened at J.P. Morgan – along with its leader’s cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded.
This article was originally posted on Robert Reich's blog.
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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.
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By Aviva Shen
13 comments on "How J.P. Morgan Chase has Made the Case for Breaking Up the Big Banks and Resurrecting Glass-Steagall"
May 13, 2012 9:52pm
They say now that it takes a billion dollars to get elected to the Presidency. My take is that sure, a lot of individuals pony up a $100 bucks and popular support makes the accounts grow. There is a darker side that with the passage of the Citizens United decision, the corporate world parlays much more money in to the coffers than the FEC realizes.
So with large corporate donations to BOTH parties, who really controls the strings of governance?
We reside in a plutocracy ruled by those that have the means to elect whom they deem worthy and loyal. We are a democracy in form only.
Nothing will change until we first rein in Wall Street, the banks, associated financial institutions and then eliminate money in our elections from large corporate donors. Failing that I am afraid things will eventually become violent towards the Government if we don't turn on ourselves first.
I've said it many times before to my kids, "dollars vote and some have many many votes".
May 13, 2012 8:13pm
The guesstimate circulating is 700 trillion in bets by the financial sector world wide. Two to four billion is but a warning sign. We need something stronger than Glass Steigall (actually brought in to save capitalism) to curb these wonder kids. The problem is the big banks and their creations the central banks control all the money. They create money by making loans. They decide who gets how much. Greece not so much now, America still has credit but really shouldn't. It's high time that the governments of the people took back their right to create money and credit. Anything else is to be "the slaves of bankers and to pay for our own slavery." Their greed knows no bounds and their moral degeneration is unfathomable..."usury once in control will wreck any nation>"
May 13, 2012 7:35am
The sooner JPM collapses the better. It is hard to think of an organisation that deserves to go bust more than they do.
May 13, 2012 5:11am
Big banks, especially those that were bailed out with taxpayers money should be nationalized. Anything that is propped with taxpayers money should be nationalized because it becomes the taxpayers asset and its status of ownership should be determined by national vote, not legislative action, making sweet deals for their corporate benefactors. Since all government is the property of the US citizens, if it does not perform according the wishes of the majority of people in all of its dealings all the time, it becomes illegitimate and oppressive instead of conducive to the WILL of the people. I hope scholars, activists, judges and those involved in interpreting/enforcing the US Constitution evaluate most recent Executive/Legislative actions to determine their constitutionality/legitimacy. There is a dire need for controlling officials from becoming servants of a small faction of the elite at the expense of the rest of us.
May 12, 2012 9:52pm
We need to reinstate Glass-Steagal and also the fairness doctrine. Those would go a long way towards restoring a saner country to live in.
May 13, 2012 12:47pm
They really eroded our democracy when they did away with those two, Tony. That was how they did it.
The clinchers were Bush v Gore and Citizens United.
May 12, 2012 4:25pm
It should lead to a crisis of confidence in the confidence men running our economy for excessive profits and this is nothing next to the hedge funds manager that got a yearly bonus of 4.9 Billion Dollars. It should lead to a crisis of confidence in wars for similar lies that benefit multi-national corporation's interests in a world order without borders using our blood, loss of sanity, and excessive taxation and debt. A crisis in confidence in all the speculative bubbles holding western civilization's richness up over hundreds of years. We are a system based on the logic of war and it is coming up against the limits of a finite planet and learning how to live within its means without wasted resources on wars of destruction and reconstruction profiteering, a population growth economic model, poisoning the very planet we live on and burying it in trash, and excessive accumulation of wealth by a few. In effect trashing the plenet we live on.
May 12, 2012 3:48pm
Jamie Dimond is too "Savvy" for his own good.
Reinstate Glass-Steagall (yesterday) -- it worked for decades and decades.
Dodd-Frank was Kabuki theater performed for the benefit of Obama's thieving Wall Street "Savvy Businessmen" billionaire buddies at the expense of the American taxpayer.
Enough is enough!
No more secret trillion dollar bailouts of Wall Street thieves with taxpayer dollars.
Criminally prosecute the Wall Street thieves (55 investigators can't do it and Obama knows that! Reagan employed thousands of investigators in each region of the country to convict 1200 Savings & Loan thieves and send them to federal prisons.) --
Obama and Holder have to go for refusing to look back and criminally prosecute Obama's thieving Wall Street "Savvy Businessmen" billionaire buddies for megafraud and sinking the world economy by peddling sliced and diced fraudulently AAA-rated subprime mortgage-backed collateralized debt obligations (referred to as "Shitty Product" in Goldman Sachs' internal e-mails) to unsuspecting suckers while betting against them and for falsifying and forging mortgages and introducing them into evidence in courtrooms as legitimate in legal foreclosure proceedings.**
**(Obama had the unmitigated audacity to lie to the public and insult the intelligence of any thinking person by dishonestly claiming that there is only 1 system of justice and that we all play by the same rules.)
May 12, 2012 3:48pm
They killed my business and called the loan due. They destroyed home values and I sold out for $270,000 less than I owed. They have tanked my savings over and over and over. But I still have to pay my Student Loan. I rent my apartment. I bank at a credit union. I save with my company 401K but burying the money looks safer. And when I turn 67 and stop working I'm going to divorce my wife and pay $5 a month on my student loan.The real tragedy is that these asswipes truly believe that we owe them special treatment for their position in our society.I wrote congress in early 2009 to tell them that the barn was burned down and the animals all ran off. The new roof looked great, but the bankers were the only ones being warmed by the cash burning in the barrels. Without regulation (the walls and doors of the barn) there was no place to bring the animals home to and keep them safe. 4 years later and we are still in the same place. I heard an older dude talking at lunch today. He's voting for Obama because he never votes for anyone who wins and Obama is the worst president we have ever had. I have to disagree, having not forgotten the last one yet. But when is he going to stop blowing sweet kisses to the guys that caused this mess?
May 12, 2012 9:58pm
Amen brother. Full agreement. I am also in a school loan situation having bankrupted out of a boatload of IRS debt due being in uncollectable status (no money to pay). Yet Sallie mae can come after me to the end of my days and even garnish any Social Security I may get. While the rich seek (and get) a larger and larger piece of a smaller pie, the right blames the very people whose taxes were used to bail the suckers out. We need a Robin Hood. And it ain't Obama. He talks a good game but in the end he bows to the demands of the power brokers. How disappointing.
May 12, 2012 2:35pm
It would seem that our entire financial institution is based in the ad hoc fallacy. In other words, banks give an explanation of how things will work given the exemption of regulation, and when they don't work, they again add another explanation ad infinitum. Not only is this invalid reasoning, it's a form of our entire financial institution dying the death of a thousand qualifications.
May 12, 2012 10:24am
Why is this the only place I have heard the utterance of the phrase 'Glass Steagall' so far?Not one business reporter I heard on NPR or Marketplace yesterday mentioned it.Why does no one ever use the words 'bucket shop laws' when they talk about derivatives?
May 12, 2012 9:53am
Money talks! Common sense and wisdom walks.