Writer;
host, 'The Breakdown'; Senior Fellow, Campaign for America's Future
JPMorgan Chase: Break Up the Big
Banks Now. Here's How.
Posted: 05/21/2012 2:34 am
When Jamie Dimon revealed that JPMorgan Chase had lost billions through
risky and legally questionable trading, he said the losses would be about $2
billion and maybe more. Apparently it is more -- a lot more. People in a
position to know are saying the real figure is probably in the $5-7 billion
range.
The JPMorgan Chase scandal -- and yes, it is a scandal
-- shows us why we need to break up the big banks as quickly as possible.
But that won't happen unless we can get our hands around the real scope of
the problem, which is probably far greater than we're being told. That means
cutting through the enveloping shroud of jargon, euphemisms and double talk --
"crap," if you will -- that keeps us from seeing the situation as it
really is.
Here's why we need to do it, and here's how.
Talk Talk
Two images come to mind when considering too-big-to-fail banks like
JPMorgan Chase: The first is of the gigantic spaceships hovering over all of
the world's cities in Independence Day, leaving the citizenry in shadows
and the world in fear and uncertainty.
The second image is of an old New Yorker cartoon which shows a
husband and wife chatting with guests over drinks and h'ors d'oeuvres while
an enormous monster scowls in the corner. The caption reads: "We deal with
it by not talking about it."
Most politicians are either talking about tighter regulations for
too-big-to-fail banks, or about the virtues of self-regulation and the
so-called "free markets." But the real problem isn't how to manage
too-big-to-fail banks, which are inherently unmanageable. The real problem is
that they exist, an everpresent menace that hovers over our economy while we go
about our daily lives.
They deal with that problem by not talking about it.
Monster Mash
JPMorgan Chase is either our largest or second-largest bank, depending on
when and how you ask the question. News stories often point out that it has $2
trillion in assets, which sounds impressive. But they usually fail to mention
that it has liabilities of more than $2 trillion, too, leaving it roughly $183
billion in the black.
That ain't bad -- but it's not much more net worth than you'll see sitting
around the table when Mitt Romney's super PAC friends get together for lunch.
And we can't trust those numbers. We now know that these risky London deals
weren't accurately conveyed in last year's annual report. What else don't we
know about JPM's liabilities?
All of our big banks were on the hook for hundreds of trillions of dollars
in the run-up to the financial crisis of 2008. And now they're bigger than
ever. How big? We don't know for sure -- and that's a big part of the problem.
Our four largest banks have 95
percent of the total exposure to derivatives. Two years ago we analyzed the raw data and found
that JPM alone held 44 percent of that risk -- and JPM has grown since then.
Because they intend to keep right on growing. As Jamie Dimon promised shareholders,
"I want to assure you that your company will be bigger and stronger and
better a year from today."
If that doesn't frighten you, you haven't been paying attention.
Bigger ≠ Better
Here's an example of what we mean when we say it's time to "cut the
crap" when we talk about big banks:
Writers should no longer be allowed to tell us, even in passing,
that "I agree we need large institutions" unless they tell us why
we need them.
Jamie Dimon was leading the chorus of bankers saying that their large size
leads to increased efficiency and economies of scale. Okay, Mr. Dimon: Where are
they? Is the cost of borrowing cheaper at JPM than it is at community banks?
Are ATM fees lower? Are loans easier to get?
"Economies of scale" work well for customers -- when you're
manufacturing toasters. But banks like JPM aren't in the toaster business.
They're not even in the customer business anymore. Ordinary clients at
the big banks are like cannon fodder in a colonial army: They're there to be
used and discarded, not to be served or respected.
(John Reed's interview
with Bill Moyers offers an enlightening glimpse into this shift in banking
culture.)
So let's stop repeating the mantra that big institutions have anything to
offer us -- anything, that is, except moral hazard. We did fine without them
for centuries, and we'll be better off once they're gone.
Gaming the Numbers
Here's something else that needs to stop: When a bank deceives its
investors, reporters need to stop saying only that it "changed its risk
model." That makes it sound arcane. What JPM really did was mislead
everyone.
The bank told investors that they had begun assessing internal risk in a
new and more effective way. But reports say that the unit which made these
hazardous trades reported directly to Dimon, bypassing the bank's other
executive and risk management channels. And despite what they told the public
-- including investors -- the bank did not use its new risk model to
assess these trades. They used an old model which dramatically understated the
risk involved.
Listen, I know this kind of talk confuses some people, but if there's one
thing I learned after working in risk management it's this: The more jargon you
hear, the less trustworthy the source.
If reports are true, then Chase was deceiving the public and it was
deceiving investors. That's not "changing its risk model." It's
lying. And it's very possibly fraud.
Byline Creep
And while we're in the crap-cutting business, here's something else that
needs to stop:
Just because Jamie Dimon described the loss as "stupid" doesn't
mean that you have to believe him, or use the same language. Listen, writers:
He's the architect of this charade, not an observer.
If this disaster should tell you anything, it's to stop letting Jamie Dimon
write your copy for you.
Something Stupid
Executives at Chase and the other big banks live in confidence that they'll
reap the profits for risky betting and leave the losses to you. That may be
many things -- venal, selfish, greedy -- but it's not stupid.
What's more, as long as nobody is indicted for Wall Street's ongoing
criminality, they can keep breaking the law knowing they'll never pay the price
for that either.
And if laws were broken in JPMorgan Chase's case, as Dimon himself
acknowledges is possible, then these deals were only "stupid" the way
any crime is stupid: It's only stupid if you get caught.
It Can Be Done. Here's How.
We've been led to believe that it's politically and economically impossible
to break up these banks. That's not true. How can the political climate be
changed?
The first step is to push for better financial reporting, so that we see
less of the mistakes described above. If people are better-informed about big
banks, sentiment against them will run even stronger than it is right now.
Which gets us to the politics of big banks.
Democracy First
The commonsense SAFE
Act introduced by Sen. Sherrod Brown and Rep. Keith Ellison would end the
era of too big to fail. It's a smart first step toward ridding the world of
these menaces to society.
Legislation should also be introduced to strengthen and expand antitrust
laws so that they can rein in out-of-control banks like JPM.
True, the SAFE Act and antitrust banking bills are unlikely to pass under
our corrupt political system. But every politician in Washington should be
forced to vote "yes" or "no" on this bill before the
elections and let the public know where they stand on this vital issue. That's
the only way Americans can make an informed decision in November.
During the drafting of Dodd/Frank financial legislation we saw something
important happen a number of times: If politicians were allowed to craft deals
in private, those deals always benefited the big banks. But if they were forced
to debate these issues publicly, we saw a much greater consensus against Wall
Street.
Public debate: It's how democracy is supposed to work. It will help us
break up the big banks.
Contraptions and Elegance
The Dodd/Frank bill's reforms, while anemic, are somewhat useful. It's
madness to suggest repealing them, as Republicans are trying to do. But
Dodd/Frank isn't useful at all unless agencies are staffed with regulators
determined to do their jobs. The Administration's record has been lackluster
(or worse) in that regard, while the Republicans have made it clear that
they'll staff regulatory agencies with people determined not to do their jobs.
It doesn't help that when it comes to too-big-to-fail banks the current
system of financial regulation is a rickety, complicated, Rube Goldberg-ish
contraption designed to work around the massive danger that they pose to the
economy.
Simple solutions are usually the best, and the simple solution to too big
to fail banks is: Break them up.
That may not be politically feasible right now, but it's the job of a
mobilized citizenry to change the political equation with public pressure
whenever possible. That means keeping the issue on the front burner by inundating
elected officials from the White House on down with emails and calls in support
of the SAFE Act. (More here.)
Lead the Fed
The public needs to pres Congress about the Federal Reserve, too. The Fed
is feeding the growth of the megabanks with free or very low-interest money, no
strings attached. That gives megabanks the resources and the incentive to place
that where it can maximize income in a stagnant, nearly consumerless economy.
That tempts the banks into increasingly risky transactions and instruments like
the ones that caused JPM's loss.
The Fed must also stop interfering with shareholder democracy, which cuts
to the core of executive accountability. We should demand that Congress hold
the Fed accountable for its actions in propping up too-big-to-fail banks.
That's not very likely to happen as long as the Federal Reserve, a creation
of the United States government, is governed by boards that are dominated by
bankers -- bankers like Jamie Dimon. So the public must demand that Dimon step
down, and that bankers are removed from Fed boards altogether.
Shine a Light
The public has the right to know about the banks it's been coddling, spoon-feeding
low interest loans to, and protecting for years. It should demand a full and
complete audit of these banks by trustworthy outsiders -- if enough of them can
still be found. Auditors can provide the banks with all the proprietary
protections they rightfully deserve. But twe rescued them, and now we need to
shine a light into their dark corners.
In addition to these general audits, we also need an immediate, extensive
and transparent no-holds-barred review of the JPMorgan Chase debacle. Simon
Johnson compares this event with the near-collision of two jet airliners,
which would trigger an immediate investigation by the National Traffic Safety
Board. It's an apt analogy, and an excellent idea.
And bank executives must be investigated, too -- for criminal activity.
That, and that alone, would discourage illegal risk-taking. It would also make
them take their legal responsibilities under Sarbanes-Oxley much more seriously
than they apparently do today, and would discourage them from routinely
deceiving the public -- which in many cases appears to cross the line into
fraud.
Declare Independence
Our national and world economies are in grave danger as long as banks like
JPMorgan Chase exist in their present form. They've already left our economy in
ruins once. It's only a matter of time before they do it again.
Even if we assume that JPM's current problems can be contained, we should
realize that every loss of this kind has the potential to turn into a chain
reaction. Each could become a cascading failure that threatens JPM or another
megabank -- and which therefore threatens the entire financial system.
The megabanks pose an existential threat to our economy. They hover over
our economy, our political system, and our personal lives like a fleet of giant
spaceships. They serve no useful social purpose, and they only exist because we
allow them to exist.
it's time to declare our independence from their domination and demand that
our elected officials help us in our fight for freedom. It's time to stop
living in their menacing shadow and come out into the sunlight.
It's time to dedicate ourselves to breaking up JPMorgan Chase and the other
too-big-to-fail banks, and to ensuring that they never threaten the world's
economy again.
THE
BANKSTER-OWNED PRESIDENT PROMISED HIS CRIMINAL BANKSTER DONORS NO real
REGULATION, NO PRISON TIME, AND UNLIMITED PILLAGING OF THE NATION’S ECONOMY!
DESPITE
THE DEVASTATION THESE BANKSTERS HAVE CAUSED AMERICANS, THEIR PROFITS SOARED
GREATER DURING OBAMA’S FIRST TWO YEARS, THAN ALL EIGHT UNDER BUSH. SO HAVE
FORECLOSURES!
Records show that
four out of Obama's top five contributors are employees of financial industry
giants - Goldman Sachs ($571,330), UBS AG ($364,806), JPMorgan Chase ($362,207)
and Citigroup ($358,054).
*
“Barack Obama's favorite
banker faces losses of $2 billion and
possibly more -- all because of the complex, now-you-see-it-now-you-don't trading
in exotic financial instruments that he has so ardently lobbied Congress not to
regulate.”
Is JPMorgan's Loss a Canary in a Coal Mine?
Posted: 05/16/2012 4:49 pm
That sound of
shattered glass you've been hearing is the iconic portrait of Jamie Dimon splintering
as it hits the floor of JPMorgan Chase. As the Good Book says, "Pride
goeth before a fall," and the sleek, silver-haired,
too-smart-for-his-own-good CEO of America's largest bank has been turning every
television show within reach into a confessional booth. Barack Obama's favorite
banker faces losses of $2 billion and
possibly more -- all because of the complex, now-you-see-it-now-you-don't
trading in exotic financial instruments that he has so ardently lobbied
Congress not to regulate.
Once again, doing
God's work -- that is, betting huge sums of money with depositor funds knowing
that you are too big to fail and can count on taxpayers riding to your rescue
if your avarice threatens to take the country down -- has lost some of its
luster. The jewels in Dimon's crown sparkle with a little less grandiosity than
a few days ago, when he ridiculed Paul Volcker's ideas for keeping Wall Street
honest as "infantile."
To find out more about
what this all means, I turned to Simon Johnson, once chief economist of the
International Monetary Fund and now a professor at MIT's Sloan School of
Management and senior fellow at the Peterson Institute for International
Economics. He and his colleague James Kwak founded the now-indispensable
website baselinescenario.com. They co-authored the bestselling book
13
Bankers and a most recent
book, White
House Burning, an account every
citizen should read to understand how the national deficit affects our future.
Bill Moyers: If Chase began to collapse because of
risky betting, would the government be forced to step in again?
Simon Johnson: Absolutely, Bill. JPMorgan Chase is
too big to fail. Hopefully in the future we can move away from this system, but
right now it is too big. It's about a $2.5 trillion dollar bank in terms of
total assets. That's roughly 20 percent of the U.S. economy, comparing their
assets to our GDP. That's huge. If that bank were to collapse -- I'm not saying
it will -- but if it were to collapse, it would be a shock to the economy
bigger than that of the collapse of Lehman Brothers, and as a result, they
would be protected by the Federal Reserve. They are exactly what's known as too
big to fail.
Moyers: I was just looking at an interview I did with you in February of 2009,
soon after the collapse of 2008 and you said, and I'm quoting, "The signs
that I see... the body language, the words, the op-eds, the testimony, the way
these bankers are treated by certain congressional committees, it makes me feel
very worried. I have a feeling in my stomach that is what I had in other
countries, much poorer countries, countries that were headed into really
difficult economic situations. When there's a small group of people who got you
into a disaster and who are still powerful, you know you need to come in and
break that power and you can't. You're stuck." How do you feel about that
insight now?
Johnson: I'm still nervous, and I think that
the losses that JPMorgan reported -- that CEO Jamie Dimon reported -- and the
way in which they're presented, the fact that they're surprised by it and the
fact that they didn't know they were taking these kinds of risks, the fact that
they lost so much money in a relatively benign moment compared to what we've
seen in the past and what we're likely to see in the future -- all of this
suggests that we are absolutely on the path towards another financial crisis of
the same order of magnitude as the last one.
Moyers: Should Jamie Dimon resign? I ask that
because as you know and as we've discussed, Chase and other huge banks have
been using their enormous wealth for years to, in effect, buy off our
politicians and regulators. Chase just had to pay up almost three quarters of a billion
dollars in settlements and surrendered fees to settle one case alone, that of
bribery and corruption in Jefferson County, Alabama. It's also paid out
billions of dollars to settle other cases of perjury, forgery, fraud and sale
of unregistered securities. And these charges were for actions that took place
while Mr. Dimon was the CEO. Should he resign?
Johnson: I think, Bill, there should be an
independent investigation into how JPMorgan operates both with regard to these
losses and with regard to all of the problems that you just identified. This
investigation should be conducted separate from the board of directors.
Remember that the shareholders and the board of directors absolutely have an
incentive to keep JPMorgan Chase as a too-big-to-fail bank. But because it is
that kind of bank, its downside risk is taken by the Federal Reserve, by the
taxpayer, by the broader economy and all citizens. We need to have an
independent, detailed, specific investigation to establish who knew what when
and what kind of wrongdoing management was engaged in. On the basis of that,
we'll see what we'll see and who should have to resign.
Moyers: Dimon is also on the board of the
Federal Reserve Bank of New York, which, as everyone knows is supposed to
regulate JPMorgan. What in the world are bankers doing on the Fed board,
regulating themselves?
Johnson: This is a terrible situation, Bill. It
goes back to the origins, the political compromise at the very beginning of the
Federal Reserve system about a hundred years ago. The bankers were very
powerful back then, also, and they got a Federal Reserve system in which they
had a lot of representation. Some of that has eroded over time because of
previous abuses, but you're absolutely right, the prominent bankers, including
most notably, Jamie Dimon, are members of the board of the New York Federal
Reserve, a key element in the Federal Reserve system. And he should, under
these circumstances, absolutely step down from that role. It's completely
inappropriate to have such a big bank represented in this fashion. The New York
Fed claims there's no impropriety, there's no wrong doing and he doesn't
involve himself in supervision and so on and so forth. Perhaps, but why does
Mr. Dimon, a very busy man, take time out of his day to be on the board of the
New York fed? He is getting something from this. It's a trade, just like
everything else on Wall Street.
Moyers: He dismissed criticism of his dual
role yesterday by downplaying the role of the Fed board. He said it's more like an "advisory group
than anything else." I had to check my hearing aid to see if I'd heard
that correctly.
Johnson: Well, I think he is advising them on
lots of things. He also, of course, meets with some regularity with top
Treasury officials, and some reports say that he meets with President Obama
with some regularity. The political access and connections of Mr. Dimon are
second to none. One of his senior executives was until recently chief of staff
in the White House, if you can believe that. I really think this has gone far
enough. Under these kinds of circumstances with this amount of loss of control
over risk management, what we need to have is Mr. Dimon step down from the New
York Federal Reserve Board.
Moyers: He told shareholders at their annual
meeting Tuesday -- they were meeting in Tampa, Florida -- that these were "self-inflicted mistakes"
that "should never have happened." Does that seem reasonable to you?
Johnson: Well, it's all very odd, Bill, and
I've talked to as many experts as I can find who are at all informed about what
JPMorgan was doing and how they were doing it and nobody really understands the
true picture. That's why we need an independent investigation to establish --
was this an isolated incident or, more likely, the breakdown of a system of
controlling and managing risks. Keep in mind that JPMorgan is widely regarded
to be the best in the business at risk management, as it is called on Wall
Street. And if they can't do this in a relatively benign moment when things are
not so very bad around the world, what is going to happen to them and to other
banks when something really dramatic happens, for example, in Europe in the
eurozone?
Moyers: Some of his supporters are claiming
that only the bank has lost on this and that there's absolutely no chance that
the loss could have threatened the stability of the banking system as happened
in 2008. What do you say again to that?
Johnson: I say this is the canary in the coal
mine. This tells you that something is fundamentally wrong with the way banks
measure, manage and control their risks. They don't have enough equity funding
in their business. They like to have a little bit of equity and a lot of debt.
They get paid based on return on equity, unadjusted for risk. If things go
well, they get the upside. If things go badly, the downside is someone else's
problem. And that someone else is you and me, Bill. It goes to the Federal
Reserve, but not only, it goes to the Treasury, it goes to the debt.
The Congressional
Budget Office estimates that the increase in debt relative to GDP due to the
last crisis will end up being 50 percent of GDP, call that $7
trillion dollars, $7.5 trillion dollars in today's money. That's extraordinary.
It's an enormous shock to our fiscal accounts and to our ability to pay
pensions and keep the healthcare system running in the future. For what? What
did we get from that? Absolutely nothing. The bankers got some billions in
extra pay, we get trillions in extra debt. It's unfair, it's inefficient, it's
unconscionable, and it needs to stop.
Moyers: Wasn't part of the risk that Dimon
took with taxpayer guaranteed deposits? I mean, if I had money at JPMorgan
Chase, wouldn't some of my money have been used to take this risk?
Johnson: Again, we don't know the exact
details, but news reports do suggest that yes, they were gambling with
federally insured deposits, which just really puts the icing on the cake here.
Moyers: Do we know yet what is Dimon's
culpability? Is it conceivable to you that a risk this big would have been
incurred without his approval?
Johnson: It seems very strange and quite a
stretch. And he did tell investors, when he reported on first quarter earnings
in April, that he was aware of the situation, aware of the trade -- he called it a "tempest in a teacup,"
and, therefore, not something to worry about.
Moyers: He's been Wall Street's point man in
their campaign against tighter regulation of derivatives and proprietary
trading. Were derivatives at the heart of this gamble?
Johnson: Yes, according to reliable reports,
this was a so-called "hedging" strategy that turned out to be no more
than a gamble, but the people involved perhaps didn't understand that or maybe
they understood it and covered it up. It was absolutely about a bet on
extremely complex derivatives and the interesting question is who failed to
understand exactly what they were getting into. And how did Jamie Dimon, who
has a reputation that he burnishes more than anybody else for being the number
one expert risk manager in the world -- how did he miss this one?
Moyers:I've been reading a lot of stories
today about members of the House, Republicans in particular, saying this
doesn't change their opinion at all that we've got to still diminish
regulation. What do you think about that?
Johnson: I think that it is a recipe for
disaster. Look, deregulating or not regulating during the boom is exactly how
you get into bailouts in the bust. The goal should be to make all the banks
small enough and simple enough to fail. End the government subsidies here. And
when I talk to people on the intellectual right, Bill, they get this, as do
people on the intellectual left. The problem is, the political right largely
doesn't want to go there because of the donations. I'm afraid some people, not
all, but some people on the political left don't want to go there either.
Moyers: The Washington Post reported
that the Justice Department has launched a criminal investigation into
JPMorgan's trading loss. Have you spotted -- and I know this is sensitive --
but have you spotted anything in the story so far that suggests the possibility
of criminality? Dodd-Frank is not in existence yet, so where would any
possibility of criminality come from?
Johnson: Well Dodd-Frank is in existence but
the rules have not been written and therefore not implemented. So yes, it is
hard to violate those rules in their current state. And many of those rules, by
the way, violation would be a civil penalty, not a criminal penalty. If you
violate a securities law -- if you've mislead investors, if there was material
adverse information that was not disclosed in an appropriate and timely manner
-- that's a very serious offence traditionally.
I have to say that
the Department of Justice and the Securities and Exchange Commission have not
been very good at enforcing securities law in recent years, including and
specifically since the financial crisis. I am skeptical that this will change.
But if they have an investigation that reveals all of the details of what
happened and how it happened, that would be extremely informative and show us,
I believe, that the risk management approach and attitudes on Wall Street are
deeply flawed and leading us towards a big crisis.
Moyers: So what are people to do, Simon? What
can people do now in response to this?
Johnson: Well, I think you have to look for
politicians who are proposing solutions, and look on the right and on the left.
I see Elizabeth Warren, running for the Senate in Massachusetts, who is saying
we should bring back Glass-Steagall to separate commercial banking from
investment banking. I see Tom Hoenig, who is not a politician, he's a regulator,
he's the former president of the Kansas City Fed, and he's now one of the top
two people at the Federal Deposit Insurance Corporation, the FDIC. He is saying
that big banks should no longer have trading desks. That's the same sort of
idea that Elizabeth Warren is expressing. We need a lot more people to focus on
this and to make this an issue for the elections.
And I would say in
this context, Bill, it's very important not to be distracted. I understand for
example, Speaker Boehner, the Republican Speaker of the House of
Representatives, is proposing to have another conflict over the debt ceiling in
the near future. This is the politics of distraction. This is refusing to
recognize that a huge part of our fiscal problems today and in the future are due
to these risks within the financial system that are allowed because the people
running the biggest banks hand out massive campaign contributions across the
political spectrum.
Moyers: Are you saying that this financial
crisis, so-called, is at heart a political crisis?
Johnson: Yes, exactly. I think that a few
people, particularly in and around the financial system, have become too
powerful. They were allowed to take a lot of risk, and they did massive damage
to the economy -- more than eight million jobs lost. We're still struggling to
get back anywhere close to employment levels where we were before 2008. And
they've done massive damage to the budget. This damage to the budget is long
lasting; it undermines the budget when we need it to be stronger because the
society is aging. We need to support Social Security and support Medicare on a
fair basis. We need to restore and rebuild revenue, revenue that was absolutely
devastated by the financial crisis. People need to understand the link between
what the banks did and the budget. And too many people fail to do that.
"Oh, it's too complicated. I don't want to understand the details, I don't
want to spend time with it." That's a mistake, a very big mistake. You're
playing into the hands of a few powerful people in the society who want private
benefit and social loss.
*
Why hasn’t Obama been impeached?
His violations of our borders laws, inducing illegals to vote, sabotage of jobs
for Americans, connections to criminal banksters…. WHAT DOES IT TAKE?
NO WORKS IN THE CORRUPT OBAMA WHITE HOUSE THAT IS NOT
CONNECTED TO THE BANKSTERS THAT OWN OBAMA, OR THE MEXICAN FASCIST PARTY of LA
RAZA!
THE REASON OBAMA BROUGHT IN DALEY WAS BECAUSE WAS FROM
JPMORGAN, AND AN ADVOCATE FOR OPEN BORDERS.
For much of Obama’s tenure, Jamie Dimon was known as the
White House’s “favorite banker.” According to White House logs, Dimon visited
the White House at least 18 times, often to talk to his former subordinate at
JPMorgan, William Daley, who had been named White House chief of staff by Obama
after the Democratic rout in the 2010 elections.
OBAMA PROMISED HIS CRIMINAL BANKSTER DONORS NO
PRISON TIME AND NO REAL REGULATION. DID HE DELIVER?
The JPMorgan scandal also throws into
relief the government’s failure to prosecute those responsible for the 2008
financial meltdown. Despite overwhelming evidence of wrongdoing and criminality
uncovered by two federal investigations last year, those responsible have been
shielded from prosecution.
Records show that four out of Obama's
top five contributors are employees of financial industry giants - Goldman
Sachs ($571,330), UBS AG ($364,806), JPMorgan Chase ($362,207) and Citigroup
($358,054).
The
JPMorgan debacle
15
May 2012
The economic and
political fallout from JPMorgan Chase’s sudden announcement last Thursday night
that it lost more than $2 billion from speculative bets on credit derivatives
continued to grow on Monday. The biggest US bank announced the forced retirement
of Ina Drew, who headed up the bank’s London-based Chief Investment Office,
which placed huge bets on the creditworthiness of a collection of US
corporations. Other top executives and traders are expected to be sacked or
demoted.
The bank’s shares
fell another 3.2 percent, bringing its two-day market capitalization loss to
nearly $19 billion. The Wall Street Journal reported that JPMorgan was
prepared for a total loss of more than $4 billion over the next year from its
soured stake in credit default swaps—the same investment vehicle that played a
central role in the collapse of Lehman Brothers and the government bailout of
insurance giant American International Group (AIG) in September of 2008.
In an interview on
NBC’s “Meet the Press” program on Sunday, JPMorgan CEO Jamie Dimon sought to
present the loss as an innocent mistake, resulting from “errors, sloppiness and
bad judgment.” Only a month ago, Dimon, who has led the public campaign by Wall
Street against even the mildest restrictions on speculative banking practices,
dismissed warnings over the massive bets being made by his Chief Investment
Office as “a complete tempest in a teapot.”
The scale of the loss
and the denials that preceded it raise the likelihood that banking rules and
laws against investor fraud and deception were breached.
President Obama, however, rushed to the
defense of JPMorgan and Dimon, declaring on a daytime television talk show
Monday that JPMorgan was “one of the best managed banks there is” and Dimon was
“one of the smartest bankers we got.”
At the same time he cited the bank’s loss as a vindication of the Dodd-Frank
financial regulatory bill that he signed into law in July of 2010. “This is why
we passed Wall Street reform,” he said.
In fact, the JPMorgan debacle
demonstrates that nearly four years after the Wall Street crash nothing has
changed for the financial aristocracy. No measures have been taken to rein in
the banks, which received trillions of dollars in government handouts,
guarantees and cheap loans. The same forms of speculation and outright
swindling that led to the financial meltdown and the worst economic crisis
since the Great Depression continue unabated.
The big banks, such as JPMorgan, have
increased their stranglehold over the US economy. They have recorded bumper
profits by withholding credit from consumers and small businesses, keeping
unemployment high, while speculating on credit default swaps and other exotic
financial instruments that drain resources from the real economy. On this
basis, bank executives and traders, including those at bailed-out institutions,
have continued to rake in eight-figure compensation packages. Last year, Ina
Drew made $14 million, and Jamie Dimon took in $26 million.
The Dodd-Frank law trumpeted by Obama
is a fraud, an attempt to give the appearance of financial reform while
enabling the banks to continue their parasitic and criminal activities. A case in point is the so-called
Volcker Rule, named after the former chairman of the Federal Reserve and
economic adviser to the Obama White House, Paul Volcker.
The rule,
incorporated into the Dodd-Frank Act and supposedly one of its most daring
provisions, ostensibly bars proprietary trading—speculation by a bank on its
own account—by commercial banks whose consumer deposits are guaranteed by the
federal government. The idea is to prevent government-insured banks from
speculating with depositors’ money.
But the regulation as
drafted by federal regulators—under pressure from the Federal Reserve and
Obama’s treasury secretary, Timothy Geithner, as well as the banks—would
actually allow the type of speculative bet made by JPMorgan in the guise of a
“hedge” to offset risk in the bank’s overall investment portfolio.
The Volcker Rule,
whose precise form is yet to be announced, will do nothing to halt speculation
by government-backed banks using small depositors’ money.
The JPMorgan scandal also throws into
relief the government’s failure to prosecute those responsible for the 2008
financial meltdown. Despite overwhelming evidence of wrongdoing and criminality
uncovered by two federal investigations last year, those responsible have been
shielded from prosecution.
When Iowa Senator
Charles Grassley submitted a letter to the Justice Department earlier this year
asking how many bank executives had been prosecuted in response to the
financial crisis, the Justice Department replied it did not know because it was
not keeping a list.
According to a study
by Syracuse University, however, federal financial fraud prosecutions have
fallen to 20-year lows under the Obama administration, and are down 39 percent
since 2003. Under Obama, the number of financial fraud cases has fallen to
one-third the level of the Clinton administration.
These facts
demonstrate the de facto dictatorship exercised by the financial aristocracy
over the entire political system and both major parties. The Obama
administration, in particular, is an instrument of the most powerful financial
institutions. It has focused its efforts on protecting and increasing the
wealth of the privileged elite while utilizing the crisis to permanently slash
the wages and living standards of the working class.
For much of Obama’s tenure, Jamie Dimon
was known as the White House’s “favorite banker.” According to White House
logs, Dimon visited the White House at least 18 times, often to talk to his
former subordinate at JPMorgan, William Daley, who had been named White House
chief of staff by Obama after the Democratic rout in the 2010 elections.
The incestuous and
corrupt relations between Wall Street, the Obama administration and the entire
political system underscore the necessity for the working class to build its
own mass socialist movement to fight for its interests in opposition to the
ruling elite.
The bankers
responsible for the financial crisis, including Dimon and his co-conspirators,
must be held criminally liable for their lawlessness and held accountable for
the social suffering that has resulted from their actions. The ill-gotten
trillions accumulated by the banks must be expropriated, with full protection
for small depositors and small businesses, and used to provide decent jobs,
housing, health care and education for all.
There is no way to
rein in the banks and end their socially destructive activities within the
framework of the capitalist system. The only way to stop the fraud and
parasitism that go on every day on Wall Street is to nationalize the banks and
run them as democratically controlled public utilities.
Andre Damon and Barry
Grey
FACT: JP MORGAN IS ONE OF BANKSTER-BOUGHT OBAMA’S BIGGEST
PAYMASTERS! HE’S PROMISED THEM NO PRISON TIME AND NO REAL REGULATION.
THERE IS A REASON WHY THE BANKSTERS INVESTED HEAVILY IN
OBAMA’S CORRUPT ADMINISTRATION!
Records show that four out of Obama's
top five contributors are employees of financial industry giants - Goldman
Sachs ($571,330), UBS AG ($364,806), JPMorgan Chase ($362,207) and Citigroup
($358,054).