“Too Big To Exist”: Wall Street Hogs Still Running Wild
Wall Street is a beast.
And proud of it! In fact, a pair of animals are the stock market’s longtime symbols: One is a snorting bull, representing surging stock prices; the other is a bear, representing a down market devouring stock value.
But I recently received a letter from a creative fellow named Charles saying that we need a third animal to depict the true nature of the Wall Street beast: a hog.
Yes! And we could name it “Jamie.” Jamie Dimon — I mean the multimillionaire, silver-haired, golden-tongued CEO of JPMorgan Chase, America’s biggest bank.
For years, Dimon has wallowed in the warm glow of America’s financial, political and media limelight, hailed as a paragon of sound management and banker ethics. He’s been publicly lauded by President Obama, celebrated by The New York Times and courted by leaders of both parties.
But, suddenly last summer, a big “oink” erupted from Chase, and Jamie’s inner hoggishness was revealed. It started when one of Chase’s investment arms went awry and lost $2 billion. At first, Dimon haughtily dismissed this as “a tempest in a teapot.” But the loss of investors’ money soon grew to a staggering $6 billion. Criminal probes began, investors squirmed, media coverage grew testy, and then came the revelation that took all the glitter off of Dimon.
On March 14, a U.S. Senate committee issued a scathing 300-page report documenting that the loss was not a mere “trade blunder” by Chase underlings, but the product of a systemic corporate culture of recklessness, greed and deception. An internal email from Jamie himself, with the words “I approve,” traced the stench all the way to the top. Not only did Dimon know what was going on, he enabled it.
JPMorgan’s mess stems from the same dangerous combo that rocked America’s financial system in 2007 and crashed our economy: ethical rot in executive suites, sycophantic politicians and reporters and willfully blind regulators. Meanwhile, Jamie is still Boss Hog at the giant bank and still drawing millions of dollars in annual pay and perks. Also, only one week after the Senate report came out, he was even given a media award for best 2012 performance by a CEO facing a corporate crisis. E-I-E-I-O!
For a better performance on containing banker narcissism, our lawmakers might look to Europe. I know that it’s considered un-American to like anything those “namby-pamby” European nations do, but still: Let’s hear it for the Swiss!
In a March 3 referendum, the mild-mannered, pacifist-minded Swiss people rose up and hammered their corporate executives who’ve been grabbing ripoff pay packages, despite having made massive financial messes.
Two-thirds of voters emphatically shouted “yes” to a maverick ballot proposal requiring that shareholders be given the binding say on executive pay. Violators of the new rules would sacrifice up to six years of salary and face three years in jail. That’s hardly namby-pamby.
Indeed, America’s lawmakers and regulators are the ones who’ve been squishy-soft on banksterism. Jamie is not the only one being coddled — none of the Wall Street titans whose greed wrecked our economy have even been pursued by the law, much less put in jail.
It’s no surprise, then, that those bankers have gone right back to scamming — and gleefully enriching themselves. Hardly a week goes by without another revelation of big-bank fraud, yet the banks simply pay an inconsequential fine and the culprits skate free.
Forget about too big to fail, banks have become “too big to jail.” Our nation’s top prosecutor, Attorney General Eric Holder, recently conceded that finagling financial giants are being given a pass: “It does become difficult for us to prosecute them,” he told a Senate subcommittee, “when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy.”
Meanwhile, just four giants — Bank of America, Goldman Sachs, Morgan Stanley and Wells Fargo — put nearly $20 million into last year’s elections, mostly to back Republicans promising to weaken the few feeble restraints we now have on banker thievery. With such Keystone Kops overseeing them, why would any Wall Streeter even think of going straight? Nothing will change until officials gut it up, go after lawless bankers and bust up the banks that are too big to exist.
By: Jim Hightower, The National Memo, April 3, 2013
“Why We Regulate”: The Arrogance Of Wall Street And The Lessons Of History
One of the characters in the classic 1939 film “Stagecoach” is a banker named Gatewood who lectures his captive audience on the evils of big government, especially bank regulation — “As if we bankers don’t know how to run our own banks!” he exclaims. As the film progresses, we learn that Gatewood is in fact skipping town with a satchel full of embezzled cash.
As far as we know, Jamie Dimon, the chairman and C.E.O. of JPMorgan Chase, isn’t planning anything similar. He has, however, been fond of giving Gatewood-like speeches about how he and his colleagues know what they’re doing, and don’t need the government looking over their shoulders. So there’s a large heap of poetic justice — and a major policy lesson — in JPMorgan’s shock announcement that it somehow managed to lose $2 billion in a failed bit of financial wheeling-dealing.
Just to be clear, businessmen are human — although the lords of finance have a tendency to forget that — and they make money-losing mistakes all the time. That in itself is no reason for the government to get involved. But banks are special, because the risks they take are borne, in large part, by taxpayers and the economy as a whole. And what JPMorgan has just demonstrated is that even supposedly smart bankers must be sharply limited in the kinds of risk they’re allowed to take on.
Why, exactly, are banks special? Because history tells us that banking is and always has been subject to occasional destructive “panics,” which can wreak havoc with the economy as a whole. Current right-wing mythology has it that bad banking is always the result of government intervention, whether from the Federal Reserve or meddling liberals in Congress. In fact, however, Gilded Age America — a land with minimal government and no Fed — was subject to panics roughly once every six years. And some of these panics inflicted major economic losses.
So what can be done? In the 1930s, after the mother of all banking panics, we arrived at a workable solution, involving both guarantees and oversight. On one side, the scope for panic was limited via government-backed deposit insurance; on the other, banks were subject to regulations intended to keep them from abusing the privileged status they derived from deposit insurance, which is in effect a government guarantee of their debts. Most notably, banks with government-guaranteed deposits weren’t allowed to engage in the often risky speculation characteristic of investment banks like Lehman Brothers.
This system gave us half a century of relative financial stability. Eventually, however, the lessons of history were forgotten. New forms of banking without government guarantees proliferated, while both conventional and newfangled banks were allowed to take on ever-greater risks. Sure enough, we eventually suffered the 21st-century version of a Gilded Age banking panic, with terrible consequences.
It’s clear, then, that we need to restore the sorts of safeguards that gave us a couple of generations without major banking panics. It’s clear, that is, to everyone except bankers and the politicians they bankroll — for now that they have been bailed out, the bankers would of course like to go back to business as usual. Did I mention that Wall Street is giving vast sums to Mitt Romney, who has promised to repeal recent financial reforms?
Enter Mr. Dimon. JPMorgan, to its — and his — credit, managed to avoid many of the bad investments that brought other banks to their knees. This apparent demonstration of prudence has made Mr. Dimon the point man in Wall Street’s fight to delay, water down and/or repeal financial reform. He has been particularly vocal in his opposition to the so-called Volcker Rule, which would prevent banks with government-guaranteed deposits from engaging in “proprietary trading,” basically speculating with depositors’ money. Just trust us, the JPMorgan chief has in effect been saying; everything’s under control.
Apparently not.
What did JPMorgan actually do? As far as we can tell, it used the market for derivatives — complex financial instruments — to make a huge bet on the safety of corporate debt, something like the bets that the insurer A.I.G. made on housing debt a few years ago. The key point is not that the bet went bad; it is that institutions playing a key role in the financial system have no business making such bets, least of all when those institutions are backed by taxpayer guarantees.
For the moment Mr. Dimon seems chastened, even admitting that maybe the proponents of stronger regulation have a point. It probably won’t last; I expect Wall Street to be back to its usual arrogance within weeks if not days.
But the truth is that we’ve just seen an object demonstration of why Wall Street does, in fact, need to be regulated. Thank you, Mr. Dimon.
By: Paul Krugman, Op-Ed Columnist, The New York Times, May 13, 2012
“Exceptions, Exemptions And Loopholes”: How J.P. Morgan Chase Has Made The Case For Breaking Up The Big Banks
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, threaten or diminish the savings of millions more, and send 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.
By: Robert Reich, Robert Reich Blog, May 10, 2012
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