“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version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the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
“A Horrifying Worldview”: The Endless Arrogance Of Wall Street
The super wealthy apparently believe that they deserve constant deference.
Greg Sargent is rightfully stunned by the entitled petulance of Wall Street bankers who are shocked—shocked—that President Obama would do anything other than praise their indispensable brilliance:
Wall Streeters are so upset about Obama’s harsh populist rhetoric that they privately called on him to make amends with a big speech — like his oration on race — designed to heal the wounds of class warfare in this country. […]
Of course, their exaggerated weariness notwithstanding, the “wounds of class warfare” haven’t been borne by Wall Streeters, who remain fabulously wealthy even after causing the worst downturn since the Great Depression. If there’s anyone waging class warfare, it’s the radicalized representatives of the rich, who have successfully engineered government to enhance their wealth at the cost of our shared responsibilities. As such, the actual victims of class warfare are the ordinary Americans who face stagnant wages, rising costs, and a tattered safety net.
After going through the insanity of Wall Street complaints, Sargent ends his post on this note:
One wonders if there is anything Obama could say to make these people happy, short of declaring that rampant inequality is a good thing, in that it affirms the talent and industriousness of the deserving super rich. It certainly seems clear that they won’t be satisfied until he stops mentioning it at all. [Emphasis mine]
If you think the bolded section is an exaggeration, you should take some time to read Adam Davidson’s New York Times profile of Edward Conard, a former partner at Bain Capital—Mitt Romney’s investment fund—who now works as an apologist for the ultrawealthy. Conard believes three things. First, that millionaires and billionaires earned every penny of their wealth through merit and hard work:
God didn’t create the universe so that talented people would be happy,” he said. “It’s not beautiful. It’s hard work. It’s responsibility and deadlines, working till 11 o’clock at night when you want to watch your baby and be with your wife. It’s not serenity and beauty.”
Second, that immense wealth is the just reward for any and all risk taking:
“It’s not like the current payoff is motivating everybody to take risks,” he said. “We need twice as many people. When I look around, I see a world of unrealized opportunities for improvements, an abundance of talented people able to take the risks necessary to make improvements but a shortage of people and investors willing to take those risks. That doesn’t indicate to me that risk takers, as a whole, are overpaid. Quite the opposite.” The wealth concentrated at the top should be twice as large, he said.
And finally, that extraordinary income inequality is a net plus for society. Those who use their wealth for charity, Conard argues, are depriving the world of investment and gain:
During one conversation, he expressed anger over the praise that Warren Buffett has received for pledging billions of his fortune to charity. It was no sacrifice, Conard argued; Buffett still has plenty left over to lead his normal quality of life. By taking billions out of productive investment, he was depriving the middle class of the potential of its 20-to–1 benefits. If anyone was sacrificing, it was those people. “Quit taking a victory lap,” he said, referring to Buffett. “That money was for the middle class.”
For those of us who don’t see wealth as the ultimate end, who see value in other, non-monetary pursuits, and who understand the power of chance and fortune, this is a horrifying worldview. Conard seems oblivious to the fact that there are people who work hard—punishing their bodies with physical labor—in order to scrap by with the basics of life. It’s not that these people are lazy, it’s that they didn’t win the cosmic dice game that put them in a position to reach the heights of American society.
There is a disturbing corollary to Conard’s worldview, that he expresses in his conversation with Davidson—if the wealthy are supremely virtuous for their pursuit of wealth, then those who reject that choice—regardless of what they do—are unworthy of our respect or admiration:
Conard, who occasionally flashed a mean streak during our talks, started calling the group “art-history majors,” his derisive term for pretty much anyone who was lucky enough to be born with the talent and opportunity to join the risk-taking, innovation-hunting mechanism but who chose instead a less competitive life.
Given their friendship and close connections, one thing to consider is whether Mitt Romney holds views close to Conard’s. Judging from his domestic policy plans—huge income tax cuts for the wealthiest Americans, combined with tax cuts on investment income, and a dramatic reduction in social services—the obvious answer is yes, of course he does. And indeed, at the end of his profile, Adam Davidson offers the strong suggestion that Romney’s thinking has more in common with his friend than it does with any of us.
BY: Jamelle Bouie, The American Prospect, May 2, 2012
“No Bank Bailouts”: Tea Partiers Take Contributions From Bailed Out Banks After Opposing Bank Bailouts
Tea Party-backed candidates swept into Washington in 2010 on a wave of opposition to bank bailouts. Now that they’re in Washington, however, their campaigns are drowning in campaign cash provided by the very banks that benefited from the Troubled Asset Relief Program.
The 10 freshmen Republicans on the House Financial Services Committee who have Tea Party backing have taken more than $100,000 from the political action committees affiliated with JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs — the nation’s five largest banks — Bloomberg reports:
Yet the anti-bailout fervor that drove the messaging of Republican candidates during the campaign cycle of 2009 and 2010 has dissipated, and those same lawmakers are now collecting money from the firms bailed out by President George W. Bush’s $700 billion Troubled Asset Relief Program. […]
The political action committees of those institutions have distributed $169,499 through March 31 to the campaign coffers of the 10 freshman Tea Party-backed lawmakers on the House Financial Services Committee, according to an analysis of campaign finance disclosure records.
The Tea Party hasn’t succeeded in ending “too big too fail” because they haven’t tried. Though the five biggest banks are now bigger than they were before the financial crisis, the Tea Party members haven’t proposed a single piece of legislation to limit their size. Instead, they’ve focused on repealing financial reform and blocking efforts to protect consumers from Wall Street’s predatory practices.
Multiple Democrats have proposed legislation to cap the size of large banks, while others have proposed new ways to unwind large banks without taxpayer-funded bailouts should they collapse. The efforts have drawn no support from the Tea Party. “No more bailouts,” Tea Party Express’ website proclaims. The candidates it and other Tea Party organizations backed in 2010, however, apparently no longer feel the same way.
By: Travis Waldron, Think Progress, April 30, 2012
Mitt Romney’s “Freedom To Dream”: That Is, If You Just Forget About Reality
At this point, it appears that Mitt Romney delivers a “major” speech on the economy about once a month, apparently working under the assumption that, eventually, someone will take one of these speeches seriously. The last such effort, delivered to an empty football stadium in Detroit, didn’t go well, so the former governor gave it yet another try yesterday at the University of Chicago.
The event was largely overlooked — apparently, once-a-month economic speeches read from teleprompters on a weekday afternoon have started to bore political reporters — but the remarks were actually worth paying attention to. Jamelle Bouie described the speech as “a remarkable work of staggering dishonesty,” which struck me as more than fair.
I believe speechwriters tend to call remarks like Romney’s yesterday as “big picture speeches.” The former governor presented no specifics and offered no details about any aspect of his economic vision, but he used the word “freedom” 29 times, and the word “free” an additional 10 times — all while standing in front of six American flags — all of which apparently was supposed to distract the audience from the fact that Romney’s vision lacked all meaningful substance.
But there was something to be learned from the speech anyway. For one thing, Romney presented an economic vision that’s very conservative.
“[O]ne feature of our culture that propels the American economy stands out: freedom. The American economy is fueled by freedom. Free people and their free enterprises are what drive our economic vitality. […]
“Today, however, our status and our standing are in peril because the source of our economic strength is threatened. Over the last several decades, and particularly over the last three years, Washington has increasingly encroached upon our freedom…. If we don’t change course now, this assault on freedom could damage our economy and the well-being of American families for decades to come.
“We see this attack on our freedom in every corner of the economy.”
Just get the government out of the way and wait for “freedom” to solve all of our problems. Once we get pesky safeguards and regulations out of the way, we’ll be free to breathe dirty air and drink dirty water; we’ll be free of the burdens of affordable medical care; we’ll be free to watch Wall Street excesses rob the country blind; we’ll be free to slip into poverty into an inadequate safety net full of holes; we’ll be free of the homework assigned to college students; and we’ll be free to remain dependent on oil indefinitely.
It’s the kind of freedom that Sen. Jim DeMint (R-S.C.) will find inspiring, and working families will find crushing.
What’s more, yesterday offered a reminder as to just how dishonest Romney is prepared to be to advance his ambitions. To listen to this speech, you’d think that President Obama raised taxes instead of having cut them repeatedly. You’d think the stock market has been crushed by “restricted freedom,” instead of having soared under Obama’s watch. You’d think oil production has been sharply reduced, instead of having gone up each of the past three years.
And you’d think Obama vastly increased government spending and hired legions of new bureaucrats, none of which happened in reality.
“The reality is that, under President Obama’s administration, these pioneers would have found it much more difficult, if not impossible, to innovate, invent, and create.
“Under Dodd-Frank, they would have struggled to get loans from their community banks.
“A regulator would have shut down the Wright Brothers for their “dust pollution.”
“And the government would have banned Thomas Edison’s light bulb. Oh yeah, Obama’s regulators actually did just that.”
When Mitt Romney says “the reality is,” you can probably assume you’re not going to hear anything about reality. In this case, Romney is completely wrong about Wall Street reform; the Wright Brothers line doesn’t make sense; and the light bulb line refers to a Bush-era, bipartisan energy measure that doesn’t ban light bulbs at all.
“A remarkable work of staggering dishonesty,” indeed.
By: Steve Benen, The Maddow Blog, March 20, 2012
“Aiding And Abetting”: Scott Brown Weakened Restrictions On Goldman Sachs Abuses
In his public resignation letter in today’s New York Times, former Goldman Sachs executive Greg Smith said that one of the fastest ways to get ahead with the firm is to persuade clients “to invest in the stocks or other products that [the firm is] trying to get rid of because they are not seen as having a lot of potential profit.” He lambastes a firm culture where colleagues openly boast of “ripping their clients off.”
The sad thing is, this sort of shady might well have been on the way to being curtailed if not for the actions of Sen. Scott Brown (R-MA). After Brown was elected to the senate in 2010, he threatened to join a Republican filibuster of the Dodd-Frank Wall Street Reform and Consumer Protection Act, using that threat to significantly water down the bill. Among the industry-favored concessions he extracted was weakening of the “Volcker rule,” which was meant to curb risky speculative investments that do not benefit customers.
Thanks to Brown’s maneuver, the final bill upped the amount of risky trading big banks like Goldman could engage in, increasing the amount of gambling they’re able to do by billions of dollars. Since then, financial industry lobbyists have been hammering away at the the rule in an attempt to render it completely meaningless.
The financial sector, of course, has repaid Brown with a flurry of campaign contributions. Between contributions from the firm’s leadership PAC and contributions from company employees, Brown has already received more than $40,000 in campaign cash from Goldman Sachs this cycle.
By: Josh Israel, Think Progress, March 14, 2012
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