Posted Jun 19, 2012 by Martin Armstrong
Congress does not get it. Banks should be banks – not traders. I retired from making markets when the model said gold would decline after 1980 and indeed it did into 1999. My view, if I had to speculate to keep the business at that level of profit, I felt I might as well trade my own account without all the hassles. Either you are a bank or a proprietary trader. That is what Glass-Steagall was all about & we would not have needed $700 billion bailout. Thank you Ex-Treasury Secretary Rubin/former CEO of Goldman/Adviser to Citibank.Why invest in a hedge fund? You lose it is your loss. Invest in a bank. If they lose, don’t worry, Congress will bail them out and praise their stupidity. There are limits to being a genius. But stupidity has no limitation. Look at MF Global. Nobody from NY ever goes to jail even when they get caught trading with other people’s money. Congress, just turns a blind eye all the time.
Subject: Rep. Schweikert in the Hill: “What sin has JP Morgan committed other than being big enough to lose billions?”
What sin has JP Morgan committed other than being big enough to lose billions?
By Rep. David Schweikert (R-Ariz.)
On May 10, JP Morgan Chase Chairman and CEO Jamie Dimon announced a $2 billion loss in the firm’s Chief Investment Office trading portfolio. Since the disclosure, we have heard of investigations by the SEC, the FBI, and DOJ, among others. Dimon appeared before the Senate Banking Committee on June 13 in submission to the committee’s oversight purview, and he will be doing the same today (June 19) before my committee, the House Financial Services Committee.
Some have called for Dimon’s head. Others have invoked the so-called Volcker Rule, bemoaning its current lack of promulgation and calling for regulators to write rules that would be far-reaching and overwhelmingly inhibiting.
In addition to Dimon’s appearances and testimony, the Senate Banking Committee, as well as the House Financial Services Committee, have called upon representatives from financial regulatory bodies to submit testimony on JP Morgan’s trading losses. The questions by Congress range from the ‘how’ to ‘why’ this went undetected by the overseers and what backstops can be installed across the industry to prevent this from happening again.
This is fair.
A more than $2 billion trading loss by a blue chip firm like JP Morgan inevitably roils the marketplace, inadvertently affecting market caps as well as savings and retirement accounts.
We can never unwind the connectivity inherent in our markets, nor should we really be looking to. So it’s reasonable to worry over how to prevent one company’s cold from infecting the group, to borrow from a well-known metaphor.
But what are we looking for from Dimon? An apology? An admission of guilt? What sin has JP Morgan committed other than being big enough to lose billions of their own money in a quarter and still turn a $4 billion profit?
Did the bank violate the Volcker Rule? Volcker’s not actually enforceable yet, and full details of the firm’s losses have yet to be disclosed, but all evidence would indicate that JP Morgan did no such thing.
Was the firm gambling with depositor, taxpayer, or government money?
No on all accounts. So why the public outcry for JP Morgan and Jamie Dimon to explain themselves?
I’d like to pose two answers to that question: 1) Anger, and 2) Fear.
Four years ago, housing prices, retirement accounts, income, and employment came tumbling down, and we are mad that no one but taxpayers has paid for that to date.
Since the crash, Washington lawmakers have crafted the behemoth known as the Dodd-Frank Act, but before all 400-plus rules could be written, along came JP Morgan, a bank which walked out of the 2008 crash seemingly unscathed, and lost more than $2 billion by hedging esoteric synthetic credit products.
Sounds like reason enough to be plenty mad.
Then there’s fear. We are afraid of anything that smells like the market calamity of 2008. Regardless of how incomparable the two events are, when we hear about big dollar losses and a slew of financial jargon that no one understands, we’re afraid.
Fear isn’t something that can be assuaged with facts and figures; fear keeps us checking under the bed for monsters long after our intellect tells us there’s no such thing.
I suggest that our anger and our fear have offered us an opportunity.
Instead of vilifying JP Morgan, let’s use this public call to the carpet as a chance to educate ourselves on the free enterprise that takes place at firms like JP Morgan, and that this time unfortunately resulted in a sizable loss to the bank and its shareholders. Let’s question him – and the assembled regulators – on how JP Morgan could have managed its risk better, and how the marketplace can work to more locally contain the unavoidable ripples that occur from such activity.
Let’s be sure to use this opportunity for the betterment of our free marketplace and not to call a firm out for practicing what we as a country preach.
Rep. Schweikert (R-Ariz.) is a member of the House Financial Services Committee.