JPMorgan, the nation's largest bank, receives an explicit federal subsidy (deposit insurance) and a much larger implicit federal subsidy. It's improper for the megabank to use these subsidies to speculate in derivatives. And yet it can do so with hardly any serious regulatory consequences.
Financial institutions such as JPMorgan love to buy derivatives because they are opaque, create fictional income that leads to real bonuses and when (not if) they suffer losses so large that they would cause the bank to fail, they will be bailed out.
The Dodd-Frank Act's Volcker Rule was designed to solve the problem.
However, JPMorgan led the effort to gut the Volcker Rule and the provision that requires transparency. JPMorgan is the world's largest proprietary purchaser of financial derivatives -- precisely what the Volcker Rule sought to end. The bank claims that it does not engage in proprietary trading and that it purchases derivatives solely to hedge. That claim is an example of what Stephen Colbert meant when he invented the term: "truthiness."
William K. Black
What the spokesmodels deftly avoid is the discussion that JPM is not a privately financed hedge fund, but a government supported entity using insured deposits, subsidized funds, and the protection of the Federal Reserve as a bank holding company.
Why was it that the investment banks like Goldman suddenly wanted to become bank holding companies during the financial crisis? Oh yeah, that.
If these jokers want to gamble fine. But Jamie Dimon's mentor Sandy Weil led a lobbying effort that spent hundreds of millions to overturn Glass-Steagall, and now JPM is leading the fight aginst the Volcker Rule.
People don't mind if you bet and lose. They do mind if you cheat and win, and they mind it even more if you keep the money when you win, but you charge it to the public trust when you lose. And that is exactly the game that Wall Street led by JPM is playing right now. And these people know better.
Here is an antidote to the faux market hystrionics on CNBC and Bloomberg TV. Investigating JP Morgan Chase - Simon Johnson
and also Bill Moyers Interviews Simon Johnson on JPM and the Next Financial Crisis