18 May 2012

CFTC Commissioner Bart Chilton On the Irony of JP Morgan's Trading Loss

"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."

William K Black

When the next financial crisis occurs remember the things that Bart Chilton says in his op-ed piece below. Things like widespread bank fraud and a financial collapse do not just happen. Sandy Weill led a determined and well funded lobbying effort to overturn Glass-Steagall and open the public pocketbook for the banks. And his protege Jamie Dimon continues on with his work, with a lobbying effort and use of the courts to circumvent the return of sensible banking reform.

But this would not have been possible without the lapse in the stewardship of public figures in the Congress, the Executive Office, and private institutions like the media and the Federal Reserve.

The breadth of the fraud makes reform difficult, because the money flowing from the symbiotic relationship between the monied interests and Washington is a highly addictive drug to those for whom money brings power.

But reform will happen. It is just a matter of how bad it has to get before change comes.  The more the resistance, the more sweeping and powerful will be the change.    Corruption never lasts; even the great empires of history, so intimidating and seemingly insurmountable at the height of their power, have fallen.  

And so surely will a few recklessly selfish bankers, with their political hacks and corrupt enablers, fall in disgrace and eventually be forgotten, or if remembered, only as a warning, a tarnished stain on the enduring Republic of free people.

See also: How JPMorgan Is Like Enron

JPMorgan: Isn't life strange?
May 17, 2012

By now, folks have heard much about the announcement that JPMorgan Chase had somehow lost $2 billion over a six-week period. In an irony of ironies, here's what one JPMorgan risk officer had to say about the behemoth bank just a few months ago: "Our metric of success is 'no surprises'; no surprises in terms of the impact on the firm of any individual behavior or outside event."

Hmm. Actually there was good reason to say that at the time as JP had just been named Risk Magazine's "Derivatives House of the Year." As the Moody Blues sing: "Isn't Life Strange?"

Here's a little perspective: $2 billion represents 10 percent of JPMorgan's profits for all of last year. In fact, $2 billion is more than four times the amount the U.S. government prints in one day. And, $2 billion over six weeks is more than $47 million a day!

None of this means we're going to have a repeat of the colossal calamity of 2008. But, it's scary isn't it? The "scary smart," "greed is good," "regulations are bad" folks on Wall Street may be flying below the clouds today.

But think about why. Here we are four years after the collapse of Bear Stearns, Lehman Brothers and AIG, and we're still working toward implementing the rules that Congress and the president put in place to keep another 2008 from happening, i.e. the Dodd-Frank Financial Reform and Consumer Protection Act.

The act itself has been around almost two years and yet, of the roughly 300 rules and regulations, less than a third have been completed - and that's 10 months after the mandated deadline. The JPMorgan announcement reminds us that our financial markets remain susceptible to the impact and contagion of these major market players. Maybe it's just the java jolt we need to wake folks up.

Lots of things have slowed the rulemaking process, not the least of which are lawsuits brought against regulators by the scary smart people. Remember, to some of them, regulation is a dirty word. Then there are those in Congress who never wanted financial reforms in the first place and are either trying to repeal them a piece at a time; drown regulators in their own version of red tape; or just hold back funding to the watchdogs who would keep an eye on the JPs of the world.

Four years ago, the economy was on the verge of collapse for two reasons: the high-flying, above the clouds captains of Wall Street and lax regulation. Is history repeating itself? I hope not and I don't think so, but scary it is.

Are we more secure now than we were when the economy collapsed? To some extent, yes. There's new transparency in markets that will allow us to see the kinds of things JP was doing to lose $47 million a day. But, could our markets suffer significantly before all the rules are in place? Unfortunately, yes. And that's bad for investors, markets, and yes, consumers. To quote the same JPMorgan official, "Investors love not being surprised." Isn't life strange, indeed?