Matt Taibbi explains why we ordinary people should be concerned about the reports of the $2 billion loss by JP Morgan Chase.
If you’re wondering why you should care if some idiot trader (who apparently has been making $100 million a year at Chase, a company that has been the recipient of at least $390 billion in emergency Fed loans) loses $2 billion for Jamie Dimon, here’s why: because J.P. Morgan Chase is a federally-insured depository institution that has been and will continue to be the recipient of massive amounts of public assistance. If the bank fails, someone will reach into your pocket to pay for the cleanup. So when they gamble like drunken sailors, it’s everyone’s problem.
If J.P. Morgan Chase wants to act like a crazed cowboy hedge fund and make wild exacta bets on the derivatives market, they should be welcome to do so. But they shouldn’t get to do it with cheap cash from the Fed’s discount window, and they shouldn’t get to do it with money from the federally-insured bank accounts of teachers, firemen and other such real people. It’s a simple concept: you either get to be a bank, or you get to be a casino. But you can’t be both. If we don’t have rules to enforce that concept, we ought to get some.
Understanding what happened is way over my head but these articles by Felix Salmon (here, here, and here) give some inkling of what went on.
Currently, banking is a cartel monopoly. It imitated government in making itself so, and it also set out to control government for its own benefit, at the nation’s expense. Our politicians are unsophisticated in economics and finance, yet they’re the ones who write financial regulations. The lawmakers need now to understand how to manage conflicts of interest in the present state of our markets, not the state of the markets circa 1932. They need to know that when dealing with dark pools or securities or insurance firms--if you wish to protect the public from easy, damaging frauds, you have to set up certain pillars. You cannot “insure” away all risks by declaring everything to be nationally guaranteed. There has to be outside oversight of the markets.
To function without fraud, markets must operate under the clear light of transparency that displays all material facts about a proposed market transaction. It is the only way to avert fraud, dark pools, and exploitation of the innocent, which is the proper goal of government. Access to value or trading may also not be hoarded for the exclusive benefit of a privileged class. It should be made freely available, on an equal basis to everyone, who are given an even shot at the chase, say, on a market exchange scrutinized beforehand and regulated-to-be-fair. Not a private racket made opaque and the quarry of cronies. When Wall Street started handing out IPO shares (aka bribes) to congresscritters, it had become brazen in assurance that no one would call them on their erection of private rackets or misuse of inside information.
When I worked at Treasury my specialty was financial regulation. It’s quite maddening for me to see how financial institutions and their lapdog legislators are working hand-in-hand to keep the public unaware of how folks like JP Morgan Chase are playing fast and loose, knowing their screwups will be covered by taxpayer money.
Once upon a time banks were gambling on companies. Some company wanted to borrow money for some new enterprise and the bank would gamble on whether that would make money or not.
I support such gambles. The problem in the financial world at this moment is that too few banks are making these type of gambles.
This gamble, and the ones that brought about the financial crisis are different kind of gambles.
These gambles are essentially zero sum games. Winning a gamble for one bank results in the loss for another. Even if it may seem both win, there’s no effect outside finances. So if it seems both banks involved in a gamble win, all other users of finances have lost.
These are the gambles that should be legislated out of existence.