By: Bob Lucore
JPMorgan Chase’s Chief Executive, Jamie Dimon, has been in the forefront of those opposing stricter regulation of the financial sector. Now his company is faced with the embarrassment of losing $2 billion due to speculative derivative trading. Even Dimon labels the trades, “Poorly monitored, poorly structured, poorly reviewed,” and “egregious.”
Anyone who seriously wants to see the U.S. get out of its economic doldrums and ensure that the financial sector does not drag the economy down again, has to give serious attention to strengthening regulations on the financial sector. However, the giants among the financial companies, with Dimon and JPMorgan Chase leading the way, have not been shy about pressuring Washington to go slow in writing regulations.
The big financial firms have strongly opposed government measures to regulate and ensure the safety of the financial markets. These are the same “too-big-to-fail” companies that benefited greatly from the taxpayer bailout after the 2008 financial meltdown. Dimon, who is also a director of the Federal Reserve Bank of New York, has been leading a group of financial executives who have pressured the Federal Reserve not to implement certain provisions of the Volker Rule.
The Volker Rule was called for by the Dodd-Frank financial reforms passed after the 2008 financial fiasco. It calls on five federal agencies to draw up rules that limit proprietary trading by banking institutions. Big banks oppose implementation of the Volker Rule for the simple reason that they stand to benefit greatly from undertaking risky transactions, especially when they are insured against any catastrophic losses by government bailouts.
Elizabeth Warren was hounded out of Washington by conservative politicians and lobbyists for the banking giants. She had been working to protect consumers through stronger regulations. Now she is a popular candidate for Senate from Massachusetts. She summarizes the situation succinctly:
"We need to stop the cycle of bankers taking on risky activities, getting bailed out by the public, then using their army of lobbyists to water down regulations," Warren said. "We need a tough cop on the beat so that no one steals your purse on Main Street or your pension on Wall Street."
Congressman Barney Frank (D-MA) remarked on the irony of the JPMorgan Chase situation with his usual flair. Frank said that those arguing against financial reform have pointed to:
“JPMorgan Chase’s assertion that complying with the new rules will cost $400 to $600 million at the outset (a number which will obviously go down as compliance processes are set in place). In other words, JP Morgan Chase, entirely without any help from the government has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them.”
Strengthening Frank’s argument is the fact that in addition to the $2 billion dollar trading loss to which he refers, the bank lost an additional $14.5 billion in stock market value late last week. None of this was due to government regulation. Indeed, it could be due to the absence of strict regulations on risky trading.
It should be noted that on the campaign trail, candidate Mitt Romney has called for weaker versions of financial reform and even the repeal of Dodd-Frank.
During the heyday of American prosperity, which lasted roughly from the end of World War II until the 1970s, banks were tightly regulated and the public could trust the stability of financial institutions. Since then, a variety of deregulatory measures have torn down the walls that formerly existed between banking and speculative trading. Perhaps in the aftermath of the JPMorgan Chase affair, we can begin to restore these safeguards.
Bob Lucore, a long-time ADA board member, is the former Director of Research and Policy for the United American Nurses and has worked for the Teamsters and the Department of Economic Research at the AFL-CIO. . He taught economics for several years at Centre College and Colorado State University and is currently studying Library and Information Science at San José State University. Bob is a member of UAW Local 1981, the National Writers Union.