“I would not rush to pass new legislation or new regulation. This is, in the normal course of business, a large loss but certainly not one which is crippling or threatening to the institution. This was not a loss to the taxpayers of America; this was a loss to shareholders and owners of JPMorgan and that’s the way America works. The $2 billion JPMorgan lost, someone else gained.” – Mitt Romney, during a Wednesday interview with Hot Air blogger Ed Morrissey, discussing JPMorgan’s $3 billion loss (it’s no longer ‘just’ $2 billion)
It’s too bad that Mitt Romney, as a presidential candidate, doesn’t know what he’s talking about. Further as Matt Taibbi asks, are these places still banks or are they now casinos?
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.
Activity like this is exactly what the Volcker rule, which effectively banned risky proprietary trading by federally insured institutions, was designed to prevent. It will be argued that this trade was a technically a hedge, and therefore exempt from the Volcker rule. …Hedge or no hedge, we don’t want big, federally-insured, too-big-to-fail banks making giant nuclear-powered derivatives bets.
[...] 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.
University of Maryland professor and former regulator Michael Greenberger argues that if Dodd-Frank had been in effect:
As the trades lost value, margin would have been called for on a regular and systematic basis. (The losses would never have reached $ 2B without much earlier and corresponding regular calls for margin.) The losing nature of the trades would have been transparent to market observers and regulators for quite some time and the losses would not have piled up opaquely. It is almost certain that, at the very least, the Fed (not wanting to exacerbate its reputation for throwing taxpayer money at TBTF problems), would have backed JPM off these trades long ago.