Saturday, May 12, 2012

Too big to run loose

I've always said "if they're too big to (be allowed to) fail, they're too big to (be allowed to) exist."

Now we see JP Morgan repeating the same sort of behavior that ... well, let's hear it from Robert Reich:
J.P. Morgan’s lobbyists and lawyers have done everything in their power to eviscerate the Volcker rule — creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near-meltdown.

And now — only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent and pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression — J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, excessively risky trades poorly-executed and poorly-monitored, that caused the crisis in the first place.

In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.
No kidding.

And Paul Krugman compares this to Solyndra - at least, the coverage thereof:

But an interesting parallel struck me here: I wonder whether the people who go on and on about the much smaller loss at Solyndra, the case that launched a thousand hearings, will get comparably worked about on this case (actually I don’t wonder — they won’t).

The obvious objection is that the government lost money on Solyndra, but hasn’t (yet?) on JPMorgan. But that’s less true than meets the eye. Solyndra was a small part of a broad program of loan guarantees, which inevitably ran the risk of loss — otherwise those guarantees wouldn’t have been worth anything, would they? And it was the only loss.

And JPMorgan is also part of a broad program of guarantees, explicit on deposits, implicit through the general aspect of too-bit-to-fail. There have been government losses on these programs, and will be in future — and misbehavior like what seems to have happened here feeds such losses. And as best I can tell, JPMorgan’s story looks a lot more like actual malfeasance.

But of course JPMorgan wasn’t doing do-gooder liberal stuff like solar, it was just engaging in financial tricks of little or no social value. That makes it all OK.

At the very least this is proof we need more not less regulation. It might be proof we need smaller banks.

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