JP Morgan Tip of Iceberg

By Greg Hunter’s USAWatchdog.com 

William K. Black is one of my heroes.  He is a former bank regulator, professor and an outspoken critic of the part of Wall Street that crashed the financial system in 2008.  His big beef is there were zero prosecutions of financial elites.  A thousand big wigs were convicted (including a sitting governor) in the wake of the Savings and Loan crisis in the early 1990’s.  According to Professor Black, the 2008 meltdown was 70 times the size of the S & L blow-up.  Black, whose specialty is white-collar crime, says, basically, nothing is fixed, and taxpayers are on the hook for the next meltdown.  JP Morgan’s latest trading loss is just the tip of the iceberg because if JP Morgan can be hit with billions in surprise losses, then the other too-big-to-fail banks are very likely in the same boat taking the same risks with taxpayer backing.  Please read William Black’s enlightening piece of what the $2 billion JP Morgan derivative trading loss means to you in the CNN post below:

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Why JPMorgan gets away with bad bets

By William K. Black

(CNN) — JPMorgan Chase can be considered a systemically dangerous institution, which means that it is “too big to fail” because the government fears that its collapse would cause a global financial crisis.

It is simply irrational to allow such an institution to exist, especially when it can easily incur a $2 billion trading loss.

Banks are more efficient when shrunk to the point that they can no longer endanger the world economy. But because JPMorgan and similar banks are the leading contributors to Democrats and Republicans, neither political party has the courage to order them to reform.

The Volcker Rule, which aims to prevent insured banks from engaging in speculative bets, was passed as part of the Dodd-Frank Act over the objections of Treasury Secretary Timothy Geithner and almost the entire Republican congressional delegation.

Back in 2008 when the financial crisis hit us hard, a host of large institutions were destroyed. AIG, Merrill Lynch, Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, Washington Mutual and Wachovia all suffered massive losses on their toxic derivatives, particularly collateralized debt obligations (CDO) and credit default swaps (CDS), better known as “green slime.” One would think everyone has learned a lesson. Jamie Dimon, JPMorgan’s CEO, now agrees that banks should not invest in derivatives. But government subsidies have a way of encouraging fraud and speculation.

JPMorgan, the nation’s largest bank, receives an explicit federal subsidy (deposit insurance) and a much larger implicit federal subsidy. It’s improper for the megabank to use these subsidies to speculate in derivatives. And yet it can do so with hardly any serious regulatory consequences.

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.

(Click here for the rest of the William Black post on CNN.)

Comments
  1. Barry

    This statement “Black, whose specialty is white-collar crime, says, basically, nothing is fixed, and taxpayers are on the hook for the next meltdown.” makes my head explode! Where is it written that the tax payers have to cover the bad bets of the corporations! Pure insanity.

    • Greg

      Barry,
      I know it’s pretty scary but all the banks have FDIC insurance. The Deposit Insurance Fund (DIF) doesn’t have the kind of money necessary to bailout a JP Morgan, but it does have a line of credit to the Treasury and that is a taxpayer backing.

    • paul

      Is the JPM 6 billion dollar loss a cover for the MFGlobal fraud?

  2. niphtrique

    I have a plan that will work but nobody gets it.

    Anyway, things are the way they are.

    If nobody has a better idea than I have then we are certainly doomed.

    But then again: maybe someone has a better idea?

    It better be not buying gold, silver, canned food and guns. That is preparing for the worst.

    I have done that.

  3. Stan

    The success of our educational system and its goal to dumb down the electorate has been a smashing success. The common voter understands nothing about economics or capitalism and votes for who ever promises to take care of him with freebies. We have passed the point of no return and our elected officials are laughing all the way to their offshore bank accounts.

    • Greg

      Stan,
      Love this quote, “. . . our elected officials are laughing all the way to their offshore bank accounts.” Keep em coming. Thank you for your comment.
      Greg

      • freedom

        STAN your post cant be beat anywhere on the internet.So well stated.
        I saw on yahoo today, Oboma is heavy invested with jp morgan.

  4. AndyB

    Greg: Bill Black is one of my favorites too. In a perfect world, he should be a special prosecutor investigating the TBTFs. But alas, the WH, regulating bureacracies, the FED and Treasury are all populated with ex-TBTF execs. Even worse is the DOJ, run by a political hack, with a current mission of creating national racial division to appeal to the President’s base. Sadly, this revolving door of corruption and perverted agendae courtesy of the puppet masters will never end without a revolution.

    • Greg

      Stop on Andy B. Thank you for your sharp analysis and comment.
      Greg

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