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:
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.)