Big Bank Games
Back to the barricades, Tea Party. Oops, it's the Occupy Wall Street group that is now on the barricades. However, it was the Tea Party common folks who first objected to the nearly trillion dollar bail-outs the banks got during the financial crisis of four years ago. They objected, too, to the huge government deficits that were and are piling up. The Occupiers are late comers and bomb throwers and anarchists no more interested in a stable banking system than a bank robber. Tea Partiers, on the other hand, went on to actually elect people who don't want to throw your money around. Keep that in mind when the media and democrats are quick to praise and even defend the Occupy movement.
Anyway, the banks, or at least one bank, is at it again. It's pretty boring, but J.P. Morgan, one of the bailed out banks, just lost $2 billion messing around with its money. The bank is so big that $2 billion doesn't really hurt it, supposedly. How many other banks are throwing their depositors' money around isn't known, so still this is a big deal.
It's a big deal for the politicians in an election year. Democrats and the Obama administration are cheering because this is an excuse for more government regulation of the financial system. The banks are evil and need to be controlled by the anti-evil federal government. Yeah. Right. There were plenty of regulations in place for the financial implosion in 2008. The problem was that the regulators and the banks and the regulations and the government and politicians themselves (Freddie Mae and Mac) were all in the same bed. The banks and some Republicans are yelling "no mas" to regulations.
They are both wrong. It's not regulations that are needed, but a new look at the financial system - top to bottom. Not something doable in the short term and certainly not in an election year. The problem before was that banks were "too big to fail". That was the argument for the TARP funds that bailed out all the banks that bet on the housing market. If the big banks failed everyone would go down with them. By the way, big finance was a big financier of the Obama administration and still is, but appears to be switching alliances. None of it is good.
Most of the TARP money did get paid back, but apparently, if J.P. Morgan is an indication, banks are gambling again. They're called "instruments" and some are legitimate investments, some short-term betting on interest rates to try and smooth out the ups and downs of the market. However, some are bets on bets that are already bets on bets. Like a Vegas casino operation. High salaried operatives (like $5 million dollar executives) get incentives and bonuses for transactions and someone, somewhere gets commissions on everything that is done.
What we're talking about here is the Big Banks: Morgan, Chase, Bank of America, Wells Fargo, Goldman Sachs. They're not your neighborhood banks. The Big Banks deal in lending and investing and insurance and real estate. There's no separation between depositors' money and risks in the market. Regulators try to make sure banks hold back enough money to cover losses. What's enough when dabbling in global markets?
There was a wall set up in the big Depression and it was called the Glass-Steagall Act. It was repealed during the Clinton administration when banks were again permitted to be investment banks. By all accounts the Act was already dead, but the concept died with repeal. It needs to be looked at again. And we need to determine (supposedly that has been done) what is too big to fail. Anti-trust laws are supposed to keep companies from controlling too much of the market which promotes competition and keeps government from having to do bail-outs. It goes for car companies, too.
In the meantime, Morgan's CEO Jamie Dimon fired Ina Drew, the woman in charge of investments, after much praise for her dedication to the company. Dimon was contrite about the losses which, a couple of weeks before, he denied had happened. A Wall Street Journal story uncovered the mess. Dimon ranted and railed about the story then, but is open and disarmingly matter-of-fact now. Why hasn't he been fired?
It's a mess that will get messier. The problem is that the mess might get passed onto us whether through defaults or regulations. It's difficult not to be cynical.