THE VOLKER RULE: TOO LITTLE, TOO LATE?

Hello everyone!  Here are three new posts from The Lion of the Left!  Enjoy!

 On July 21 of this year, the Volker Rule is to take affect reducing the kind of risky financial activities big banks used to set off our worst economic depression since 1929.  Part of the Dodd/Frank Financial Reform legislation, the Volker rule is supposed to limit the banks ability to use their own money to make risky financial deals.  Banks like Goldman Sachs, J. P. Morgan and Bank of America have spent millions trying to water down the rule claiming it will hurt liquidity and raise prices in markets.  Besides, they say, we have learned our lesson and won't ever do it again and don't need further regulation.

     J.P. Morgan, this week, has now admitted it lost over $2 billion because of a trade gone badly.  In a scene right out of a Vegas casino, a gambler in London made a bet.  He bet billions the economy would continue to improve and a basket of companies would continue to see their value go up.  The gamble was based on a Chicago mob favorite tactic, the protection game.  J.P. Morgan bought credit default swaps, in essence insurance policies, agreeing to pay if the company's value decreased.  The world economy slowed down, the company's value decreased and Morgan is out over $2 billion.

     When first asked about this disaster on April 13, 2012, Morgan CEO James Dimon dismissed the question as a, "...tempest in a teapot."  Now, Mr. Dimon says he didn't really know what was going on in his own bank.  Which is it?  He seemed to know enough to dismiss the inquiries as not worthy of concern, but then says he didn't know what was going on.

     According to the Wall Street Journal, the gambler in London had made similar bets totaling over $300 billion.  This was 15% of the company's total assets.  Mr. Dimon says, now, he didn't understand the level of risk being taken on and the company's actions were, "...sloppy...full of errors...bad judgment."

 

     It's as if the financial meltdown never occurred and it's business as usual on Wall Street.  The same people who needed trillions of tax dollars to bail them out are at it again.  They have succeeded in watering down financial reform to the point they are in a position to lose billions again and they are fighting to prevent even the most minimal of rules to be imposed on their actions.

     One of the proposals they are resisting with all their might, besides the Volker rule, is an attempt to regulate the $700 Trillion (with a T) derivative market of which credit default swaps are just one piece.  J.P. Morgan's own analysts didn't understand what this high roller in London was doing or how risky his actions were.  While the loss is "only"$2 billion or so, it is a replay of exactly the conditions which led to the fall of Lehman Brothers, A.I.G. and the global financial markets.  Banks like Morgan and Goldman Sachs and Citigroup were " too big to fail" and after taking all these risks, making huge profits which they gave to themselves and their 1% friends, and then abusing the nation's financial trust in them, were given trillions of tax dollars, returned to profitability and then refused to lend to small businesses on Main Street or assist in helping America's economy to recover.

     This gambler in London isn't using $300 billion to create new jobs or new industries.  He wasn't using the money to make something or spur consumption.  He wasn't feeding economic progress.  He was playing high stakes poker plain and simple.  This is the problem with all of Wall Street.  They resist reform and regulation saying it will hurt their ability to invest and be innovative, yet it's clear their innovations are the same as they were in 2007-2008 and all these investments add little value to the American way of life.

     De-regulation always hurts the average, gum-chewing American.  De-regulation always benefits the industry and corporations it targets putting more cash in the hands of the 1%.  De-regulation is shorthand for let us do anything we want, take any risk, gamble however we wish, knowing we will get the taxpayer or rate payer to bail us out if we fail.  I wonder if Americans will ever rise up and put an end to de-regulation?  Will taxpayer's outrage lead to regulation of the derivative's market before another disaster occurs?  Will we continue to let Wall Street's money, currently flowing like a tsunami into Republican coffers, stave off the much-needed regulation they deserve?

     James Dimon is supposed to be the golden boy of Wall Street.  His reputation is someone detail oriented and intimately involved in everything going on at J.P. Morgan.  Now we find out he had no idea an employee, who is still employed by them, was gambling with $300 billion of the bank's money.  Even worse, this is exactly the kind of thing the Volker rule is supposed to rein in.  Oh, Mr. Dimon says this $300 billion roll of the dice would not have violated the Volker rule even if it were already in place.  Whew!  Good to know we can sleep better after July 21.