Actually, I don’t know who’s behind this ad because there’s no way to know. And that’s a big problem.
Because Crossroads GPS is a tax-exempt nonprofit group, it can spend unlimited money on politics — and it doesn’t have to reveal where it gets the dough.
By law, all it has to do is spent most of the money on policy “issues,” which is a fig leaf for partisan politics.
Here’s what counts as an issue ad, as opposed to a partisan one. The narrator in the ad Crossroads GPS is launching solemnly intones: “In 2008, Barack Obama said, ‘We can’t mortgage our children’s future on a mountain of debt.’ Now he’s adding $4 billion in debt every day, borrowing from China for his spending. Every second, growing our debt faster than our economy,” he continues. “Tell Obama, stop the spending.”
This is a baldface lie, by the way.
Obama isn’t adding to the debt every day. The debt is growing because of obligations entered into long ago, many under George W. Bush – including two giant tax cuts that went mostly to the very wealthy that were supposed to be temporary and which are still going, courtesy of Republican blackmail over raising the debt limit.
In realty, government spending as a portion of GDP keeps dropping.
According to the reliable inside-Washington source “Politico,” the Koch brothers’ network alone will be spending $400 million over the next six months trying to defeat Obama, which is more than Senator John McCain spent on his entire 2008 campaign.
Big corporations and Wall Street are also secretly funneling big bucks into front groups like the US Chamber of Commerce that will use the money to air anti-Obama ads, while keeping secret the identities of these firms.
Looking at the all the anti-Obama super PACs and political fronts like Crossroads GPS, Politico estimates the anti-Obama forces (including the Romney campaign) will outspend Obama and pro-Obama groups by 2 to 1.
How can it be that big corporations and billionaires will be spending unlimited amounts on big lies like this one, without any accountability because no one will know where the money is coming from?
Blame a majority of the Supreme Court in its grotesque 2010 Citizens United vs. Federal Election Commission decision — as well as the IRS for lax enforcement that lets political front groups like Crossroads GPS or the U.S. Chamber of Commerce pretend they’re not political.
But you might also blame something deeper, more sinister.
I’m not a conspiracy theorist (you can’t have served in Washington and seriously believe more than two people can hold on to a big story without it leaking), but I fear that at least since 2010 we’ve been witnessing a quiet, slow-motion coup d’etat whose purpose is to repeal every bit of progressive legislation since the New Deal and entrench the privileged positions of the wealthy and powerful — who haven’t been as wealthy or as powerful since the Gilded Age of the late 19th century.
Its techique is to inundate America with a few big lies, told over and over (the debt is Obama’s fault and it’s out of control; corporations and the very rich are the “job creators” that need tax cuts; government is the enemy, and its regulations are strangling the private sector; unions are bad; and so on), and tell them so often they’re taken as fact.
Then having convinced enough Americans that these lies are true, take over the White House, Congress, and remaining states that haven’t yet succumbed to the regressive right (witness Tuesday’s recall election in Wisconsin).
I desperately hope I’m wrong, but all there’s growing evidence I may be right.
The White House must be telling itself there are still five months between now and Election Day, so the jobs picture could brighten. After all, we went through a similar mid-year slump in 2011 but came out fine.
But however you look at today’s jobs report, it’s a stunning reminder of how anemic the recovery has been – and how perilously close the nation is to falling into another recession.
Not only has the unemployment rate risen for the first time in almost a year, to 8.2 percent, but, more ominously, May’s payroll survey showed that employers created only 69,000 net new jobs. The Labor Department’s Bureau of Labor Statistics also revised its March and April reports downward. Only 96,000 new jobs have been created, on average, over the last three months.
Put this into perspective. Between December and February, the economy added an average of 252,000 jobs each month. To go from 252,000 to 96,000, on average, is a terrible slide. At least 125,000 jobs are needed a month merely to keep up with the growth in the working-age population available to work.
Face it: The jobs recovery has stalled.
What’s going on? Part of the problem is the rest of the world. Europe is in the throes of a debt crisis and spiraling toward recession. China and India are slowing. Developing nations such as Brazil, dependent on exports to China, are feeling the effects and they’re slowing as well. All this takes a toll on U.S. exports.
But a bigger part of the problem is right here in the United States, and it’s clearly on the demand side of the equation. Big companies are still sitting on a huge pile of cash. They won’t invest it in new jobs because American consumers aren’t buying enough to justify the risk and expense of doing so.
Yet American consumers don’t have the cash or the willingness to spend more. Not only are they worried about keeping their jobs, but their wages keep dropping. The median wage continues to slide, adjusted for inflation. Average hourly earnings in May were up 2 cents – an increase of 1.7 percent from this time last year – but that’s less than the rate of inflation. And the value of their home – their biggest asset by far – is still declining. The average workweek slipped to 34.4 hours in May.
Corporate profits are healthy largely because companies have found ways to keep payrolls down – substituting lower-paid contract workers, outsourcing abroad, using computers and new software applications. But that’s exactly the problem. In paring their payrolls, they’re paring their customers.
And we no longer have any means of making up for the shortfall in consumer demand. Federal stimulus spending is over. In fact, state and local governments continue to lay off large numbers. The government cut 13,000 jobs in May. Instead of a boost, government cuts have become a considerable drag on the rest of the economy.
Republicans will have a field day with today’s jobs report, taking it as a sign that Obama’s economic policies have failed and we need instead their brand of fiscal austerity combined with more tax cuts for the wealthy.
But that’s precisely the reverse of what’s needed.
What if Europe and the US converged on a set of economic policies that brought out the worst in both – European fiscal austerity combined with a declining share of total income going to workers? Given political realities on both sides of the Atlantic, it is entirely possible.
So far, the US has avoided the kind of budget cuts that have pushed much of Europe into recession. Growth on this side of the pond is expected to be around 2.4 per cent this year. And jobs are recovering, albeit painfully slowly.
But a tough bout of fiscal austerity could be coming in six months. The non-partisan Congressional Budget Office warned last week that if the Bush tax cuts expire on schedule at the start of 2013, just as $100bn of budget cuts automatically take effect under the deal to raise the debt ceiling that Democrats and Republicans agreed to last August, the US will fall into recession in the first half of next year.
Even if these measures were to reduce the cumulative public debt, a recession would increase the debt as a proportion of gross domestic product – making a bad situation worse. That is the austerity trap much of Europe now finds itself in.
Meanwhile, real wages in the US continue to fall. A new “World Outlook” released by the International Monetary Fund last Friday showed that in the three years since the depths of the downturn in 2009, total national income has rebounded in most of Europe and in the US. But the share of national income going to workers has fallen sharply in the US, while rising in Europe as a whole.
The trend is even more striking measured from the start of the recession. It used to be that when a downturn began, profits fell faster than workers’ income because companies were reluctant to lay off employees and couldn’t easily cut wages given union contracts or the threat of unionization.
That is still the case in Europe, courtesy of stronger unions and labor-market regulations. But it is no longer the rule in the US. Since the start of the recession, the share of total US national income going to profits has risen even as the share going to the workforce has plunged. Profits in the US corporate sector are now at a 45-year high.
American workers have been willing to settle for lower wages in order to retain their old jobs or secure new ones. At the same time, US companies, intent on increasing profits, have more aggressively outsourced abroad, substituted contract workers and temps for full-time employees and replaced workers with computers and software.
The workforce’s share of total income includes the salaries of managers and professionals as well as the non-salary income of high-flying chief executives and financiers who receive capital gains, interest and stock compensation.
The widening gulf between the stratospheric compensation packages of the latter and most other Americans suggests why the median wage is dropping, adjusted for inflation, notwithstanding a growing economy and a jobs recovery.
The trend is all the more remarkable considering that the share of national income going to workers used to be substantially higher in the US than in Europe because Americans have to buy what most Europeans receive free – including university education and healthcare.
A dozen years ago, 64 per cent of US national income went to the labor force, according to the IMF, compared with 56 per cent in Europe. Today, however, the shares going to workers are converging – 58 per cent of national income goes to the workforce in the US and 57 per cent in Europe.
Political realities in Europe may be pushing policy makers in the same direction. Germany’s Chancellor Angela Merkel has finally started talking about spurring growth. Under increasing political pressure at home, she seems to have accepted the need to add measures promoting growth to the EU’s treaty on fiscal discipline.
But Ms Merkel and her conservative allies haven’t given up on austerity economics. She is still opposed to fostering growth through more spending, insisting that would only worsen Europe’s debt problems. Instead, she wants to spur growth with “structural reforms” – by which she presumably means giving companies more freedom to hire and fire, outsource jobs to contract workers and, in general, be less constrained by regulation.
That is of course the American model – which has been fueling corporate profits at the same time as it depresses wages.
If Europe were to move towards structural reforms that create a labor market similar to America’s while pursuing fiscal austerity, while America embraces fiscal austerity as US corporations continue to shrink payrolls, we are likely to experience the same results on both sides of the Atlantic. Real wages will decline, we will have less economic security and our public services will be diminished. That is not sustainable, economically or politically.
[I wrote this for the Financial Times]
We now know austerity economics is bad for weak economies facing large budget deficits. Much of Europe is in recession because of budget cuts demanded by Germany. And as Europe’s economies shrink, their debts become proportionally larger, making a bad situation worse.
The way to avoid this austerity trap is to get growth and jobs back first, and only then tackle budget deficits.
The U.S. hasn’t yet fallen into the trap, but it could soon. Last week the non-partisan Congressional Budget Office warned we’ll be in recession early next year if the Bush tax cuts end as scheduled on January 1, and if more than $100 billion is automatically cut from federal spending, as required by Congress’s failure last August to reach a budget deal.
Predictably, Capitol Hill is deadlocked. Democrats refuse to extend the Bush tax cuts for high earners and Republicans refuse to delay the budget cuts.
If recent history is any guide, a deal will be struck at the last moment – during a lame-duck Congress, some time in late December. And it will only be to remove the January 1 trigger. Keep everything as it is, the Bush tax cuts as well as current spending, and kick the can down the road into 2013 and beyond.
Which means no plan for reducing the budget deficit.
I’ve got a better idea — a different kind of trigger. Instead of a specific date, make it the rate of growth and employment we should reach before embarking on deficit reduction.
Say 3 percent growth and 5 percent unemployment. At that point the Bush tax cuts automatically expire, the wealthy pay a higher rate, and $2 trillion in spending cuts begin.
This way we avoid the austerity trap that Europe has fallen into. And we get on with the long-term job of taming the budget deficit when the economy is healthy enough to do so.
We can best honor those who have given their lives for this nation in combat by making sure our military might is proportional to what America needs.
With the withdrawal of troops from Afghanistan, the cost of fighting wars is projected to drop – but the “base” defense budget (the annual cost of paying troops and buying planes, ships, and tanks – not including the costs of actually fighting wars) is scheduled to rise. The base budget is already about 25 percent higher than it was a decade ago, adjusted for inflation.
One big reason: It’s almost impossible to terminate large defense contracts. Defense contractors have cultivated sponsors on Capitol Hill and located their plants and facilities in politically important congressional districts. Lockheed Martin, Raytheon, and others have made spending on national defense into America’s biggest jobs program.
So we keep spending billions on Cold War weapons systems like nuclear attack submarines, aircraft carriers, and manned combat fighters that pump up the bottom lines of defense contractors but have nothing to do with 21st-century combat.
For example, the Pentagon says it wants to buy fewer F-35 joint strike fighter planes than had been planned – the single-engine fighter has been plagued by cost overruns and technical glitches – but the contractors and their friends on Capitol Hill promise a fight.
The absence of a budget deal on Capitol Hill is supposed to trigger an automatic across-the-board ten-year cut in the defense budget of nearly $500 billion, starting January.
Yet even if the scheduled cuts occur, the Pentagon is still projected to spend over $2.7 trillion over the next ten years.
At the very least, hundreds of billions could be saved without jeopardizing the nation’s security by ending weapons systems designed for an age of conventional warfare. We should shrink the F-35 fleet of stealth fighters. Cut the number of deployed strategic nuclear weapons, ballistic missile submarines and intercontinental ballistic missiles. And take a cleaver to the Navy and Air Force budgets. (Most of the action is with the Army, Marines and Special Forces.)
At a time when Medicare, Medicaid, and non-defense discretionary spending (including most programs for the poor, as well as infrastructure and basic R&D) are in serious jeopardy, Obama and the Democrats should be calling for even more defense cuts.
A reasonable and rational defense budget would be a fitting memorial to those who have given their lives so we may remain free.
The Cory Booker imbroglio has ignited a silly but potentially pernicious debate in the Democratic Party between so-called “pro-growth centrists” who want the President to focus on how well he’s done getting the economy back on its feet after the Bush administration almost knocked it out, and “pro-fairness populists” who want him to focus on the nation’s widening inequality and Wall Street’s (and Romney’s) continuing role in generating profits for a few at the expense of almost everyone else.
According to the National Journal’s Josh Kraushaar, for example:
Conversations with liberal activists and labor officials reveal an unmistakable hostility toward the pro-business, free-trade, free-market philosophy that was in vogue during the second half of the Clinton administration….. Moderate Democratic groups and officials, meanwhile, privately fret about the party’s leftward drift and the Obama campaign’s embrace of an aggressively populist message… [T]hey wish the administration’s focus was on growth over fairness.
This is pure bunk – or should be.
Fairness isn’t inconsistent with growth; it’s essential to it. The only way the economy can grow and create more jobs is if prosperity is more widely shared.
The key reason why the recovery is so anemic is so much income and wealth are now concentrated at the top is America’s the vast middle class no longer has the purchasing power necessary to boost the economy.
The richest 1 percent of Americans save about half their incomes, while most of the rest of us save between 6 and 10 percent. That shouldn’t be surprising. Being rich means you already have most of what you want and need. That second yacht isn’t nearly as exciting as was the first.
It follows that when, as now, the top 1 percent rakes in more than 20 percent of total income — at least twice the share it had 30 years ago — there’s insufficient demand for all the goods and services the economy is capable of producing at or near full employment. And without demand, the economy doesn’t grow or generate nearly enough jobs.
Wall Street is part of the problem because it’s responsible for so much of the concentration of income and wealth at the very top – and for much of the distress still felt in the rest of the economy after the Street nearly melted down in 2008.
The Street has turned a significant part of the economy into a giant casino involving mammoth bets with other peoples’ money. When the bets go well, the rich owners of the casino (Wall Street executives, traders, hedge-fund managers, private-equity managers) become even richer. When the bets go sour, the rest of us bear the costs.
The casino also requires continuous transfers of wealth from ordinary taxpayers. Some are built into the tax code. One is the preference of debt over equity (interest on debt is tax deductible), which awards Wall Street banks like JPMorgan for risky lending and awards private-equity firms like Bain Capital for piling debt on the firms it buys.
Another is the “carried interest” rule that, absurdly, allows private-equity managers (like Mitt Romney) to treat their income as capital gains even when they haven’t risked any of their money.
The biggest of all is the invisible guarantee that if the biggest banks get into trouble, taxpayers will bail them out. This subsidy reduces the big banks’ cost of capital relative to other banks and fuels even more risky lending.
None of this is fair. It’s also bad for economic growth and jobs – as we’ve so painfully witnessed.
Translated into presidential politics, all this means the President should be talking about fairness and growth and jobs, and explaining why we can’t have the latter without the former.
It also means he should be attacking Mitt Romney because Romney is part of the system of casino capitalism that has harmed America and held back growth — and Romney wants even less regulation of Wall Street (he’s vowed to repeal Dodd-Frank).
And because the budget Romney has put forth would gut public services vital to the middle class and poor, while cutting taxes on the rich and on corporations even more than they’ve already been cut.
In other words, Romney epitomizes the unfairness of the American economy in this new Gilded Age. For that same reason, Romney is the quintessence of an economic approach shown to be anti-growth and anti-jobs.
That way his so-called “attack” on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.
It’s an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples’ money to make big bets which, if they go wrong, can wreak havoc on the economy.
It’s the substitution of casino capitalism for real capitalism, the dominance of the betting parlor over the real business of America, financial innovation rather than product innovation.
It’s been terrible for the American economy and for our democracy.
It’s also why Obama has to come out swinging about JPMorgan. The JPMorgan Chase debacle would have been prevented if the Volcker Rule were sufficiently strict, prohibiting banks from using commercial deposits to make bets except very specific offsetting bets (hedges) on narrow classes of trades.
But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they’re still at it, as evidenced by Dimon’s current claim that the rule that eventually emerges would allow those bets.
As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite — a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance — any exception — will be stretched beyond recognition by the big banks.
So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open.
There’s no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.
At the same time, there’s no point to the “carried interest” loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they’ve risked no money of their own.
If private equity were good for America it wouldn’t need this or the other tax preference it depends on, elevating debt over equity. But the private equity industry has huge political clout, which is why these tax preferences remain.
Get it? Bain Capital and JPMorgan are parts of the same problem. The President should be leading the charge against both.
“Almost a generation ago, Bill Clinton announced that the era of big government was over,” says Romney, “Clinton was signaling to his own party that Democrats should no longer try to govern by proposing a new program for every problem.” By contrast, President Obama has “tucked away the Clinton doctrine in his large drawer of discarded ideas.”
It’s politics at its stupidest. Polls show Bill Clinton with higher favorability ratings than Obama, so Romney does what any vacuous opportunist politician does — try to associate himself with more popular, and maybe bring along some of those white males who voted for Clinton in ‘92 and ‘96.
But it won’t work. It might even backfire.
I was in Bill Clinton’s cabinet. I was in charge of Clinton’s economic transition team even before he became President. I’ve known Bill Clinton since he was 22 years old.
Romney doesn’t know what he’s talking about.
Clinton doctrine? As president, Bill Clinton raised taxes. Government receipts as a percent of gross domestic product rose from 17.5 percent in 1992, when Clinton was elected, to 20.6 percent in 2000, when he left office. Supply-siders screamed. They predicted the end of civilization as we know it.
In 2011, President Obama’s third full year in office, government receipts were down to just 15.5 percent of GDP.
Does Romney really prefer Clinton’s approach?
Under Bill Clinton, the top income tax rate was 39.6 percent. It’s now 35 percent, courtesy of George W. Bush. Obama wants to return to the 39.6 percent rate, but he doesn’t want to restore the Clinton rates on the middle class. Obama wants a lower rate on the middle class than the rate under Clinton.
(Romney doesn’t even mention George W. Bush, by the way. He now refers to him as “Obama’s predecessor.”)
So why, exactly, does Romney prefer Clinton over Obama?
The Obama administration has been far friendlier to business than Bill Clinton ever dreamed of. Obama bailed out Wall Street, no strings attached. He bailed out General Motors and Chrysler. His healthcare law creates giant benefits for Big Pharma and big insurance. By contrast, business hated Clinton’s major initiatives, such as the Family and Medical Leave Act.
Think about the modesty of Obama’s healthcare plan (which was enacted) relative to Bill Clinton’s immodest one (which wasn’t, due largely to the opposition of Big Pharma, big insurance, and the AMA). Obama’s plan bears far more resemblance to Romneycare in Massachusetts than to Bill Clinton’s failed plan.
During the first three years of Bill Clinton’s administration the government invested far more in education, infrastructure, basic R&D, and the Earned Income Tax Credit (a wage subsidy for the poor) than has the Obama administration to date.
So Romney really prefers Clinton to Obama?
In his absurd attempt to drive a wedge between Obama and Clinton, Romney has even gone so far as to suggest Obama has a “personal beef” with the Clintons.
Doesn’t Romney know the Obama White House is brimming with veterans of the Clinton Administration – from Gene Sperling (head of the National Economic Council) to Alan Kreuger (chairman of the Council of Economic Advisors), to Hillary Clinton herself?
Doesn’t he know Bill Clinton is already campaigning hard for Obama?
And that almost everyone who served with Bill Clinton is dead set against almost everything Mitt Romney stands for?
Oh, one more thing. Romney has done whatever he can to appeal to right-wing evangelical Christians, from opposing same-sex marriage to decrying abortion. Perhaps Romney doesn’t remember Bill Clinton was impeached for lying under oath to cover up an affair with an intern?
The dog that didn’t bark this week, let alone bite, was the President’s response to JP Morgan Chase’s bombshell admission of losing more than $2 billion in risky derivative trades that should never have been made.
“JP Morgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion,” the President said on the television show “The View,” which aired Tuesday, suggesting that a weaker bank might not have survived.
That was it.
Not a word about Jamie Dimon’s tireless campaign to eviscerate the Dodd-Frank financial reform bill; his loud and repeated charge that the Street’s near meltdown in 2008 didn’t warrant more financial regulation; his leadership of Wall Street’s brazen lobbying campaign to delay the Volcker Rule under Dodd-Frank, which is still delayed; and his efforts to make that rule meaningless by widening a loophole allowing banks to use commercial deposits to “hedge” (that is, make offsetting bets) their derivative trades.
Nor any mention Dimon’s outrageous flaunting of Dodd-Frank and of the Volcker Rule by setting up a special division in the bank to make huge (and hugely profitable, when the bets paid off) derivative trades disguised as hedges.
Nor Dimon’s dual role as both chairman and CEO of JPMorgan (frowned on my experts in corporate governance) for which he collected a whopping $23 million this year, and $23 million in 2010 and 2011 in addition to a $17 million bonus.
Even if Obama didn’t want to criticize Dimon, at the very least he could have used the occasion to come out squarely in favor of tougher financial regulation. It’s the perfect time for him to call for resurrecting the Glass-Steagall Act, of which the Volcker Rule – with its giant loophole for hedges — is a pale and inadequate substitute.
Wall Street’s biggest banks were too big to fail before the bailout. Now, led by JP Morgan Chase, they’re even bigger. Twenty years ago, the 10 largest banks on the Street held 10 percent of America’s total bank assets. Now they hold over 70 percent.
This would give Obama a perfect way to distinguish himself from Mitt Romney — who has pledged to repeal Dodd-Frank altogether if he’s elected President, who has also been raking in more than $20 million a year through financial games, and who shares the same prevailing Wall Street view of the economy as profits to be maximized while people are minimized (to Romney, corporations are people).
But the Obama campaign has so far chosen to attack Romney’s character rather than his place in the new American plutocracy, with ads highlighting the jobs that were lost when Romney, as head of Bain Capital, took over a Midwest steel company.
It’s the same personal attack Newt Gingrich and Rick Perry leveled at Romney. But Gingrich and Perry had little choice. They didn’t want to criticize the system that allowed Romney to do this because their party celebrates no-holds-barred free-market capitalism.
Obama does have a choice. He can assail Romney’s character but he can also take on the system that allows private-equity managers, as well as Wall Street’s biggest banks, to continue to make huge profits at the expense of average Americans. Romney is the poster-child for the excesses of that system, just as is Jamie Dimon and JPMorgan Chase.
We are still at the very early stages of the 2012 campaign. There’s still time for Obama to come out swinging – not only at Romney but also at the system of which Romney is a part, and to base his campaign on policies that will make that system work for ordinary people. Let’s hope he does.
J.P. Morgan Chase & Co., the nation’s largest bank, whose chief executive, Jamie Dimon, has lead Wall Street’s war against regulation, announced Thursday it had lost $2 billion in trades over the past six weeks and could face an additional $1 billion of losses, due to excessively risky bets.
The bets were “poorly executed” and “poorly monitored,” said Dimon, a result of “many errors, “sloppiness,” and “bad judgment.” But not to worry. “We will admit it, we will fix it and move on.”
Move on? Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.
Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets).
Dimon argued that the financial system could be trusted; that the near-meltdown of 2008 was a perfect storm that would never happen again.
Since then, 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.
The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?
Several weeks ago there were rumors about a London-based Morgan trader making huge high-stakes bets, causing excessive volatility in derivatives markets. When asked about it then, Dimon called it “a complete tempest in a teapot.” Using the same argument he has used to fend off regulation of derivatives, he told investors that “every bank has a major portfolio” and “in those portfolios you make investments that you think are wise to offset your exposures.”
Let’s hope Morgan’s losses don’t turn into another crisis of confidence and they don’t spread to the rest of the financial sector.
But let’s also stop hoping Wall Street will mend itself. What just happened at J.P. Morgan – along with its leader’s cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded.