For roughly three years—much to the chagrin of many, even in this community--I’ve been writing about how Dodd-Frank would be all but D.O.A. by the time the banks and their lobbyists concluded their evisceration of it on the Capitol Hill. (See: HERE, HERE, HERE, HERE, and HERE for just a few examples of this.) And, essentially, that is what has happened.
In almost 7,000 words on Thursday, Matt Taibbi provided his readers with more confirmation about the overarching reality that the banks run the place -- not the Democratic place, not the Republican place, but ”the” place — a/k/a that town better known as Washington D.C.
How Wall Street Killed Financial ReformAnd, within hours after Taibbi posted, “How Wall Street Killed Financial Reform,” on Thursday, we began to hear and read how, once again, less than four years after Lehman Brothers, Bear Stearns, Washington Mutual, et al, all became vanquished zombies—with BofA, Citi, Fannie Mae and Freddie Mac merely existing in the propped-up form of same—we’re now witnessing how our nation’s, supposedly, “best run,” too-big-to-fail bank is, in fact, simply “too-big-to-manage.” (Also checkout: “Are megabanks too big to manage?” CNN Money, Jennifer Liberto, 5/11/12; and “JPMorgan posts $2 billion trading loss: Is the bank 'too big to manage'?” Reuters, 5/12/12)
It's bad enough that the banks strangled the Dodd-Frank law. Even worse is the way they did it - with a big assist from Congress and the White House.
By Matt Taibbi
May 10, 2012 8:00 AM ET
Two years ago, when he signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, President Barack Obama bragged that he'd dealt a crushing blow to the extravagant financial corruption that had caused the global economic crash in 2008. "These reforms represent the strongest consumer financial protections in history," the president told an adoring crowd in downtown D.C. on July 21st, 2010. "In history...."
...Most importantly, even if any of that fiendish crap ever did happen again, Dodd-Frank guaranteed we wouldn't be expected to pay for it. "The American people will never again be asked to foot the bill for Wall Street's mistakes," Obama promised. "There will be no more taxpayer-funded bailouts. Period."
Two years later, Dodd-Frank is groaning on its deathbed. The giant reform bill turned out to be like the fish reeled in by Hemingway's Old Man – no sooner caught than set upon by sharks that strip it to nothing long before it ever reaches the shore. In a furious below-the-radar effort at gutting the law – roundly despised by Washington's Wall Street paymasters – a troop of water-carrying Eric Cantor Republicans are speeding nine separate bills through the House, all designed to roll back the few genuinely toothy portions left in Dodd-Frank. With the Quislingian covert assistance of Democrats, both in Congress and in the White House, those bills could pass through the House and the Senate with little or no debate, with simple floor votes – by a process usually reserved for things like the renaming of post offices or a nonbinding resolution celebrating Amelia Earhart's birthday.
The fate of Dodd-Frank over the past two years is an object lesson in the government's inability to institute even the simplest and most obvious reforms, especially if those reforms happen to clash with powerful financial interests. From the moment it was signed into law, lobbyists and lawyers have fought regulators over every line in the rulemaking process. Congressmen and presidents may be able to get a law passed once in a while – but they can no longer make sure it stays passed. You win the modern financial-regulation game by filing the most motions, attending the most hearings, giving the most money to the most politicians and, above all, by keeping at it, day after day, year after fiscal year, until stealing is legal again. "It's like a scorched-earth policy," says Michael Greenberger, a former regulator who was heavily involved with the drafting of Dodd-Frank. "It requires constant combat. And it never, ever ends."
That the banks have just about succeeded in strangling Dodd-Frank is probably not news to most Americans – it's how they succeeded that's the scary part. The banks followed a five-point strategy that offers a dependable blueprint for defeating any regulation – and for guaranteeing that when it comes to the economy, might will always equal right…
Saturday’s NY Times is jam-packed with coverage and commentary on this latest JP Morgan Chase travesty. Here are some links: “JPMorgan Chase’s $2 Billion Loss,” Editorial; “When Will They Learn?” by Joe Nocera; “Bank Regulations Gain Fresh Support,” NYT, by John B. Cushman and Edward Wyatt. And, here are three pieces from Friday evening on the NYT’s Dealbook page: “Loss Stains JPMorgan’s Chief, One of Banking’s Top Risk Managers,” by Nelson D. Schwartz and Jessica Silver-Greenberg; “In JPMorgan Chase Trading Bet, Its Confidence Yields to Loss,” by Ben Protess, Andrew Ross Sorkin, Mark Scott and Nathaniel Popper; “The Bet That Blew Up for JPMorgan Chase,” by Peter Eavis and Susanne Craig.
But, Taibbi’s been busy the last couple of days, too. From the past 24 hours, over at his Rolling Stone blog…
Jamie's Cryin: Dimon, J.P. Morgan Chase Lose $2 BillionQ.: So, while all this is playing out, what’s a sane citizen to do?
By Matt Taibbi
May 11, 2012 10:48 AM ET
A quick note on the disastrous news emanating from J.P. Morgan Chase, whose unflappable (well, unflappable until yesterday) CEO Jamie Dimon yesterday disclosed that the bank suffered $2 billion in trading losses this quarter…
…Whenever a trader has a large and known position, the market is almost certain to move violently against that trader — and that seems to be exactly what happened here. On the conference call, when asked what he should have been watching more closely, Dimon said “trading losses — and newspapers”. It wasn’t a joke. Once your positions become public knowledge, the market will smell blood.
If you’re wondering why you should care if some idiot trader (who apparently has been making $100 million a year at Chase, a company that has been the recipient of at least $390 billion in emergency Fed loans) loses $2 billion for Jamie Dimon, here’s why: because J.P. Morgan Chase is a federally-insured depository institution that has been and will continue to be the recipient of massive amounts of public assistance. If the bank fails, someone will reach into your pocket to pay for the cleanup. So when they gamble like drunken sailors, it’s everyone’s problem.
Activity like this is exactly what the Volcker rule, which effectively banned risky proprietary trading by federally insured institutions, was designed to prevent. It will be argued that this trade was a technically a hedge, and therefore exempt from the Volcker rule. Not only does that explanation sound fishy to me (as Salmon notes, for Iksil’s trade to be a hedge, this would mean Chase had an equally giant and insane short bet on against corporate debt, which seems unlikely), but it's sort of immaterial anyway: whether or not this bet technically violated the Volcker rule, it definitely violated the spirit of the law. Hedge or no hedge, we don’t want big, federally-insured, too-big-to-fail banks making giant nuclear-powered derivatives bets.
A.: Support Ohio Democratic Senator Sherrod Brown’s reintroduction of the SAFE Banking Act legislation! (a/k/a SAFE Banking Act of 2010, which was originally known as the Brown-Kaufman Amendment to the Dodd-Frank legislation.)
Here’s M.I.T. economist Simon Johnson, in a post on his blog, today, which is an update from a piece he published on Wednesday, over at the New York Times’ Economix blog. Here’s Johnson over at Baseline Scenario…
Making Banks Small Enough And Simple Enough To Fail
Baseline Scenario Blog
May 12, 2012
Almost exactly two years ago, at the height of the Senate debate on financial reform, a serious attempt was made to impose a binding size constraint on our largest banks. That effort – sometimes referred to as the Brown-Kaufman amendment – received the support of 33 senators and failed on the floor of the Senate. (Here is some of my Economix coverage from the time.)
On Wednesday, Senator Sherrod Brown, Democrat of Ohio, introduced the Safe, Accountable, Fair and Efficient Banking Act, or SAFE, which would force the largest four banks in the country to shrink. (Details of this proposal, similar in name to the original Brown-Kaufman plan, are in this briefing memo for a Senate banking subcommittee hearing on Wednesday, available through Politico; see also these press release materials).
His proposal, while not likely to immediately become law, is garnering support from across the political spectrum – and more support than essentially the same ideas received two years ago. This week’s debacle at JP Morgan only strengthens the case for this kind of legislative action in the near future.
The proposition is simple: Too-big-to-fail banks should be made smaller, and preferably small enough to fail without causing global panic. This idea had been gathering momentum since the fall of 2008 and, while the Brown-Kaufman amendment originated on the Democratic side, support was beginning to appear across the aisle. But big banks and the Treasury Department both opposed it, parliamentary maneuvers ensured there was little real debate. (For a compelling account of how the financial lobby works, both in general and in this instance, look for an upcoming book by Jeff Connaughton, former chief of staff to former Senator Ted Kaufman of Delaware.)…