glass steagall bank protections - only tool left in toolbox
DrMarty | May 13, 2012 at 04:34 amby
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JP Morgan Chase announced May 10 that it had lost $2 billion on London-based derivatives bets in the past six weeks and could face another $1 billion in losses in the second quarter.
The losses, racked up by the bank's chief investment office, occurred on synthetic credit securities, and involve trades that are still active.
The trading activity was centered in the bank's London office, under the chief investment office's (CIO) top executive there, one Achilles Macris.
According to a Bloomberg item from April 13, Macris had been hired in 2006 to use the CIO's office to generate trading profits, in a shift "closely supervised" by CEO Jamie Dimon. The positions Macris's unit took became so large that one of his traders, Bruno Michel Iskil, was dubbed the "London whale" and "Voldemort."
Macris brought Evan Kalimtgis from Dresdner Bank to help with risk management. Kalimgtis had worked at Dresdner with Macris, and had previously worked with David Goldman at Asteri Capital, a hedge fund set up by Marc Rich's Glencore.
Reports of large activity at JPMC's London office began to surface in early April, as competitors began to complain the bank's positions were so large they were moving the market. During the bank's first-quarter earnings call with analysts April 13, Dimon dismissed the reports as a "complete tempest in a teapot."
Dimon had to eat those words in a call yesterday. "There were many errors, sloppiness and bad judgment," Dimon said. "These were egregious mistakes, they were self-inflicted."
Dimon, a vehement opponent of even cursory re-regulation of the banks, admitted that the losses "plays right into the hands" of those calling for strict regulations on banks. Others are making similar points:
*Robert Reich, in his blog, said the affair shows that we cannot depend upon Wall Street to mend its ways, and called for the resurrection of Glass-Steagall and the breaking up of the big banks;
*Bloomberg columnist Jonathan Weil said that either Dimon misled the public about the gravity of the situation last April, or did not know what was going on in his own bank, and said that the positions were probably, in effect, speculative wagers rather than bona fide hedges;
*The Morgan affair shows that the "too big to fail" banks are too big to manage and should be broken up, and that continued opposition to the Volcker Rule is ridiculous, said Simon Johnson, a former chief economist at the IMF and a senior fellow at the Peterson Institute for International Economics.
But experts will admit that the Volcker Rule would not have caught the JPMorgan disaster from happening. So, what is left in the regulator's toolbox? I don't know. Let's open the toolbox and see what is inside.
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