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JPMorgan Chase Blowout Fuels Demands for Glass-Steagall Now

The Friday, May 11 admission by JPMorgan Chase CEO Jamie Dimon that the bank has blown $2 billion in London-based derivatives bets has further fueled an already-ongoing outcry for Glass-Steagall.  


Calls for Jamie Dimon to be ousted from {both} his post as CEO of JPMC and the board of directors of the New York Federal Reserve Bank have been combined with demands for the breakup of the banks by restoring Glass-Steagall.  


Former New York Gov. Eliot Spitzer demanded both Glass-Steagall and Dimon's resignation from the New York Fed in a column today in Slate, titled ``Flawed Dimon.''  


{Time} magazine's Joe Klein issued a similar call under the headline ``Jamie Dimon's Worst Nightmare.'' Klein cited a convoluted scheme to reregulate the banks by former GOP Presidential candidate Jon Huntsman (who had also called for the reinstatement of Glass-Steagall) and then added, 


``Former Delaware Senator Ted Kaufman and others favor a more straightforward approach: an updated version of the Glass-Steagall law which separated commercial banking from investment banking, and kept the animal passions of Wall Street under control from the Great Depression to the late 1990s, when it was supplanted by Bill Clinton's unfortunate deregulation.''


Elizabeth Warren, who is running for the U.S. Senate against Scott Brown, sent out a mass emailing today, calling for Glass-Steagall. Her call has been fully backed by the Progressive Change Campaign Committee, which has a banner headline call to reinstate Glass-Steagall on their website and is conducting a petition drive.


{Forbes} magazine's website today also published a column by the Small Business Authority headlined ``Bring Back Glass-Steagall,'' which called for the repeal of Dodd-Frank as well as the reinstatement of Glass-Steagall.  


``We think the Dodd-Frank bill, with its excess of 2,000 pages of regulation, does not help our current structural issues and that we should strongly consider bringing back Glass-Steagall.  


Our capital markets have grown significantly over the past 25 years, which reduces the need for banks to finance risky ventures as other financing vehicles and structures are well suited and available to fill that void. We think these changes would be great for small business and the health of the United States economy.''


Even from within the financial community itself, a growing chorus is demanding the return to Glass-Steagall. Al Jazeera quoted Martin Hennecke from the Hong Kong-based Tyche Group. Citing the JP Morgan $2 billion loss, he told Al Jazeera, 


``We are particularly not fond of the U.S. banking industry, which is like a casino gambling industry, especially since the Glass-Steagall Act was repudiated. The Glass-Steagall Act needs to be implemented again, otherwise it seems the banks pretty much do what they want. If they mess it up, they get a bailout and if they do it right they don't care about what limits were broken... The much-chastised Chinese banks that everybody loves to hate are much safer to invest in than banks in the U.S. and Europe as well for that matter.''


U.S.A. Today quoted Stanley J.D. Crouch, chief investment officer at Aegis Capital, who also calls for the return to Glass-Steagall. ``A bank should be a bank. Proprietary trading is like a rock on a mountain. We are going to have an avalanche.''


Writing for {Business Insider}, Gary Anderson not only called for Glass-Steagall. He called for a ban on U.S. banks operating in the City of London: 


``Glass-Steagall should be accompanied with rules forbidding our [U.S.] banks to trade in the U.K. Square Mile [the City of London]. The financial system has lost a lot of money there. The bets are unlimited as you can rehypothecate collateral over and over there. That is not permitted on Wall Street...  


The Square Mile is unregulated and the Parliament of the U.K. has no power over this financial center, the closest thing to a New World Order that we have. Even the Queen of England bows to the mayor of the Square Mile when going within the walls of this original settlement of the City of London.''


Robert Reich has been regularly pushing for the reinstatement of Glass-Steagall, and he is part of a network of progressive Democrats who are waging a drive for Glass-Steagall that began before the Friday news about JPMC.  


What the JPMorgan Chase losses have catalyzed is the recognition that nothing has changed, that Obama has protected Wall Street like no other President before him, and that we are in the middle of another blowout far worse than 2007-2008.


Now is the moment to push for the passage of HR 1489, the Marcy Kaptur (D-Ohio) Glass-Steagall bill {already} before the House of Representatives with over 50 co-sponsors from both parties. It should be obvious that the LPAC campaign for Glass-Steagall has now intersected a major shift and that our leadership on this effort can be decisive. 



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JPMorgan Chase Situation Gets More Interesting


As calls on Congress for Glass-Steagall restoration get louder, the possibility is emerging that the Act may be immediately needed (among other far more important objectives) to save the commercial bank of JPMorgan Chase.


All reports now are that the bank was unquestionably using its huge inflow of commercial bank deposits to build up its immense derivatives position (nominal value at least $70 trillion), including becoming the "whale" within the global credit default swaps market. 


Having bet wrong and lost, JPM Chase now faces the task of getting out of its positions in a market which is basically illiquid, where what liquidity there was was largely being provided by - JPM Chase. It can be forced to exit in a long and painful process with many, many billions in losses. And the money it is losing, came from the flow of its depositors' FDIC-insured, Federally protected commercial-bank accounts. (does this make any sense?)


Today we learn that the quickly "resigned" chief risk officer of the whole bank, Ina Drew, is being immediately replaced by JPM Chase executive Matt Zames. Zames just happens to be the head of the financial sector-wide Treasury Borrowing Advisory Committee, which meets at least quarterly by statute with the U.S. Treasury to consult (and act) on financial conditions. 


In effect, the risk-run-wild at JPM Chase is now put under protection of a close Geithner/Bernanke collaborator. In September 2008, Jamie Dimon dispatched Zames to Bear Stearns to put that bank under, which Zames did by immediately calling the Fed and insisting that Bear Stearns "would not last another day," leading to the Fed giving Bear Stearns to JPM Chase virtually for nothing with a $30 billion infusion from the Fed buying Bear's bad assets.


More ironically, Zames "came up" in speculative finance as an executive of LTCM, so he is expert in dealing (unsuccessfully) with exactly the situation JPM Chase has now speculated itself into.