Mark Greene wonders: If JPMorgan Chase can lose $2 Billion in just a few weeks, is another collapse on the scale of 2008 banking disaster looming?
The Huffington Post reports that on Meet the Press yesteray, a contrite Jamie Dimon, CEO of JPMorgan Chase, admitted his bank was “dead wrong” to dismiss trading concerns last month. What Mr. Dimon was not so quick to admit is that the bank’s $2 Billion dollar loss, which came from trading in so-called credit derivatives, is proof that the regulation of the banking industry remains ineffective, even after the global banking collapse of 2008, just four short years ago.
Many regulation advocates are endorsing accelerated enactment of what has been called the Volker Rule, named after Paul Volcker.
Wikipedia defines the Volcker rule as follows:
“The Volcker Rule is a specific section of the Dodd–Frank Wall Street Reform and Consumer Protection Act originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers. Volcker argued that such speculative activity played a key role in the financial crisis of 2007–2010. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank’s own accounts, although a number of exceptions to this ban were included in the Dodd-Frank law. The rule’s provisions are scheduled to be implemented as a part of Dodd-Frank on July 21, 2012, with preceding ramifications.”
Although the rule is scheduled to take effect in July, 2012, it remains both riddled with exceptions and under attack from banking and investment lobbyists. The Huffington Post article includes a helpful slide show of Mr. Dimon’s ongoing anti-regulation and anti-Volker rule statements. It should be noted that these kinds of risky trades were originally outlawed following the Great Depression by the Glass Steagall Act in 1933. A law written to limit speculation in the banking industry after the Wall Street Crash. The Glass Steagall act remained in effect until it was repealed by the Gramm-Leach-Bliley Act in 1999 which was crafted by Republican Senator Phil Gramm and signed into law by President Bill Clinton. Many attribute the banking collapse to passing of this legislation.
The American political landscape has reverberated with anti-regulation rhetoric over the last ten years coming mostly from conservative academics, media figures and politicians. This anti-regulation agenda has blocked and impeded effective banking regulation efforts in the years following the speculative banking collapse of 2008 and the multi-billion dollar bail outs that followed.
If JPMorgan Chase can lose $2 Billion or more (the full amount of losses is unknown) in just six weeks, is another collapse on the scale of 2008 banking collapse imminent? If not, why not?
Is it time to regulate the banking industry more closely?
UPDATE: Per the Huffington Post, “Elizabeth Warren called on JPMorgan Chase CEO Jamie Dimon to resign from his post on the Federal Reserve Bank of New York’s board, citing the need for “responsibility and accountability” in the financial industry.”
Also. Paul Krugman advocates for closer regulation of banks in an op-ed for the New York Times titled “Why We Regulate.”