JP Morgan Chase and its likes (the too-big-to-fail banks) shouldn’t be allowed to act like hedge funds (even though the offending transactions don’t look much like hedges against risk).
I keep seeing comments from various commentators on various websites to the effect that JPMC should be able to do what it likes with its “own” money. But truth be told, this is shareholders’ money. What should really happen if JPMC has excess funds is the following: distribute those funds to the shareholders who can then choose to invest in riskier asset classes under their own decision regimens. If hedge fund investments are what they want, then let them make conscious decisions to invest in hedge funds, without any Federal (US taxpayer) guarantee of the investment.
It seems to me that banks have been granted “franchises” and given preferential treatment to serve the needs of the nation’s economy and to facilitate the movement of funds between individuals/entities wanting to have a relatively safe haven for their excess liquidity (aka, depositors) and those needing to borrow those resources. Proprietary trading of the too-big-to-fail banks’ “own” funds has little place in this economic environment, especially after the debacle of the 2007-2008 financial crisis.
Moreover, one would think after the fiasco of the 2007-2008 financial crisis, the too-big-to-fail banks would have learned a lesson about risk management — but, no, here we are again with JPMC losing $2+ billion of its “own” money — and under the leadership of CEO Dimon who is one of those most vocal against limiting the banks’ proprietary trading under proposed regulation/legislation. (As an aside, the too-big-to-fail banks of vintage 2007-2008, including JPMC, are now even bigger than they were at the beginning of the financial crisis.)
The shareholders, bondholders and managements of these too-big-to-fail banks should pay the price for “mistakes” such as JP Morgan Chase’s recent fiasco. However, the US taxpayer remains on the hook just as in the 2007-2008 financial crisis.
It’s time we revisit the separation of real banking activity and everything else that banks want to do. This might eliminate, or at least restrain, much of the burden that is now placed on US taxpayers to correct the ” sloppy” and “stupid” decisions (CEO Dimon’s own adjectives) that have been made by the to-big-to-fail banks in the post-Glass-Steagall era.
Does anyone really understand that 2 billion in this trading loss to JP Morgan Chase equals only $.25 a share in a write off! So what! Their loss and the loss of those that empowered the idiot who made the trade without a hedge protection.
With regards to the FDIC and their plan, Although it is honorable in theory, it will most certainly be done to benefit the politcal cronies who got this plan implemented. We all know that there are a few banks that have been propped up with the Feds assistance and when they get dismantled because of the toxic loans and the crap business they absorbed, I am sure that they will be recreated using this model to the benefit of a small group of cronies I am sure. Goldman Sachs comes to mind with Warren Buffets 5 billion investment.
What is wrong with Bankruptcy PROTECTION? Government Motors (GM) should have had this happen but instead the UAW go a big payoff from Obama and the bond holders took it up their A*s. Traditional Bankruptcy was created to protect the employees, bond holders but hurt the stockholders. That is the way it should be.
Be very careful with politicians or administrations with campaign contributing donors determining how things get divided before it happens. I understand that markets do not respond well to uncertainty, I just am afraid of this very corrupt administration when it comes to Unions, Banks and Bankruptcy.
Only $2 billion? From one set of risk (not hedge against risk)transactions. And what happens when the next “stupid” and “sloppy” decision is made by JPMC or any of the other too-big-to-fail banks? Do we repeat what we did in the 2007-2008 financial crisis and related bailout? I hope not. Rather, it’s time to re-think the regimen that existed under Glass-Steagall.
Robert, You are absolutely correct, Pres. Clinton should never had requested the elimination of Glass Steagal regulations which limit banking investments. The only problem would most definately be higher interest rates, and lower investment in the economy. I don’t think the current administration would like the reduction in the stock market. You are right though, Glass Steagal should return in some form, banks should be banks again.
Because, Sarah, if a globally significant investment banking institution declares bankruptcy it will cause another global liquidity crisis like we had in 2007-2008, that’s why. Did you enjoy that? Was that fun? Blah blah blah its Obama’s fault.
youngin, research before you write. 2 billion is not going to bring down a company with 2.65 TRILLION in assets. I am more worried about Obamas spending taking down our economy than anything JP Morgan does.
Last I checked, the GM rescue worked out very well for workers, management, suppliers, buyers, etc. People stayed employed (management AND unions) and GM is now leading the world in auto sales. It can be argued that it was also a big payoff to GM management. They payoff to the UAW came in the form of continued employment of their rank and file. Do you really think that someone in the administration said, “yeah let’s do this so we can pay off the UAW.”? What newspapers do you read? None, I guess unless you consider the American Spectator a newspaper.
ok, here is what I am talking about. JP Morgan balance sheet which includes assets of 2.65 TRILLION in assets! And 2.04 Trillion in liabilities net worth on balance sheet of 60 billion. That is besides the fact that the company has a market capitalization of $135 billion. So now do you understand the relation of just 2 billion in a loss. It’s really not a big deal to the largest financial hedge fund in the world. Should heads roll, absolutely!
Young in, you don’t have to worry about bankruptcy, unless you count Obama ignoring US Federal Bankruptcy laws with regards to Government Motors and his illegal payoff to his union friends.
Read, you ignore the law just like Obama did! Government Motors should have been given Bankruptcy protection from creditors and the company sold off! Everyone could have kept their jobs! Trust me when I say someone would have bought GM and the company would have gone on just like it did. Be careful if you buy bonds in large corps around Obama, you might have the laws put to the side and you have to take a back seat to the unions.
Dee, you are right we do need to figure out what the safeguards are inacted before a company goes under, it’s called bankruptcy. If we don’t like those laws we should change them! One thing the equity markets do not like is uncertainty as to what the rules are.
Banks and certain other entities – insurers for example – historically do not go through Federal bankruptcy, nor should they, because they require special and different insolvency procedures. What to do when an organization is a hybrid – holding company that could go through bankruptcy and its bank subsidiary that could not – is always a tough question. Make that organization systemically important to the world economy and that question just got a lot tougher. To think that Federal bankruptcy proceedings is the answer here is to be unaware of the system’s limitations.
And I’m guessing that by referring to General Motors as Government Motors over and over, you are trying to say that Obama did the wrong thing and you think that the GM should have gone through Federal bankruptcy. Which is strange, because they did go through bankruptcy. Chapter 11. Both GM and Chrysler. And the government’s role was to provide the financing for the Plans of Reorganization that was not forthcoming from any – any – one more time, any – non-governmental source. Take the government out of the equation – take away the only financing source willing to finance – and the bankruptcies of GM and Chrysler would have been liquidations, and all of the jobs and these businesses would have been lost. Your reading of this recent history is non-factual.
FDIC does take over the operation and assets of these financial institutions the stockholders are wiped out. Yes, Insurance companies are subject to state regulation and liquidation with preference given to policy holders and stockholders wiped out.
Auto manufacutuers do not have these same statutes which protect any class of creditor. Federal Bankruptcy laws do give certain class protection to bondholders, this was created to stimulate the raising of capital through the sale of bonds. This protection was ignored by Obama when he gave ownership of the stock to the UAW Union as a payoff to his friends in Unions and the bondholders went to the back of the line. Ford has not taken any federal funds and would have significantly profited from the breakup of Government Motors. We actually might have had a positive result with many expanding smaller car companies like we had in the 20s, 30s and 40s. Capitalism is the mother of our economy, one company dies and two smaller ones pop up!
Here is some more recent news regarding bankruptcy and how Government Motors uses its political power now that they have friends in very high places.
Saab Automobile is dead.
The company, which started selling cars 61 years ago, declared itself bankrupt on Monday, setting the stage for a forced liquidation of the storied, but troubled Swedish car maker.
The filing was triggered after former owner General Motors Co., which licensed it key technology, objected to deals with potential Chinese investors.
GM’s objection ended a deal with China’s Zhejiang Youngman Lotus Automobile Co. that the U.S. auto maker said would hurt GM’s business in China.
Thats what saving Government Motors did for the auto industry. I prevented the sale of a BANKRUPT auto maker from being sold to a willing buyer, because it didnt want the competition!
The question is, when does our Federal government step in? Before or after? In enacting sensible prevention/legislation of wall street or the clean-up? You can’t write-off the J.P. Morgan event as just a silly mistake. It’s a wake-up call! Those who oppose the controls that could have prevented 2008 and the J.P. Morgan fiasco (like Jamie Dimond!) are still in control and don’t get it. Dimond even admits this comes at a bad time for those who oppose more prevention/regulation of wall street. Let’s not fool ourselves. If J.P. Morgan had blown up, we would have had to step in once again. I’d rather step in before something like 2008 happens. Let wall street get mad. Who cares about them? They obviously don’t care that much about the financial system until it can rescue them. Given the state banks were in after the melt-down, the government and Obama had every justification to nationalize the banking industry. But that did not happen. Maybe it should have. J.P Morgan, Goldman etc. are bigger now than they were before the crisis happened? We all should be tired of those supposed financial wiz kids, thinking they are smarter than everyone else until it all comes crashing down. The wiz kids are the first ones to have their hands out when that happens. Prevention is way more preferable than clean-up!
The legislation that “repealed” the teeth of the Glass-Steagal Act was sponsored by Sen Phil Gramm and co-sponsored by Rep. Jim Leach, and Rep. Thomas J. Bliley, Jr.. It is sometimes known as the Gramm–Leach–Bliley Act.
Yes in 1998 citicorp merged with Travelers and I think it was the SEC? That requested congress give a temporary order giving Citigroup permission to merg the banking, insurance and securities business. Clinton signed it into law right before he left office.
This deal probably was as corrupt as Obamacare except, it was bipartisan corruption. I wonder how many jobs were givien and campaign contributions Citigroup, Merrill Lynch, ECG. Gave. Nomeasneman, you are correct, this was the start of overheating of the mortgage backed securities scam!
By the way, I forgot to say this one important fact- Citigroup pledged 10 BILLION to the Clinton Foundation. Clintons largest donor. HUH? Coincident, I think not.
JP Morgan Chase and its likes (the too-big-to-fail banks) shouldn’t be allowed to act like hedge funds (even though the offending transactions don’t look much like hedges against risk).
I keep seeing comments from various commentators on various websites to the effect that JPMC should be able to do what it likes with its “own” money. But truth be told, this is shareholders’ money. What should really happen if JPMC has excess funds is the following: distribute those funds to the shareholders who can then choose to invest in riskier asset classes under their own decision regimens. If hedge fund investments are what they want, then let them make conscious decisions to invest in hedge funds, without any Federal (US taxpayer) guarantee of the investment.
It seems to me that banks have been granted “franchises” and given preferential treatment to serve the needs of the nation’s economy and to facilitate the movement of funds between individuals/entities wanting to have a relatively safe haven for their excess liquidity (aka, depositors) and those needing to borrow those resources. Proprietary trading of the too-big-to-fail banks’ “own” funds has little place in this economic environment, especially after the debacle of the 2007-2008 financial crisis.
Moreover, one would think after the fiasco of the 2007-2008 financial crisis, the too-big-to-fail banks would have learned a lesson about risk management — but, no, here we are again with JPMC losing $2+ billion of its “own” money — and under the leadership of CEO Dimon who is one of those most vocal against limiting the banks’ proprietary trading under proposed regulation/legislation. (As an aside, the too-big-to-fail banks of vintage 2007-2008, including JPMC, are now even bigger than they were at the beginning of the financial crisis.)
The shareholders, bondholders and managements of these too-big-to-fail banks should pay the price for “mistakes” such as JP Morgan Chase’s recent fiasco. However, the US taxpayer remains on the hook just as in the 2007-2008 financial crisis.
It’s time we revisit the separation of real banking activity and everything else that banks want to do. This might eliminate, or at least restrain, much of the burden that is now placed on US taxpayers to correct the ” sloppy” and “stupid” decisions (CEO Dimon’s own adjectives) that have been made by the to-big-to-fail banks in the post-Glass-Steagall era.
Does anyone really understand that 2 billion in this trading loss to JP Morgan Chase equals only $.25 a share in a write off! So what! Their loss and the loss of those that empowered the idiot who made the trade without a hedge protection.
With regards to the FDIC and their plan, Although it is honorable in theory, it will most certainly be done to benefit the politcal cronies who got this plan implemented. We all know that there are a few banks that have been propped up with the Feds assistance and when they get dismantled because of the toxic loans and the crap business they absorbed, I am sure that they will be recreated using this model to the benefit of a small group of cronies I am sure. Goldman Sachs comes to mind with Warren Buffets 5 billion investment.
What is wrong with Bankruptcy PROTECTION? Government Motors (GM) should have had this happen but instead the UAW go a big payoff from Obama and the bond holders took it up their A*s. Traditional Bankruptcy was created to protect the employees, bond holders but hurt the stockholders. That is the way it should be.
Be very careful with politicians or administrations with campaign contributing donors determining how things get divided before it happens. I understand that markets do not respond well to uncertainty, I just am afraid of this very corrupt administration when it comes to Unions, Banks and Bankruptcy.
Only $2 billion? From one set of risk (not hedge against risk)transactions. And what happens when the next “stupid” and “sloppy” decision is made by JPMC or any of the other too-big-to-fail banks? Do we repeat what we did in the 2007-2008 financial crisis and related bailout? I hope not. Rather, it’s time to re-think the regimen that existed under Glass-Steagall.
Robert, You are absolutely correct, Pres. Clinton should never had requested the elimination of Glass Steagal regulations which limit banking investments. The only problem would most definately be higher interest rates, and lower investment in the economy. I don’t think the current administration would like the reduction in the stock market. You are right though, Glass Steagal should return in some form, banks should be banks again.
Because, Sarah, if a globally significant investment banking institution declares bankruptcy it will cause another global liquidity crisis like we had in 2007-2008, that’s why. Did you enjoy that? Was that fun? Blah blah blah its Obama’s fault.
youngin, research before you write. 2 billion is not going to bring down a company with 2.65 TRILLION in assets. I am more worried about Obamas spending taking down our economy than anything JP Morgan does.
Young in, I thought everything was Bush’s fault! LOL….
Last I checked, the GM rescue worked out very well for workers, management, suppliers, buyers, etc. People stayed employed (management AND unions) and GM is now leading the world in auto sales. It can be argued that it was also a big payoff to GM management. They payoff to the UAW came in the form of continued employment of their rank and file. Do you really think that someone in the administration said, “yeah let’s do this so we can pay off the UAW.”? What newspapers do you read? None, I guess unless you consider the American Spectator a newspaper.
ok, here is what I am talking about. JP Morgan balance sheet which includes assets of 2.65 TRILLION in assets! And 2.04 Trillion in liabilities net worth on balance sheet of 60 billion. That is besides the fact that the company has a market capitalization of $135 billion. So now do you understand the relation of just 2 billion in a loss. It’s really not a big deal to the largest financial hedge fund in the world. Should heads roll, absolutely!
Young in, you don’t have to worry about bankruptcy, unless you count Obama ignoring US Federal Bankruptcy laws with regards to Government Motors and his illegal payoff to his union friends.
Read, you ignore the law just like Obama did! Government Motors should have been given Bankruptcy protection from creditors and the company sold off! Everyone could have kept their jobs! Trust me when I say someone would have bought GM and the company would have gone on just like it did. Be careful if you buy bonds in large corps around Obama, you might have the laws put to the side and you have to take a back seat to the unions.
Dee, you are right we do need to figure out what the safeguards are inacted before a company goes under, it’s called bankruptcy. If we don’t like those laws we should change them! One thing the equity markets do not like is uncertainty as to what the rules are.
Banks and certain other entities – insurers for example – historically do not go through Federal bankruptcy, nor should they, because they require special and different insolvency procedures. What to do when an organization is a hybrid – holding company that could go through bankruptcy and its bank subsidiary that could not – is always a tough question. Make that organization systemically important to the world economy and that question just got a lot tougher. To think that Federal bankruptcy proceedings is the answer here is to be unaware of the system’s limitations.
And I’m guessing that by referring to General Motors as Government Motors over and over, you are trying to say that Obama did the wrong thing and you think that the GM should have gone through Federal bankruptcy. Which is strange, because they did go through bankruptcy. Chapter 11. Both GM and Chrysler. And the government’s role was to provide the financing for the Plans of Reorganization that was not forthcoming from any – any – one more time, any – non-governmental source. Take the government out of the equation – take away the only financing source willing to finance – and the bankruptcies of GM and Chrysler would have been liquidations, and all of the jobs and these businesses would have been lost. Your reading of this recent history is non-factual.
FDIC does take over the operation and assets of these financial institutions the stockholders are wiped out. Yes, Insurance companies are subject to state regulation and liquidation with preference given to policy holders and stockholders wiped out.
Auto manufacutuers do not have these same statutes which protect any class of creditor. Federal Bankruptcy laws do give certain class protection to bondholders, this was created to stimulate the raising of capital through the sale of bonds. This protection was ignored by Obama when he gave ownership of the stock to the UAW Union as a payoff to his friends in Unions and the bondholders went to the back of the line. Ford has not taken any federal funds and would have significantly profited from the breakup of Government Motors. We actually might have had a positive result with many expanding smaller car companies like we had in the 20s, 30s and 40s. Capitalism is the mother of our economy, one company dies and two smaller ones pop up!
Detroiter, That is history and is factual.
Here is some more recent news regarding bankruptcy and how Government Motors uses its political power now that they have friends in very high places.
Saab Automobile is dead.
The company, which started selling cars 61 years ago, declared itself bankrupt on Monday, setting the stage for a forced liquidation of the storied, but troubled Swedish car maker.
The filing was triggered after former owner General Motors Co., which licensed it key technology, objected to deals with potential Chinese investors.
GM’s objection ended a deal with China’s Zhejiang Youngman Lotus Automobile Co. that the U.S. auto maker said would hurt GM’s business in China.
Thats what saving Government Motors did for the auto industry. I prevented the sale of a BANKRUPT auto maker from being sold to a willing buyer, because it didnt want the competition!
The question is, when does our Federal government step in? Before or after? In enacting sensible prevention/legislation of wall street or the clean-up? You can’t write-off the J.P. Morgan event as just a silly mistake. It’s a wake-up call! Those who oppose the controls that could have prevented 2008 and the J.P. Morgan fiasco (like Jamie Dimond!) are still in control and don’t get it. Dimond even admits this comes at a bad time for those who oppose more prevention/regulation of wall street. Let’s not fool ourselves. If J.P. Morgan had blown up, we would have had to step in once again. I’d rather step in before something like 2008 happens. Let wall street get mad. Who cares about them? They obviously don’t care that much about the financial system until it can rescue them. Given the state banks were in after the melt-down, the government and Obama had every justification to nationalize the banking industry. But that did not happen. Maybe it should have. J.P Morgan, Goldman etc. are bigger now than they were before the crisis happened? We all should be tired of those supposed financial wiz kids, thinking they are smarter than everyone else until it all comes crashing down. The wiz kids are the first ones to have their hands out when that happens. Prevention is way more preferable than clean-up!
If you really want to fix this mess, Just undo what Clinton did and re-institute Glass Steagal.
The legislation that “repealed” the teeth of the Glass-Steagal Act was sponsored by Sen Phil Gramm and co-sponsored by Rep. Jim Leach, and Rep. Thomas J. Bliley, Jr.. It is sometimes known as the Gramm–Leach–Bliley Act.
Yes in 1998 citicorp merged with Travelers and I think it was the SEC? That requested congress give a temporary order giving Citigroup permission to merg the banking, insurance and securities business. Clinton signed it into law right before he left office.
This deal probably was as corrupt as Obamacare except, it was bipartisan corruption. I wonder how many jobs were givien and campaign contributions Citigroup, Merrill Lynch, ECG. Gave. Nomeasneman, you are correct, this was the start of overheating of the mortgage backed securities scam!
By the way, I forgot to say this one important fact- Citigroup pledged 10 BILLION to the Clinton Foundation. Clintons largest donor. HUH? Coincident, I think not.