What Jamie Dimon’s $2 Billion Dollar Fail Reveals About Our Banking System

JPChase's chief Dimon: son and grandson of stockbrokers, he's got the Wall Street disease in his blood. Among the highest compensated executives in the world. What's a billion here and a billion there?

 

By Robert Reich, Robert Reich’s Blog

J.P. Morgan Chase & Co., the nation’s largest bank, whose chief executive, Jamie Dimon, has lead Wall Street’s war against regulation, announced Thursday it had lost $2 billion in trades over the past six weeks and could face an additional $1 billion of losses, due to excessively risky bets.

The bets were “poorly executed” and “poorly monitored,” said Dimon, a result of “many errors, “sloppiness,” and “bad judgment.” But not to worry. “We will admit it, we will fix it and move on.”

Move on? Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.

Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets).

Dimon argued that the financial system could be trusted; that the near-meltdown of 2008 was a perfect storm that would never happen again.

Since then, J.P. Morgan’s lobbyists and lawyers have done everything in their power to eviscerate the Volcker rule — creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near-meltdown.

And now — only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent and pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression — J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, excessively risky trades poorly-executed and poorly-monitored, that caused the crisis in the first place.

In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.

The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?

Several weeks ago there were rumors about a London-based Morgan trader making huge high-stakes bets, causing excessive volatility in derivatives markets. When asked about it then, Dimon called it “a complete tempest in a teapot.” Using the same argument he has used to fend off regulation of derivatives, he told investors that “every bank has a major portfolio” and “in those portfolios you make investments that you think are wise to offset your exposures.”

Let’s hope Morgan’s losses don’t turn into another crisis of confidence and they don’t spread to the rest of the financial sector.

But let’s also stop hoping Wall Street will mend itself. What just happened at J.P. Morgan – along with its leader’s cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded.

Robert B. Reich has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He also served on President Obama’s transition advisory board. His latest book is Aftershock: The Next Economy and America’s Future. His homepage is www.robertreich.org.

 

 

 

 

 

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Damascus terror bombing: Made in the USA

Bill Van Auken, WSWS.ORG

Syria's Assad: The imperialist noose keeps tightening and he may end up like Gaddafi.

 “Our policy is to try to accelerate the arrival of that tipping point” at which the Syrian regime of Bashar al-Assad is toppled, Assistant Secretary of State Jeffrey Feltman explained last March to the US Senate’s foreign relations committee.

Thursday saw the latest incarnation of this policy. The devastating car bombs that slaughtered 55 people and left nearly 400 more wounded in Damascus mark a new stage in the criminal imperialist campaign for regime change in Syria. 

Having hijacked the protest movement that began in Syria in March of last year in the bid to turn it into a vehicle for installing a client regime in Damascus, Washington went on to back the formation of the “Friends of Syria”, modeled upon a similar international formation used to prepare the war on Libya. 

It declared the Syrian National Council, a collection of Islamist politicians from the Muslim Brotherhood and aging exile assets of various Western intelligence agencies to be the “legitimate representative” of the Syrian people and backed the formation of the so-called Free Syrian Army (FSA) to carry out armed attacks on Syrian security forces.

Washington’s closest allies in the Arab world, the dictatorial feudal monarchies of Saudi Arabia and Qatar, set up a $100 million fund to place FSA members directly on their payroll, while the US announced it was sending “non-lethal” aid to these same forces, including sophisticated communications equipment, night vision goggles and US intelligence.

None of this has had the desired effect. The FSA has barely put up token resistance to the Syrian military in most areas, and there is no sign of mass popular support for the Syrian National Council.

So now comes the turn to terrorist bombings. The explosions Thursday in Damascus were only the latest and most deadly in a string of bomb attacks over the past several weeks. On Friday, the Syrian government reported that it had foiled another suicide bombing, this one in the commercial capital of Aleppo involving a car loaded with a ton and a half of explosives.

The aims of this campaign are to terrorize the Syrian people and, together with the unilateral US and European Union sanctions, paralyze the country’s economy, creating conditions for a social and political implosion. At the same time, it is designed to prove that the United Nations cease-fire agreement brokered by former UN secretary general Kofi Annan is unworkable.

Only two days before the Damascus attacks, Susan Rice, the US ambassador to the United Nations, was dismissing Syrian warnings about foreign terrorists moving into Syria as a “diversion”, while insisting that Washington remained focused on regime change and would increase its “non-lethal” aid to that end.

As Rice put it, referring to the Annan plan, Washington was not “putting all our eggs in one basket”. It now appears that some of the “eggs” were actually car bombs.

After the Damascus bombing, the media initially gave a certain amount of credence to the preposterous claims of the Syrian National Council that the Assad regime had organized the attack itself, killing a significant number of its own security forces.

The State Department felt compelled to issue a pro-forma condemnation of terrorism, acknowledging that “spoilers” might have been involved in the attack, but insisting that the responsibility for the bombing lay “firmly at [the] feet” of its target, the Syrian regime.

Defense Secretary Leon Panetta Thursday acknowledged “an Al Qaeda presence in Syria,” while reiterating that the Pentagon has been assigned “to make all kinds of plans with regards to possible approaches in Syria. And if the president of the United States asks us to respond in particular ways, we’re prepared to do that.”

These plans, according to the Washington Post, include “military protection of corridors for humanitarian assistance to Syrian civilians or of a ‘safe zone’ where the opposition could organize, as well as an air assault on Syria.”

If Al Qaeda elements are collaborating with US imperialism in mounting a terror campaign in Syria, it will not be the first time. The top commander of the militias that were backed by the US and NATO in the war for regime change in Libya, Abdel Hakim Belhadj, had previously been abducted, renditioned and tortured by the CIA because of his role in the Islamist terrorist group.

These same Libyan elements are now playing a prominent role in arming and training the US-backed armed “opposition” in Syria as well as sending fighters directly into the country.

The cynical cold war cliché that “one man’s terrorist is another man’s freedom fighter” does not begin to cover the US role in Syria, where these elements fulfill both roles simultaneously. On the one hand, Washington is backing Al Qaeda-linked forces in a campaign to topple the Assad regime, while on the other, it is preparing to use their presence in the country as a pretext for US military intervention.

This found clearest expression in a statement by Anne-Marie Slaughter, the former policy planning director at the State Department and close adviser to Obama, who is one of the leading advocates of “humanitarian” imperialist interventions. National Public Radio quoted her as saying that ‘the presence of jihadist groups in Syria shouldn’t dissuade the US and its allies from intervening”, on the contrary, “it should wake them up to the dangers that a prolonged conflict in Syria could create.” She went on to warn that a “major threat” in Syria was that chemical weapons could fall into the hands of Al Qaeda.

Thus, the pretexts for the US invasion of Iraq are reprised in a perverse new form. The presence of Al Qaeda, backed by Washington, and the supposed existence of “weapons of mass destruction” in Syria must be answered with US military intervention.

The campaign to topple Assad, Tehran’s principal ally in the region, is meant to isolate Iran, which is viewed by Washington as a main obstacle to its assertion of hegemony over the oil rich and strategically vital regions of the Persian Gulf and Central Asia. Behind all the pretexts of Al Qaeda, chemical weapons, “democracy” and humanitarianism, US imperialism is preparing new wars of aggression which threaten horrific consequences throughout the Middle East and beyond.

Bill Van Auken is a senior activist/analyst with the Socialist Equality Party (SEP).

 

 

 

 

 

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JP Morgan Chase hit by $2 billion derivatives loss

By Patrick Martin, WSWS.ORG
Thank you, WSWS.ORG

Dimon: Poster boy for the global predator class. Vociferous enemy of regulation, and a Democrat.

Speculation by a derivatives trader in London has produced a $2 billion trading loss for the US financial services giant JP Morgan Chase, the bank acknowledged late Thursday. The loss is one of the largest since the financial collapse of 2008, when two major Wall Street institutions, Bear Stearns and then Lehman Brothers, went bankrupt, the latter collapse triggering a global financial panic.

Bank stocks plunged after the initial announcement by JP Morgan Chase, although they recovered some ground later on Friday. The bank’s stock price fell 9.3 percent, wiping out more than $12 billion in market capitalization, six times the actual trading loss.

JP Morgan Chase is a particularly critical financial institution, since in addition to its vast holdings, it serves as one of the two main clearing banks in New York City, along with Bank of New York Mellon, handling financial transactions for all other banks. Any challenge to its solvency immediately puts a question mark over the whole financial system.

The huge loss demonstrates that nothing has changed on Wall Street since the 2008 crash, despite the hyperventilation by bankers and brokers over the Dodd-Frank legislation, the bill enacted by the Democratic-controlled Congress in 2010 and signed into law by Obama. The bill has proven to be less than even a slap on the wrist for the financial criminals.

A single executive at JP Morgan Chase, Bruno Iksil of its London office, was supposedly responsible for the trading positions that resulted in the $2 billion loss. The French-born trader, given the nickname “London Whale” for his location and influence on the market, worked in a branch of the bank known as the Chief Investment Office.

Iksil apparently bet heavily on the US economic recovery, accumulating a derivative position of $100 billion that began to show losses as the US economy slowed. Iksil was not a “rogue” trader, but worked closely with supervisors to execute strategies that conformed to the bank’s risk management model, according to press reports. His managers “were happy to sign off on the trades,” according to press reports.

The financial instrument used by Iksil was a CDS, or credit default swap, the same type of transaction that plunged the world economy into free fall in September 2008. Iksil was selling CDS contracts tied to a basket of companies.

When the one-sided bet on US economic growth was first reported last month by Bloomberg News and the Wall Street Journal, JP Morgan Chase executives dismissed suggestions that this represented an undue risk. CEO Jamie Dimon called the criticism “a complete tempest in a teapot.”

On Thursday, after the close of trading on the New York Stock Exchange, Dimon issued a statement calling the bank’s trades through the Chief Investment Office “flawed, complex, poorly reviewed, poorly executed and poorly monitored.” Dimon claimed that all that was involved, however, was “egregious, self-inflicted” mistakes, and that no criminal behavior or fraud was involved.

Dimon said that the bank had still earned $4 billion after taxes despite the huge one-time loss. The Chief Investment Office accounted for $350 billion in investment securities at year-end, according to bank documents, about 15 percent of the total assets of JP Morgan Chase. The bank’s “value-at-risk,” a numerical measure of the total losses it could face in any given day, has nearly doubled, from $88 million a day in 2011 to $170 million a day now, with most of the additional risk accounted for by the Chief Investment Office.

Dimon has been one of the most vocal bank CEOs in denouncing any additional regulation of Wall Street in the wake of the 2008 crash, even the largely toothless measures enacted by the Obama administration. He led a group of Wall Street bosses at a meeting May 2 with the Federal Reserve to oppose any restrictions on bank trading on the grounds that this might undercut profits.

The crisis in JP Morgan Chase demonstrates the rubber-stamp character of the ongoing regulatory efforts by the Federal Reserve and the Obama administration. Only two months ago, the Federal Reserve completed a “stress test” of the 19 largest US banks, which gave all of them a green light in terms of solvency, and approved increased dividends or stock buybacks for 15 of the 19 banks.

JP Morgan Chase then declared a dividend of 30 cents per share, up from 25 cents last year, and announced a $15 billion stock buyback, driving up its share price by 7 percent in a single day.

The total payout to bank shareholders and investors, based on the announcements from all 15 banks, comes to $32 billion over the next year.

Far from resolving the crisis of the US financial system, the bailout of Wall Street begun under George W. Bush and greatly accelerated under Barack Obama has resulted in a further centralization of financial assets in a handful of giant institutions that dominate American society. Five US banks—JP Morgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs—held $8.5 trillion in assets at the end of 2011. The big five have increased their viselike grip on the US economy over the past five years: in 2006, their financial holdings amounted to 43 percent of US gross domestic product. By the end of 2011, that figure had rise to 56 percent.

Meanwhile, according to a study by Syracuse University, federal financial fraud prosecutions have fallen to 20-year lows under the Obama administration, and are down 39 percent from 2003, when the Bush administration was in charge. The number of financial fraud cases is one-third the level of the Clinton administration.

While the big banks operate with impunity, using taxpayer cash and guarantees to gamble recklessly in derivatives, oil futures and other forms of speculation, they proceed with complete ruthlessness towards homeowners and credit card debtors.

For example, the Florida Supreme Court heard arguments Thursday on a lawsuit challenging hundreds of thousands of foreclosures carried out by the big banks with the aid of so-called robo-signings, where clerical employees were enlisted to rubber-stamp foreclosure orders by the tens of thousands, in place of bank executives, without being able to verify the correctness of these actions.

The case, Roman Pino v. Bank of New York Mellon, which involves Bank of America as well, could lead to the dismissal of foreclosures against nearly 400,000 homeowners in Florida.

Patrick Martin is a political and economic analyst with WSWS.ORG.

 

 

 

 

 

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Obama backs gay marriage

By Joseph Kishore, WSWS.ORG
Thank you, WSWS.OR

Obama’s announcement Wednesday that he supports same-sex marriage has been quickly elevated by the American liberal establishment and the media into a watershed moment in his presidency.

The president announced on ABC News that, “for me personally, it is important for me to go ahead and affirm that I think same-sex couples should be able to get married,” adding that his position on the issue had “evolved” over the course of his presidency.

While the administration sought to frame Obama’s remarks as a reaction to unscripted statements from Vice President Biden over the weekend, the timing of the announcement had all the hallmarks of a calculated political decision—an attempt to divert attention from the economic and social crisis, while bolstering Obama’s support among the more privileged sections of the middle class for whom issues such as gay marriage are the principal political questions.

The New York Times set the tone for the response of the liberal establishment in its coverage on Thursday. Its editorial proclaimed that with his statement, Obama “took the moral high ground on what may be the great civil rights struggle of our time.”

A companion article in the Times asserted that Obama’s endorsement of gay marriage “was by any measure a watershed.” The newspaper continued, “The very riskiness of what Mr. Obama did—some commentators were invoking Lyndon B. Johnson’s embrace of civil rights in 1964, with all the attendant political perils—made it hard to understate the historic significance of what took place at the White House on Wednesday.”

The attempt by the Times to present the issue of gay marriage as on par with the mass struggles of the civil rights movement of the 1960s is, as a historical matter, absurd.

However, it is notable that, even within this framework, Obama’s statements were typically cowardly and craven. He framed the issue not as a question of democratic rights, but rather as the “evolution” of his “personal” attitude, which he couched largely in religious terms. The administration also stressed that it considered the issue a matter of “states rights,” making the president’s statements, in terms of practical implementation, meaningless.

There was also an element of crass financial calculations in the decision to make the statement. On Wednesday, Obama sent out a message to supporters highlighting his new position on gay marriage and requesting donations. According to the Washington Post, the campaign received a “massive surge of contributions” in response.

On Thursday evening, Obama was in Hollywood for a fundraiser at the home of actor George Clooney, expecting to net the campaign a record-setting $15 million in a single day.

The Associated Press commented, “Hollywood is home to some of the most high-profile backers of gay marriage, and the 150 donors who are paying $40,000 to attend Clooney’s dinner Thursday night will no doubt feel newly invigorated by Obama’s watershed announcement the day before.” The AP added that over the course of a number of fundraisers in the next several days, gay marriage will be the dominant issue, “culminating in yet another fundraiser Monday in New York sponsored by gay and Latino Obama supporters.”

The gushing enthusiasm among these layers for Obama will be translated in different forms by the publications and organizations that function as the “left” supporters of the Democratic Party—from the Nation magazine to the International Socialist Organization.

Issues such as gay marriage serve a definite and important function in American politics. For most of the population, regardless of sexual orientation, they are of decidedly secondary importance. According to a recent PEW poll, gay marriage ranked 18th in the list of important issues, coming far behind the economy, jobs, health care and war.

The pro-Democratic Party organizations seek to promote issues of identity and lifestyle as a means of obscuring the basic class issues and diverting attention from the thoroughly reactionary policies of the Obama administration on every front. In doing so, they seek to exploit the general support for equality and the expansion of marriage rights, particularly among young people. The Democratic Party uses such issues in the attempt to establish points of difference with the Republicans, under conditions in which the two parties agree on all fundamental issues.

Obama’s statements, however, do not alter in the slightest his administration’s relentless assault on the working class, which will escalate in the aftermath of the elections, regardless of who wins. Obama has expanded the anti-democratic and militarist policies of the Bush administration. He has declared it the right of the US president to assassinate US citizens, send drone missiles to the far reaches of the globe, and hold anyone indefinitely, without charge.

Six months before the elections, the conditions of the working class are dire. Trillions have been handed to the banks, followed by an attack on health care, education and social programs. Millions of people are without work, and the economy is once again stalling. The political establishment has absolutely nothing to offer by way of solutions to this crisis. Obama outlined earlier this week a series of corporate tax cuts packaged as a “jobs program.” Mass unemployment, meanwhile, has been used to drive down wages and boost corporate profits to record levels.

For the upper middle class layers that work relentlessly to promote the Democratic Party, all of this is of little consequence. In fact, they have supported and will continue to support the Obama administration not in spite of these reactionary policies, but precisely because of them. To this end, identity politics serves a critical function.
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Joe Kishore is a leading political analyst with the Socialist Equality Party (SEP), which publishes WSWS.ORG.

 

 

 

 

 

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