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Reich writes: "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."

Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)



Resurrecting Glass-Steagall

By Robert Reich, Robert Reich's Blog

11 May 12

 

.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version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the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 Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including "Locked in the Cabinet," "Reason," "Supercapitalism," "Aftershock," and his latest e-book, "Beyond Outrage." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.

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+55 # bluepilgrim 2012-05-11 10:51
If Glass-Steagall is resurrected business will use it's control of profits to kill it again like they did the first time around. Capitalism will always lead to reduced regulation and maximizing profit, and recurring crashes that hurt everyone except the richest people and oligarchy.

Capitalism IS the problem, at it's core.
 
 
+17 # fbacher 2012-05-11 12:10
There is no magic bullet. Anything can become corrupted if we let it. Democracy and regulated Capitalism tend to be the best, yet imperfect, systems. There are many flavors of Capitalism, not just what we have now.
 
 
+7 # jlohman 2012-05-11 18:20
Agreed. Crony capitalism is our problem. Corrupt politicians. A 100% turnover in November will fix it; of both political parties.
 
 
+3 # RLF 2012-05-13 05:31
We've been trying to emulate the success of the Chinese system...(along with their wages.)
 
 
+7 # jlohman 2012-05-13 12:50
Yea, I understand that China executes corrupt politicians! Now there's an idea!
 
 
+14 # bluepilgrim 2012-05-11 19:50
There are flavors, but all capitalism is based on the same premise: that some people can own the menas of production (or wealth) and can make money by using that ownership rather than producing real wealth, and that's done by grabbing the excess value created by the workers.

A further characteristic is that it is concerned with maximizing profits for the owners, without consideration of social values (unless they are profitable), or externalities. It's based on greed.

That's not corrupted capitalism, but the inherent nature of it.
 
 
-5 # RLF 2012-05-13 05:32
And communism turns into fascism or totalitarianism ...nothing does well unprotected by it's citizens.
 
 
+7 # cybervigilante 2012-05-12 17:05
There are also many flavors of socialism that get along with capitalism, in rich, esporting, high-employment areas like Germany and the Netherlands. But don't tell Hateradio and the Teepers that.
 
 
+7 # robbeygay 2012-05-11 18:27
Anyone wants proof of Bluepilgrim words, please wait and watch when managers make miostakes in life they get sacked or kept on a tighter string.

However at bonus time after loosing $3 to $4bn very big USD these guyes will all receive multi-million dollar bonuses I guarantee you, they won't suffer a dime for their errors.

Perhaps they will nominate some poor sucker a scape goat?

EMPLOYED MANAGER'S RULE #1 DIVIDE AND CONQUOR. Divide responsibility so you still bet bigger bonus but little guy the Risk of responsibility. CEO only suffers when the ship crashes? Unless he was Off duty and other guy driving?
 
 
-2 # cybervigilante 2012-05-12 17:06
Well, there's a woman in charge of that department. She's not a fat old white man, so she might get the heave-ho.
 
 
-1 # cybervigilante 2012-05-12 17:18
Quoting Feral Dogz:

Allowing more and more power to accumulate in fewer and fewer hands is a recipe for violent revolution, which is not what I or any sane person really wants.


The DHS wants it. They just bought 450 million rounds of ammo. Hollow-point to boot, splatter-rounds so nasty they're banned under the Geneva convention.
 
 
+6 # redjelly39 2012-05-11 20:15
There are a few financial elite that own the Corporations that own our Governments (not just the US Gov't) and the Governments are used to make the laws & control its people. How much do you pay for gas/electricity every month ($200-$400) ? What if we had the technology to make all of our energy requirements only a few dollars a month... That technology already exists but it is not allowed to see the light of day because the Morgans, Rockefellers, & Rothchilds would lose too much $$. J P Morgan bankrolled Nickola Tesla when he was building his "Wireless Electrical Transmitter" but Morgan (who sold cabling & other goods associated with wired electricity) feared he would lose $$ so he pulled all funding to Tesla and then destroyed the entire complex.
The Wardenclyffe Tower facility.
All of our Energy, Education, Food, Health, Rights and Finances are in the hands of a select few men. Learn more by watching a free online movie called "Thrive" My friend Mathematician/S cientist Nassim Haramein is in the movie and it explains everything and is completely documented/veri fied and may be the most important movie you will ever see. Take the 2 hours to learn what we are up against.
thrivemovement dot com
 
 
+58 # Barbara K 2012-05-11 11:13
I don't believe any more banks, under any circumstances should be bailed by taxpayers ever again. We should not have to pay for their sloppiness and big bonuses to the CEOs, etc. They need to just sink or swim on their own and leave us out of it.
 
 
+8 # redjelly39 2012-05-12 01:16
Thats not the way things work around here Barbara. There was a overwhelming majority of us that didn't want to bail them out the last time but our Gov't is not listening to We the People, they answer to the same people that are getting bailed out. Watch the movie Thrive - it explains simply & easily why we are in this mess.. What I dont understand is why I am the only one on these boards talking about the movie Thrive. It is complete and thorough. My friend Mathematician/S cientist Nassim Haramein is in the movie along with other top researchers. It is a well done production and explains everything. Why do we pay so much for Energy ? Why our Education, Food, Health are strongly controlled. What about our Rights ? The Banks own the Corporations that own the Governments that write the laws and impose force on its own people.
Everyone needs to take 2 hours and watch this free online movie and start discussions. Lack of communication between We the people is the key for "Their" success - not ours. We need to Wake Up and make each other aware. http://www.thrivemovement.com/the_movie
Watch it and share...
 
 
+4 # redjelly39 2012-05-12 08:00
I agree Barbara BUT we are under the complete control of the banks.. They own our Government & US. Please watch the movie "Thrive". It is free, online & will give you a complete picture of how all of this works (for them, not so much for us).
Please take the 2 hours to watch it, as it is most important and then share with others. We the People are our only hope.. http://www.thrivemovement.com/the_movie
 
 
+3 # RLF 2012-05-13 05:38
The problem is the domino effect of banks going down. If you say no bail-outs then you had better be ready to lose whatever you have in the bank...Poof! Up in smoke! Gone! and the FDIC won't cover shit because they don't have the resources. There was a reason people were broke in the 30's. We have to put rules into place so these banks can never get there in the first place.
 
 
+63 # Buddha 2012-05-11 11:30
Guys like JPM complaining that regulation impinges on their ability to make profits is like a burgler complaining that homeowner alarm systems hurt their ability to make a living.

How much do you want to be that this won't move Congress either? If the Great Recession financial collapse wasn't enough to get Congress to immediately correct their deregulation mistakes, then this won't either.
 
 
+27 # BobboMax 2012-05-11 12:02
[quote name="Buddha"]G uys like JPM complaining that regulation impinges on their ability to make profits is like a burgler complaining that homeowner alarm systems hurt their ability to make a living."

That's a great analogy and phrase- thanks.
 
 
+19 # RLF 2012-05-11 12:16
Was Chase using Fed 0% dollars to bet on these derivatives? Maybe we have already bailed them out again...in advance!
 
 
+42 # barkingcarpet 2012-05-11 11:34
Yes, AND, end Nukes, end profiteering endless wars, end Fracking, End G.M.O's. In short, end corporate control/$ profit is everything, at the expense of all life and the environments which support it.

N.O.O.P! Not On Our Planet! No more. We either change our ways, or we are toast, and no amount of money will save you from the laws of nature.
 
 
+44 # Feral Dogz 2012-05-11 11:50
Capitalism epitomizes casino mentality. Unfortunately, most people love the idea of winning big, and choose to idolize those who achieve great wealth by "taking a chance".

What most of us don't seem to understand is that Wall St. has been gambling with other peoples' money while betting against their success, meanwhile making a percentage every time money changes hands. As Dimon indicates, a few billion here and there, no big deal (for him).

They own the casino and the odds are always in their favor. Guess who gets to go home with empty pockets. The small investors who believe in capitalism and put their futures in the hands of a corrupt (by definition) economic model.

Greed is a common human failure that should be discouraged and should be acknowledged as such, not idolized and enabled through preferential tax laws and deregulation.

Allowing more and more power to accumulate in fewer and fewer hands is a recipe for violent revolution, which is not what I or any sane person really wants.
 
 
+26 # Granny Weatherwax 2012-05-11 14:17
Quoting Feral Dogz:
Capitalism epitomizes casino mentality.

Financial capitalism does.
Daddy's capitalism, where he put money in companies he trusted and then cashed the dividends but did not speculate on the value of stock, is much less casino mentality.

The problem is people making money by speculating on assets, not people making money by owning assets.

How to stiffle the former while promoting the latter?
James Tobin found the one perfect solution: a small transaction fee on stock operation.
It wouldn't need to be even 1% to significantly stabilize markets: it would end the practive of compensation whereby supercomputers trade in milliseconds millions of stock for the fraction of a cent difference there is between Tokyo and New York.
The banks say that it "fluidifies the market" - yes it does, just like fracking "fluidifies the ground" on which everyone else lives.
 
 
+6 # KittatinyHawk 2012-05-11 16:22
Glad to see anti frackers...gues s the rest will wait until disaster happens
 
 
+18 # jwb110 2012-05-11 12:49
The references to "bets and bets on bets" make a case for the oversite on Wall Street part of a Gaming Commission instead of an already impotent SEC.
 
 
+19 # grouchy 2012-05-11 13:12
"Rock the Street"? Hell, I'd like to hit it with an EARTHQUAKE!
 
 
+9 # KittatinyHawk 2012-05-11 16:23
Perhaps this is where the fracking should happen....on Wall Street. Pretty sure there is shale under all the bs
 
 
+7 # fredboy 2012-05-11 14:29
Unfortunately, Congress and the White House are so imbedded in the financial whore house we will never again see the likes of Glass-Steagall. It's a great idea for those of us who would like to save the nation, but that time has likely passed. I predict the next natural response to the "free market" economic approach, a free-for-all workplace.
 
 
+18 # BradFromSalem 2012-05-11 14:30
Sorry, JP Morgan. Time to go. Bye bye. I am sure you were a fine company back in the day. But, we know now you have surely gone insane.

We need to begin creating legal hospices for Corporations that are about to die. To keep them on life support never returns them to being a healthy, productive Corporation.

Time to go. BofA will be joining you soon; you'll have a friend to spend eternity with in Corporate Hell.

Bye Bye.
 
 
+3 # redjelly39 2012-05-12 04:37
Sorry to bust your bubble LL but they are part of the Federal Reserve so JP Morgan isn't going anywhere. They dictate to the Corporations/Me dia & our Government what they want and then they get it. We the People aren't a consideration. Watch this movie and tell me what you think. It will explain everything... http://www.thrivemovement.com/the_movie
 
 
+4 # bluepilgrim 2012-05-12 19:49
These huge banks should be nationalized and run by the government, which should be run by the people.
A question is, all this money that was stolen -- who has it? We have to get it back. One way is a property tax on wealth, like people have to pay on their houses, and another way is a maximum income, or nearly so, with a total or huge tax on huge income.

Yes, we have to redistribute the wealth, and that's becuase the wealthy elite took most of it. We need to bail out the economy and the society, and that's going to require changing a lot of things, including corporations, with some being eliminated.

Socialism? You bet!
 
 
+3 # JSRaleigh 2012-05-13 14:10
Quoting bluepilgrim:
A question is, all this money that was stolen -- who has it?


Much of it never really existed. Most of Wall Street is nothing more than a giant Ponzi scheme just like Bernie Madoff's. The only difference is Bernie didn't get bailed out by the Federal Reserve.
 
 
+9 # noitall 2012-05-11 15:00
When a bank is free to gamble with no oversight, "trust me" doesn't work for us and definitely, NO MORE BAILOUTS!! How did George Jr put it..."fool me once...well I won't be fooled again"? something like that? As long as the BIG PROBLEM stands, Politicians that are up for sale with no repercusssions, we will have such problems whatever the 'solution'. Treasonous politicians are at the root of ALL of our problems. When was it that oaths of office became optional?
 
 
+8 # grindermonkey 2012-05-11 15:59
Shut them all down and make credit unions the banking system of the land for real people. For unreal people with unreal expensive projects like nuclear power and nuclear war, let the Congress finance that part of "capitalism" These project are already subsidized to the hilt by that august body anyhow.
 
 
+6 # KittatinyHawk 2012-05-11 16:30
What goes around comes around. Guess this is the Payback for the Foreclosures on Americans, Not working with them to refinance. I will throw in the Bankrolling the bonuses for all...thought that was illegal while bailing them out...Cannot say I am sorry for any of them.

I just hope the Credit Unions, small American Banks can seize on the Moment...We all know these Corporate Banks eat up lil ones like gummi bears.

It would be nice to see the 'Christians' perhaps learning a lesson but sheep always follow the leader. Smart farmers do get sheep herding dogs but they still have to lead the dummies around. Chickens are a lot smarter, guess I would rather be 'afowl' than foul!

Have a good weekend. Hope Europe, Africa, So America, Australia are watchin...do not follow the bad guys1%), join the good ones (protestors/OWS)

In Nature there are neither Rewards nor Punishment. There are only Consequences. Ingersoll
 
 
+4 # redjelly39 2012-05-11 19:58
Learn more about the Morgans, Rockefellers, Rothchilds and their stranglehold on our lives. Everything from Energy, Education, Finance, Food, Health and our Rights are in their hands. Our Government works for them...
There is a powerful force that's getting in the way of our thriving.
It's a select group of financial elite who are centralizing material wealth and power for their own benefit, while destroying the lives of billions of others. Their worldview is riddled with fear and ignorant of the abundance of nature and the love and interconnectedn ess that is our essence.
Thrive - http://www.thrivemovement.com/the_movie - you can follow the money to see how the same people are gaining financially in every sector of human life. You can also see how an agenda for global domination is being accomplished, and the kind of deceptive strategies and tactics that are being used to further our suppression.
It can be challenging to confront the cruelty of this global domination agenda, but it’s only by recognizing the true nature of the threats to our freedom that we can be empowered to act effectively. Its up to US to understand & take action - together...
 
 
+5 # cordleycoit 2012-05-12 06:20
Our master failure will become our failure and we will get to pay for their excesses. We are their property, we are doomed by their failure. If we are to free ourselves we must eliminate their idea that stolen wealth allows them to own the people. A revolution is the completion of revolt. We must defang these monsters not allow this state of affairs continue.
 
 
+6 # MidwestTom 2012-05-12 06:51
No Bailouts, or the 99% strike.
 
 
+7 # ABen 2012-05-12 13:56
The passage of the Graham-Leech-Bl ily Act (repealed significan portions of Glass-Steagle) was clearly a mistake. Although pushed by the GOP, Clinton signed it to his discredit. Dodd-Frank, along with the Volker Rule, would some of the firewall that prevented banks from straying too far into the "creative" side of finance. The elements of the Wall Street Reform Act, while not as robust as they should be, are better than nothing. Contact your senators and congressperson to let them know how you feel. Also, is anyone watching how the austerity measures taken by European countries are hobbling their recovery? What nonsense--money doesn't trickle down through an economy, it flows up and accumulates at the top. We need to rebuild the progressive nature of our tax code.
 
 
+2 # bluepilgrim 2012-05-12 19:23
There had to be some kind of bailout for the banks or everything would have ground to a halt, without any lending, which many businesses and government organizations rely on. The problem is that it was the wrong kind of bailout, with insufficient strings and not putting money into the hands of the people (which would have eventually trickled up to the banks. Probably the way tp do it would have been to nationalize a few of the larger banks, have the government back the lending, and give cash to the people, especially those who couldn't pay the mortgages so they could stay in their homes and afford to live.

But structural financial reforms were also needed, not further consolidation of banks or letting htem go on their merry speculative ways, as was done.

The purpose should have been not to save the rich guys and corporation but the get the economy back on track -- and that requires solving unemployment, even if the government has to hire as in the New Deal.

Still, the basic flaws of capitalism needs to be addressed, and that won't happen with reforms but moving into a different economic system entirely, where the people are in charge of finance and profits instead of the oligarchy.

Do a *sensible* bailout as first aid, but continue on with actually solving the problem instead of just pushing the crisis off to the future while the rich get richer. How to do this is understood, but the political will is needed.
 
 
+2 # Chuck H. 2012-05-12 21:48
It is obvious that big businesses have no sense of conducting business within the guidlines set by their peers and the government. they are consantly trying to game the system of fair play. That's why they need to be regulated. They have brought this unto themselves and have only themselves to blame when they whine about costly regulations.
 
 
+2 # Howard T. Lewis III 2012-05-12 23:36
Most of us know what an honest conversation from these swine would sound like...
"Wow ,dad. Yeah, I wrecked your new car. But I was clever about it, Dad. After you phoned in the insurance premiums, I was on the phone line in my room and I cancelled the payments and bought crack. I know the secretary who takes your payment. We can work something out.Oh, I sold the summer house and took the girls from McDonald's to Vegas to do some gambling so I'll need a raise in my allowance.... What do you mean, get a shovel?
 
 
+4 # Larkrise 2012-05-13 00:29
When you always do what you always did, you will always get what you always got. Clinton de-regulated. Bush and Obama have let the banks off the hook. They ARE failing. They keep playing with fire-derivative s-consolidating , and gambling with investors money. They keep paying charlatans, like Jaimie Diamond, millions. The Jaimie Diamonds keep screwing up; but no one stops them.It is a stupid house of cards. No matter who is elected in 2012, the damned thing is going to fall. Neither candidate has any common sense, integrity, nor courage to stop it. They will run off with their ill-gotten gain, and leave the rest of us to suffer. It is like the Mt. St. Helens Volcano. The geologists said it would erupt explosively. They warned people to stay away. Yet, some people still went camping nearby! People no longer exhibit common sense. Their brains are like mush from listening to Fox News. Obama hasnt done diddly-squat, except to protect these big banks. Romney is a vampire. I frankly dont see much light in the distance.
 
 
+2 # fernly2 2012-05-13 21:21
We built the TVA, the Grand Coulee dam and projects just to numerous to mention when we were in the depths of a depression using Alexander Hamilton's American system of credit. It's a return to prudent banking with HR. 1489 and reestablish our agricultural and industrial productivity with NAWAPA or die of hunger, disease and perpetual war. Looking at our young species objectively I see there is enough courage, intelligence, and determination to make the right choice.
 

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