Home National Politics The Financial Crisis Redux: JP Morgan

The Financial Crisis Redux: JP Morgan

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Frontline’s third episode of Money, Power, and Wall Street concludes: the financial crisis never ended. Last Friday that became more evident. Firing three executives at JP Morgan solves nothing. The time for “Old Testament Justice” is past. But Congress seems powerless against the bank lobby.

Three years ago, in the midst of a home grown global financial crisis, President Obama erred on the side of caution. Instead of systemic changes to the financial sector, he and his team chose a course of confidence building, a course advocated by Secretary of the Treasury Tim Geithner who argued against “Old Testament Justice.” Others close to Obama, like Larry Summers and Christina Romer, called for a more dramatic course: heads should roll.

It is clear now, and hindsight is always more vivid, that in the midst of the crisis the opportunity for substantive change was lost. The fight to keep the markets afloat fatigued the new administration with other irons in the fire. The success of the bailout was the enemy of any regulatory structure designed to avoid bailouts including eliminating banks “Too Big to Fail.” Flush with cash from the Obama policy success, banks successfully lobbied for the status quo.

Now, on its own, JP Morgan has managed to lay out the case for regulation following another episode of the malfeasance that precipitated the economic disaster of 2008.  

While JP Morgan has offered up some heads, this is only a distraction. Retribution after the fact does not change the fact. The financial sector will not regulate itself nor should it be expected to. It is time for a return to the lessons of the 1920’s. Obama needs a Joe Kennedy.

Sen. Carl M. Levin (Mich.) said Sunday that the JP Morgan loss only confirms that banks’ pushback against new rules passed after the financial crisis will backfire.

“This was not a risk-reducing activity that they engaged in. This increased their risk,” Levin said on “Meet the Press.”

“So we’ve got to be very, very careful that the regulators here are not undermined by this huge effort to weaken the rule by putting in a huge loophole” that includes the trading that caused the JP Morgan loss, he said. – Washington Post

There really is nothing new under the sun.

  • ir003436

    Writing in the NYT, Paul Krugman points out the historic record of unregulated banks.  Not that anyone is listening.

    http://www.nytimes.com/2012/05

    Just to be clear, businessmen are human – although the lords of finance have a tendency to forget that – and they make money-losing mistakes all the time. That in itself is no reason for the government to get involved. But banks are special, because the risks they take are borne, in large part, by taxpayers and the economy as a whole. And what JPMorgan has just demonstrated is that even supposedly smart bankers must be sharply limited in the kinds of risk they’re allowed to take on.

    Why, exactly, are banks special? Because history tells us that banking is and always has been subject to occasional destructive “panics,” which can wreak havoc with the economy as a whole. Current right-wing mythology has it that bad banking is always the result of government intervention, whether from the Federal Reserve or meddling liberals in

    Congress. In fact, however, Gilded Age America – a land with minimal government and no Fed – was subject to panics roughly once every six years. And some of these panics inflicted major economic losses. […]

    Just trust us, the JPMorgan chief has in effect been saying;

    everything’s under control.

    Apparently not.

  • Teddy Goodson

    as anyone who has applied for a mortgage or for business loans quickly figures out, and as all those “panics” and recessions demonstrate on a larger scale. They are subject to fads and fashions in economic theory as well as to gossip and sentiment, even more than any member of the general public or stock market “investor,” not to mention to prejudice and bigotry—- but they do it all with other  people’s money, which gives the results of their machinations extreme importance. When it coes to the business plans of financial institutions Too Big To Fail we reach another level of venality populated by sociopaths masked by pretensions of divine righteousness who arrogantly reject any restraints: what they do is too complicated, too essential, too mysterious, to suffer any regulation.

    After the bailout, Reich, Krugman, Stiglitz, and others all warned us that these TBTF institutions were still up to the same bad behavior that caused the meltdown, and that it would inevitably lead to more disasters.