JP Morgan - A Nightmare on LOL Street

Well, no, they couldn't. They could look at sample data and underwriting guidelines, which would have been enough though.

 

Capitalism does not assume that the capitalist risks his own capital. If investors are ready, willing, and able to risk their capital through him, there is nothing stopping them. That is why I argue for higher capital ratios. Decreasing leverage, decreases risks to outside parties - ie, the ones who loose their shirts are the bankers and those who decided to invest in them, not the general public.

Banks have already made moves to reduce their trading activities. Goldman has had its entire energy commodities team up and leave for a hedge fund. Morgan's cocoa team has gone to a private trader. Values of syndicated products is still well below even 2004 levels. S&T desks are still staffed with market makers, fulfilling client orders and buying/selling on behalf of clients with its own capital, just no longer playing their own capital for the sake of playing it.

How do you solve to big to fail? If you repeal Glass, you still end up with Chase, BAC, etc with 65% of retail deposits.

 

I say that because I had guys going through individual mortgage documents on some of our syndicated stuff. They were the ones shorting everything and came out ahead.

 

The banking industry was just ********ing fine until 1999.

Since then, without the restrictions of Glass-Stegall, it directly caused the worst economic downturn since the GD.

Nothing meaningful has changed since the downturn that would give me or any citizen confidence that they won't just go right back to business as usual. The banks have proven, time and again, that if they're allowed to make massive gambles with almost no downside risk, they will do it. Every time.

The solution is obvious and the industry will not allow it to happen.

Where's the smoke coming from, exactly?

 

yes
http://dealbook.nytimes.com/2009/11/12/10-years-later-looking-at-repeal-of-glass-steagall/

no
http://online.wsj.com/article/SB123509667125829243.html

I am sure the reality is much more complicated than just blaming all on Fannie and Freddie (reps) or the repal (dems).

 

Who said anything about Fannie and Freddie? That's the WSJ playing "Hey, look over there! Shiny!"

The Wall Street banks need tighter regulation that places risk and reward with its rightful owner (i.e. not John Q. Public).

Period. End of.

 

Really? You mean the scandals with analysis that Spitzer prosecuted were fine? You mean the S&L crisis was fine? The near disaster of 1994 in the bond markets was fine?
Next, what the ******** does Glass-Steagall have to do with it? The banks that suffered the worst in the crisis were the investment banks that wouldn't have been subject to Glass-Steagall in the first place!
The "crisis" that we're talking about here today is a small amount vis a vis JPM's balance sheet and it has generated mass hysteria from the predictable sectors. Given that Goldman has basically stopped prop trading, that banks can no longer sponsor CDOs in the way they could before, that most swaps will be cleared (and those not cleared subject to increased capital charges) and that banks can't own hedge funds the finance world has changed very significantly. You may not think Dodd-Frank does enough (although what you seem to want is literally to turn banks into safety deposit boxes), but I assure you, it has already fundamentally altered the world of finance, and the banks are not remotely happy about it. If you think Glass-Steagall would have fixed things, you're nuttier than a fruitcake.

 

So what Wall Street needs is a situation where if a bank does something stupid, its shareholders suffer, the people making the decision suffered, regulators look into the error and the bank tries to claw back the bonuses it paid. All while the bank maintains more than enough capital cushion despite this bad trade.

Wait, that's exactly what's happening here. So what's the ********ing problem?

 

Since the solution is obvious, what is the solution? Are you going to say reinstitute Glass, or will you actually come up with something even more laughable?

How would Glass have prevented the crisis? How would the Vol. Rule have prevented the crisis?

 

Break up the (even bigger in 2012) banks!

And while the financial sector has pushed back with some success against various components of the Dodd-Frank reform legislation, the idea of breaking up very large banks has gained momentum.
In particular, informed sentiment has shifted against continuing to allow very large banks to operate in their current highly leveraged form, with a great deal of debt and very little equity. There is increasing recognition of the huge and unfair costs that these structures impose on the rest of the economy.
The implicit subsidies provided to too-big-to-fail companies allow them to increase compensation by hundreds of millions of dollars. But the costs imposed on the rest of us are in the trillions of dollars. This is a monstrously unfair and inefficient system, and sensible public figures are increasingly pointing this out.
http://economix.blogs.nytimes.com/2012/05/10/breaking-up-four-big-banks/

 

While I certainly agree that bigger isn't always better in banking, how do you plan to break them up? If you re-institute Glass, you've still got the biggest 5 commercial banks with ~70% of retail deposits. Those banks are going to make large commercial loans. Those banks will need to hedge the risk, and enter into contracts with the investment banks to do so. And we are right back to where we started, just without all the work being done under one roof.

 

There's no way investors would have gotten the actual loan level data.

 

Not really. They CAN (theoretically; obviously in recent years not in practice) efficiently allocate capital enabling productive sectors of the economy and productive companies to grow. But banks don't actually DO anything. A tech company can give us, for example, a terrific national swap meet. A tech company can give us a better way to enjoy music, or a better way to communicate.

Banks can enable the adding of value to the economy. You could argue that, indirectly, adds value. But I don't think that's a strong argument. YMMV.

 

Do I look like a regulator? I'm arguing that it needs to happen, not that I have the technical skills to perform a corporate breakup.

So we agree that the biggest banks, those that are too big to fail, need to be broken up in order to ensure that the risk side of their business model can no longer be placed on the public?

 

I hope this doesn't launch a jihad, but this last point, that's the one most of us are disagreeing with.

 

Obama will get on this right away...

http://influenceexplorer.com/indust...ent/0af3f418f426497e8bbf916bfc074ebc?cycle=-1

 

Oh good, the Marxist argument that someone who doesn't actually produce anything is a parasite. If only Marx had been a decent economist.
Banks do plenty of things, including providing credit and liquidity to the economy. No one's arguing that they're doing "God's work" (which was a joke by Blankfein), but having an economy without banks is extremely difficult.

Right, but without any decent rationale. What has happened is a very visceral reaction by people who dislike large banks (and I put Krugman in this column too, who suggested this must have been the result of malfeasance). One of JPMorgan's assets has suffered a decline in value, which may prove to be entirely temporary. The people responsible for making the decision about the asset have been fired. The bank's overall health has not been in any way impacted by this loss, as they still had a profitable quarter. The bank's shareholders have been hit, and not a dime of government money has been expended.
So, again, what is the problem?

 

It's a stupid analogy. Banks exist to make money. Your solution to cure alcoholism would be to have them stop making money. Then..........why would banks exist?

 

I tried to boot up credit on my computer to play the credit game, but it didn't work. Then I sat down in front of my TV on some liquidity, but people just thought I had peed in my pants.

 

dave, if you're going to pretend banks don't do anything because you can't touch a product they produce, you're going to eliminate yourself as a reasonable poster. The computer you bought was built because a company got loans from banks and because it probably went public (with the help of a bank) to raise money to build more computers. Same with your TV. I tried to boot up the education game on my computer, but couldn't - so I guess all teachers that aren't writing educational software are useless. Haha!

 

And they can continue to do that without continually merging into ever bigger institutions that heap the risks of their lending onto those without skin in the game.