Even with this loss, JPM will come out reporting a couple billion dollar profit in the quarter. No regulation in Dodd-Frank would have prevented this. The OCC has seen these trades and had no reason to question them, let alone stop them. When a bank makes a loan, it takes a risk that it may not be paid back. So it uses instruments to hedge that risk. And in this case, the initial loans are doing ok, and the hedging instruments are not. Is this bad execution? Yes. Is it embarassing? Yes. Is it criminal? No. Is it something for the government to have a say in? No.
There was not a single dollar of customer deposits at risk in this transaction. And please show me where JPM has asked any taxpayer to pay for this loss? Do you not understand that in two years time JPM could very well book $4 billion in profits from this trade?
Asking the democrats to account for losses made on their "investments" is going to get you nowhere. They will never admit to the risky banking losses at Fannie/Freddie (hence the fyp that was used in response), the risky auto losses at GM, and the risky solar losses at Solyndra and other bankrupt manufacturers backed by the gov't. They will instead choose to blame JPM for losing 1% of its capital base. If you were to follow their logic, Disney would be pillaged at Congressional hearings for its $500m loss on John Carter...
OK wingtips, you're right. The financial regulatory system is perfect and bad decisions by banks are never, ever going to put our economy at risk again.
I've never said that. I'm a believer that if the banks are going to be a certain size, they should have stronger capital ratios to help keep them insulated from trouble. But was trading for their own accounts the cause of the crisis as you believe? In no way, shape, or form was that the case. Were mistakes made in '03-'09? For sure. But I will say it yet again: Politicians provide perverse incentives, and the market over-reacted to those incentives. Lower tier banks and mortgage companies were wrangling every sub-prime citizen into mortgages, then selling them to the investment banks to be packaged and sold through government diktat to Fannie & Freddie. If fan and fred had never demanded such loans and the Fed had not provided the additional incentive of historically low rates, they never would have been made, and they never would have been on the books of the banks, and the bubble and following crisis never would have played out as it did. And the executives in charge of the trade have all lost their jobs and will be subjected to clawbacks, and they have been exposed to a torrent of media abuse, phone calls, interview requests and a lot more. Do you think the next group to sit in their seats are going to embark on the same complexity levels in their hedges? No. This incident will, however, serve as a reminder to all those "evil traders" to not overstep their boundaries.
I don't think this goes far enough. "Should have" is what I would say about eating more broccoli and less General Tso's chicken today at lunch. Glass-Steagall had it right. Investment and commercial banking need to be separated for reasons that seem obvious to me. This narrative that treats the big banks as victims has already been debunked. You're letting the big banks off way, way, way, way, way, way, way too easy here. This was willful on their part and they did everything they could to inflate that bubble - including lying to ratings agencies, customers, and Fanny and Freddy about the risks. Maybe for a month, or even a year. But not forever. That's why we need rules.
Yes, it was the politicians who provided the perverse incentives. I'm sure that the lobbying from Wall Street companies to Republicans in Congress during the previous administration had nothing to do with those perverse incentives.
And why let the actual argument be discussed when you could bring up a point no one made and argue that.
These are mark to market losses. JPM hasn't actually lost any money. Yeah........it doesn't really work like that. The link between "customer deposits" and "trades" is incredibly nebulous, because JPM has a lot of funding that's not customer assets. Besides, these were hedges. Bad hedges, but hedges. What likely happened is that JPM assumed certain movements with respect to interest rates for investment grade and junk bonds. They were wrong. Of course, bear in mind, despite this loss JPM was still profitable this past quarter. So they're not exactly bringing down the banking system. Uh, no. Have you read the actual Volcker Rule? A lot of Dodd-Frank was written in a very glib manner with the regulators left to actually interpret what the hell Congress meant, especially considering Congress often wasn't entirely sure what it meant - this was not legislation drafted by the Congressmen themselves. So no one actually knows if this trade would have been allowed, since the Volcker rule doesn't actually make sense without the rules to interpret it. (Those rules, incidentally, are a fun read - the release was an exciting 500 pages.) Except that this trade would have complied with the Volcker Rule as currently interpreted by the Fed and the other relevant regulators. So while that's, in theory, a good thought, it's not correct. Wow. So not helping. That's the same logic that would lead you to think your leg being on fire is OK, because the other guy has just spontaneously combusted.
Honestly, this is a stupid argument that has repeatedly been made and dismissed. The crisis had absolutely nothing to do with Glass Steagall's split, since it was the investment banks that got crushed, not the deposit taking ones. Where were the investment banks lying about the risks? What's fascinating is that people assume the banks never disclosed the risks on these investments, but they did. Pick up any offering document from 2007 and read the risk factors. It's in there. Nor did they lie to the rating agencies - they took advantage of the agencies' own models. The banks didn't think it was a bubble. As Chuck Prince said, when the music is playing, you've got to dance. So they danced. The banks were hardly victims, but to think they did this intentionally is crazy. Remember, Goldman didn't make a huge amount of money off of Abacus - its client did. Hey, why not force banks to do nothing but make change?
"I didn't lie, sir, I just put the wrong numbers in the spreadsheet to get a good rating" I think all this is still getting settled, so we don't know anything "for sure"...but come on. They knew they were selling crap. http://www.dailyfinance.com/2011/01...-backed-securities-lawsuit-fraud-wells-fargo/ I do find it kind of odd that the posters who think everything is fine and dandy in banking-land are from NY.
Is this any way to run a huge segment of our economy? Just churning out fees on hard-to-comprehend debt instruments (even the CEOs don't fully understand them as we found out) to enrich a small segment of the population "while the music's playing" and putting the entire financial system at risk?
They didn't put in the wrong numbers. That's the point. You know, when you don't really understand what you're talking about, it hurts your argument. Sure they knew many of the mortgages were crap. But so did the buyers! This stuff was pretty clearly labeled sub-prime. Again, if all the banks though it was really such bad crap, why did so many of them keep it on their own balance sheet? It doesn't make any sense. There's a massive difference between "fine and dandy" and "this relatively small loss is inconsequential". I think some parts of Dodd-Frank are an excellent idea, and I don't generally have an issue with some facets of the proprietary trading ban (even if that had nothing to do with the meltdown). But this $2 billion loss is meaningless in the grand scheme of things. It's an unrealized loss for a bank which, despite that loss, was still profitable!
Which is why we passed Dodd-Frank, right. Besides which, nearly all sectors run on this principle. If there's money to be made, people will pile on to it, the same way they did into tech in the late 90s. Was that any way to run a huge segment of our economy?
1. Tech actually adds value to the economy. The value add of these new financial sector products is awful. 2. Those tech companies don't spend hundreds of millions of dollars buying congressmen. There was never a tech company guy running for president on the "I'm gonna let this industry do whatever it wants because CAPITALISM!" ticket...
1. Banks add lots of value to the economy. If they want to hedge their exposure to the loans they issue, I'm fine with that. I've never remotely argued for complete deregulation. 2. Of course tech companies spend millions of dollars on lobbying! Good lord, how naive are you?
http://www.propublica.org/article/deutsche-analyst-sounded-alarm-when-asked-to-alter-numbers I'm sure this isn't the only incident.
The problem is that JPMC is "too big to fail", is federally insured, and we have only luck to thank for the fact that it happened to be them, and they happened to keep this loss small enough (or that they happen to be big and profitable enough to absorb it). And this wasn't a benign hedging transaction gone awry - this was a gamble masked as a hedge. All I'm asking for is for banks to be forced to limit risky speculative trading or drop their FDIC-insured status.
What has been going on in the banking sector for the last decade is not capitalism. Capitalism assumes at the very core that the capitalist risks their own capital. The economic products that the big banks have now (in spite of the pathetic, stripped down Frank-Dodd) are high risk (to the public)/high reward (to the bankers). That's got to stop. How naive are you? Wall Street owns Congress. Hell, Wall Street owns Tech. I know you aren't arguing for complete deregulation, but that's exactly what JPMorgan is arguing and it's exactly what the GOP is arguing. All while "Too big to fail" has literally gotten bigger instead of smaller...
You mean the article where some of the people who worked on that deal deny any impropriety? Besides which, they're talking about estimates. First, JPM being too big to fail has nothing to do with it. It is federally insured by the FDIC, which is a scheme into which other banks pay money. It has nothing to do with luck, since a $2 billion paper loss (again, no money has been paid to anyone) wouldn't topple any large bank. Finally, the article you point to has a debate as to whether it was or not, but doesn't provide the definitive answer you claim it does. What trading isn't speculative, by the way? What trading isn't risky? There's no bright line.
You proved a point that I've made on these threads before: the use of NRSRO as the be all and end all of ratings is flawed. There was little work being done on their part. Their methods of rating various instruments and tranches was illogical. But, once again, Congress MANDATED their use. And a whole category of funds and banks that should have been digging deeper on their own did not do so, and were burnt. In every single deal, investors could choose to look at every single one of the thousands of mortgages that was included. How many actually looked at any? Very, very few. Those who did, made a lot of money. You could see that the homeowners had average FICO's of 612, half the mortgages were made above appraised value, mortgage payments would consume, on average, 48% of each owner's income.
Capitalism doesn't assume anything of the sort. If a bank fails, its shareholders feel the pain. The bankers are also big shareholders. The bankers can also now be stripped of bonus payments going forward. That's a good thing. If Wall Street owned Congress, how did we even get Dodd-Frank? That makes no sense. As for Wall Street owning Tech, you really need to read about Facebook's offering. JPMorgan isn't arguing for complete deregulation and I have nothing to do with the Republicans. Pointing to other people with whom I don't agree isn't somehow disproving my point.