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JPMorgan Chase will spin off a “special investments group” to isolate the Chief Investment Office that created the Fail Whale trades. Basically they are taking the salvageable remains out of the CIO and ring-fencing it, while curtailing the speculative trading that led to the massive losses.
That’s the official story, anyway. We won’t know the truth because the regulators have been kept out of the process in identifying the risk positions at JPMorgan Chase. Even to this day, the investigations of the Fail Whale trades have nothing to do with the systemic risks borne by the Chief Investment Office, but on whether traders disclosed enough to their superiors about the bets when they turned bad, essentially exculpating the superiors for just “getting bad information.” I suppose it’s progress that the CFTC is bothering to use its new powers over credit derivatives to investigate JPMorgan Chase at all, but by this account, it’s an investigation channeled toward the smaller fish in the pond.
Meanwhile, anything dealing with root causes has been taken off the table:
Senate Democratic leaders have shown little appetite for taking on Wall Street before Election Day, despite urging by one of their star recruits, Massachusetts Senate candidate Elizabeth Warren.
Warren has called on Congress to resurrect the 1933 Glass-Steagall Act, which established a firewall between investment banks that traditionally specialized in speculative trades and commercial banks that historically earned money primarily from lending [...]
Senate Democratic leaders have carefully avoided a major confrontation with Wall Street this year, when millions of dollars are already flowing to Republican-allied super-PACs from anonymous donors.
It’s obviously going to take another financial crisis to get us anywhere near the kind of banking system we need. Until then, we now have a fair bit of proof that we are still living in an era of unbridled risk. And if you’re a regulator that’s more concerned about banker’s suspicious activity, well, that’s going to get you fired.
On a happier note, there’s the move of money in Buffalo away from JPMorgan Chase and into a community bank. If government won’t force banks away from being too big to fail, maybe the people can do the job.
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We need a picture of the three monkeys “see no evil, hear no evil, speak no evil”‘
This image and phrase should be the identifying motto for the investigation branch of the SEC.
Not to pick nits, but First Niagara has $38 billion is assets.
But you don’t understand, the commercial banks have to offset their loses that they make on lending money to people who obviously cannot pay it back by speculating on loans that have been made to people who obviously cannot pay them back.
Simple…right ?
Regulatory equals… Hide the ball. Meanwhile the global economy is nose diving, jobs are scarcer, home values, the ticket middle class, are going down another 5% this year, German MFG…the strong point is down, M3 the economic multiplier is down healthcare cost up household assests down. Much of this is due to the derivative bets that sank the global economy into recession. China and BRIC economies down. Look across the economic picture the 1% ers are doing fine the rest losing ground unable to maintain discretionary spending. The hypes has run out for politicians now it is crunch time.
Sorkin:
Easy to call for it now.
David, I really appreciate your knowledge and critical thinking on these issues. Great piece.
Probably MORE THAN ONE financial crisis to fix it. After all, we’ve already had at least two or three in the last four years in the U.S. alone. Yet, nothing has really changed. There has been some growing awareness of the problem, which is good. But I don’t see that one more crisis will fix it. Mostly same ‘ol shit, different day.
Glass-Steagall would be a big improvement, since it is a major root-cause. At the risk of going off topic, the biggest root cause is private money and politicians. Campaign finance reform would fix all of the other problems, in time. Lack of that reform will allow any other problems to recur, in time. Thus, even re-instituting Glass-Steagal is only a stopgap measure.
I got it. I think your brilliance frequently goes unrecognized here.
BB, I agree, this whole millennium has not gone very well.
Is kinda of a horse-barn door issue I guess.
Bill Black has a long, great piece cross-posted over at Naked Capitalism which, in passing, explains how reinstalling Glass-Steagall wouldn’t fix everything but would have gone a long way toward limiting the scope of the crisis, and taxpayers’ exposure.
Link?