We’ve known for ages that Bank of America is not well run and that Citigroup has long been a recipe for disaster. But JP Morgan Chase was supposed to be different. Largely because Jamie Dimon, with his legendary attention to detail and concern about quantifying the downside, would ensure that this was not a mess that would befall this banking behemoth. In fact, Dimon used his own bank as justification for gutting what little financial re-regulation has hitherto taken place, and his team of lobbyists has done much to eviscerate any meaningful provision in the Dodd-Frank legislation.Marshall puts forth proposals for changing institutional rules for banking similar to Warren Mosler's.
Well, with the announcement of a $2 billion trading loss, it’s clear that all of the banks are the same: they are like children playing with Semtex and they need to be regulated. It’s time to embrace a narrow banking model. The hard lesson of banking history is that the liability side of banking is not the place for market discipline. Therefore, with banks funded without limit by government insured deposits and loans from the central bank, discipline is entirely on the asset side. This includes being limited to assets deemed ‘legal’ by the regulators and minimum capital requirements also set by the regulators. In other words, prevent the banks from doing certain things, rather than create responses (eg. higher capital buffers) to deal with the pre-existing problem.
So here’s some concrete ideas:
Read the rest at Pinetree Capital | MacroBits
JP Morgan Chase shows that all of the banks need more regulating
by Marshall Auerback
(h/t Kevin Fathi via email)
3 comments:
Right, Marshall. So many things are now abundantly clear:
- JPM looks increasingly like they were just "lucky" with respect to the GFC.
- JPM looks increasingly like they are simply one of the herd, with no material difference in risk management. See point above. To claim otherwise smacks of hubris and is disingenuous
- there has been a significant amount of disinformation spread about the CIO's activities, particularly with regard to the exact nature of it's 'prop trading' vs supposed hedges
- if they were just hedges 'gone wrong', we would expect to see a large number of people escorted from the premises, because it would imply their risk management is, in reality, the pits
- the JPM-led blockade on bank regulation is severely undermined, with current information supporting more, not less, regulation
- Glass - Steagall must be reinstated (why it hasn't already is a disgrace)
Apj
If the only rule is that "there ain't no rule", then there will be chaos. Nationalize the commercial banks and heavily regulate all other financial institutions.
Regulations from regulators that are bought by these one have to be regulated. This will end well... not, ie. Dodd-Frank.
Hasn't the criminal SEC, CFCT and others done enough damage? (along with private-public partnership criminal organisations and cartels like ISDA, FMI, UN, WB, and BIS).
When you guys will understand chaos is the only remaining alternative and solution, there must be chaos otherwise is only can kicking N.
Only after chaos we may have the possibility to fix this mess that free raider capitalism, lemon socialism and market (statism) fundamentalism has created.
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