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Abigail Field: Jamie Dimon’s Hedge Fund

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By Abigail Caplovitz Field, a freelance writer and attorney. Cross posted from Reality Check

Jamie Dimon, John Stumpf, and to a lesser extent, Vikram Pandit and Bryan Moynihan, are running massive hedge funds. They’re placing enormous, incredibly risky bets. “Hot money” investors are giving them the cash to gamble because they all understand that you and me will make good on any losses, since we’ve started guarantying the banks-turned-hedge-funds as “Too big to fail.”

The money flowing to these gamblers-in-chief is growing by double digit percentages, and includes so much borrowed money the “leverage” may be six times what Lehman Brothers was doing when it flamed out. As long as this situation continues, a new financial crisis is inevitable, and the risks of it grow faster every day. There’s only one solution: cut these gamblers off from public support. The market will do the rest.

We cut them off by reinstating Glass-Steagall, a depression era law that kept the bankers in check for decades, until their Clinton-era lobbying prowess repealed it. Senate Candidate Elizabeth Warren has a petition going to do just that. Please sign it.

“Deposits”, the Word that’s Hiding the Hedge Funds

The information on the bailed out bankers’ hedge funds I just summarized comes from this incredibly important Bloomberg interview of Amar Bhide. (H/T to Yves Smith at Naked Capitalism.) Bhide is a professor at Tufts University who knows a lot about the financial services industry, as the excerpts I discuss below make clear. In a little more than four minutes, Bhide detailed how and why JPM “is a systemically important, structurally defective bank. As are all the other megabanks.”

Crucially, Bhide debunks the bailed-out-banker PR spin that his Bloomberg TV interviewers parrot, and he schools them in other ways too. If enough people are clued in to what is really going on, we will break up the banks and restore Glass-Steagall. But there’s no chance of that so long as major media embraces the bankers’ key word for their hedge fund money: “deposits”.

Hedge Fund Money is the “Surplus Deposits”

The media keep talking about the money JPMorgan lost as “surplus deposits” or “excess deposits“. You know what deposits are, right? It’s your money at the bank, and mine. And the business’s down the street; even big businesses. It’s the cash we all give the banks for safe keeping.

But that’s not what Ina Drew was “investing.” She playing hedge fund, speculating with hot international money.

Here’s Bhide’s first attempt to get Media Guy and Media Gal (his Bloomberg interviewers) to understand:

There’s this amazing narrative I keep hearing. The investment office exists to quote unquote “invest surplus deposits.” It isn’t the case that the surplus deposits walk in through the door. JP Morgan goes out and solicits these deposits in hot markets in order to invest them, in order to speculate with them.

Later in the interview, Bhide twice has to revisit the point because the interviewers have bought into the imagery of the bankers’ word “deposits.”

Media Guy:

But let’s explore a little bit what the bank does. We’re taking in deposits, we’re in a deleveraging economy, loan growth is anemic, what do you do with these deposits?…

See his subconscious bias in action? “Taking in deposits.” That’s “what the bank does” all right, the retail bank branch. The Chase that you and I might use. But the hedge fund branch, the “Chief Investment Office”, doesn’t “take in deposits.”

Bhide responds:

I think you have the chain possibly a little bit off. The deposits aren’t deposits put into the bank by individuals or even commercial deposits. These aren’t IBM’s deposits. These are deposits that JPM proactively goes out and solicits from hot money markets. If it didn’t solicit these deposits it would not have them to invest with.

But Media Guy isn’t ready to listen yet. Watch how he recites some data and then pronounces bank talking points, including the taking in deposits line.

Media Guy:

Well, I don’t know, the data suggest a couple of things. On the first hand, on a one-year basis JPM’s deposits on hand has grown by 13%. Wells Fargo’s have increased 11%. Citigroup 5%, Bank of America 2%. All of these banks are fighting for the same deposits. Either JPMorgan is doing something uniquely well, or, people think it’s a safer bank and Wells Fargo is a safer bank to put their money with. That’s a choice.

See how his words still evoke you and me? Notice too the “fortress balance sheet” meme in “safer bank”. Media Gal piles on that one: “Or they think Jamie Dimon’s is the risk manager.”

Bhide tries again:

Again, the word deposits is so misleading. This is hot international money. Hot international money going wherever it sees too big to fail institutions, so they’re ‘depositing’ this money, more or less, with the US Government.

To recap: Jamie Dimon and his bailed out counterparts are soliciting money, money that is looking for a hedge fund to gamble with. Dimon’s sales pitch has two parts: 1) I won’t lose your money, because I’m the greatest risk manager ever was (very Barnum of him) and 2) I can’t lose your money, because I can stick my hand into Uncle Sam’s pocket if I really need to, as deep into his pocket as I want.

The Bankers Are Going All In With Our Money

The hundreds of billions in play right now are real money. But the numbers are system threatening when you consider the “leverage.” Just like we shouldn’t call the solicited hot international money “deposits”, we should say “cash advance to gamble with” instead of “leverage.” Because that’s what “leverage” is in the hot money, hedge fund context.

Bhide:

Leverage upon leverage. The ‘deposits’ are leveraged 10 to 1. And the investor gets quote unquote “invested” by the investment office for possibly another 10 to 1. Possibly 20 to 1. So the activities of the investment office are a levered fund, probably levered 200 to 1. Levered on the backs of guarantees by you and me. And this is an enormous threat to the public good.

Let’s be clear why: enormous bets can lose and that’s bad enough when we taxpayers stand behind them. But hugely levered bets not can not only lose, they increase the losses by an order of magnitude or two, and can bring a daisy chain of other institutions into play–the money was borrowed from somebody, right? And don’t kid yourself about how big the risks are that these funds are taking. As Bhide says:

What scares me is not the $2 billion that JPMorgan lost. It’s the record $19 billion profits that JP Morgan made. How on earth do they make a $19 billion profit quote unquote “putting customers first” in an economy that’s supposedly slowing down and their customers are flat on their backs?

By placing really big, highly leveraged, very risky bets. That’s how.

The Mythology of Risk Management

Bhide makes one other extremely important point: the idea that these bailed out bankers are managing their hedge funds’ risks is complete b.s.; it’s fundamentally an impossibility.

Here’s his first try to get Media Guy and Gal to understand:

[Dimon’s] managing an organization of over 200,000 people scattered all over the world. In dozens and dozens of businesses. This is not a …Berkshire Hathaway who is on top of the specific trades that he’s doing. How could he possibly know?

Media Gal: “It’s his job to know.”

Bhide: “Well it’s a job that no human being can do.”

But the obviousness of what Bhide’s saying doesn’t sink in, so later on he tries again.

Media Gal: “Do you think the risk managers understand the type of products these traders are trafficking in?”

Bhide:

Well it’s one thing to understand the type of product generically, it’s another to know every single trade. The people running these very large organizations who are taking these very large audacious risks ought to be on top of every single trade. I know successful hedge fund managers, they make a fortune, it’s a well made fortune.

Media Guy:

So you’re saying if the CEO…cannot have enough visibility into these individual positions and understand the risks they present there’s no way that his or her institution should even be dabbling in this stuff.

Bhide: “Absolutely. I mean I have nothing against these individual instruments per se…”

Media Gal: “So you’re saying the derivatives products, it’s not them. It’s the way they’re being managed?”

Bhide: “I’m saying they don’t belong in JPMorgan, they do not belong in a large commercial bank, period.”

Media Gal: “Then where do they belong?”

Bhide: “In a specialized hedge fund!”

So there it is. Jamie Dimon and his peers are running massive hedge funds that are getting more massive (remember, Dimon’s grew by 13% last year alone), taking enormous, highly leveraged risks they cannot manage, secure in the knowledge that the American taxpayer is guaranteeing their bets.

We are accelerating toward our next, and larger, financial crisis. Time to bring back Glass-Steagall. Sign the petition, please. And watch the Bloomberg interview of Amar Bhide. And pass them both on.

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49 comments

  1. readerOfTeaLeaves

    Hot international money going wherever it sees too big to fail institutions, so they’re ‘depositing’ this money, more or less, with the US Government.

    Ding!

      1. Maximilien

        The money-printers. That is, the central banks of the world, primarily the Fed and the ECB.

  2. Jumpjet

    Why am I being asked to associate with that filthy sellout, Warren?

    We cut Dimon off by charging him with the fraud he’s guilty of and hurling him into a federal supermax prison. Not even a white collar one. I want his sociopathic ass to do time with the rapists and the murderers. See how he likes it.

    1. scraping_by

      Part of the punishment in a supermax is isolation. Comes down to round the clock solitary confinement. Just like Lubyanka, the routine is designed to keep inmates away from each other.

      So, you either get the banksters at the mercy of sociopaths in a regular prison, or mind-bent in a supermax. You’ll just have to make up your mind.

        1. Wells Fraudgo

          Gotta hate this blog sometimes- to easy to go a bit too far. As a failing banana republic, the US burns up more human life in our monstrous prison industrial complex than anywhere in the world. The drug war is big laundry money for the NY/DC mafia.
          Hell, the best treatment for Dimon would be just to go out, get a job with a tarnished, blacklisted resume, end up waiting tables. That is punishment enough. Drug users and people with mental problems need treatment not the American profit centers of the torture and destruction, which Banks like Dimon’s are heavily involved in all ready. It’s much more than foreclosures with these sociopaths.

          1. alex

            “Drug users and people with mental problems need treatment not the American profit centers of the torture and destruction”

            I heartily agree, but here the discussion is about actual criminals.

      1. rotter

        I would go for the supermax option. Normal prison is horrible, a violent, overcrowded animal pen full of desperate,stupid people, but they are usually in awe of persons like Dimon..also he can pay them not to hurt him and to generally make his life easier. Supermax,like Alcatraz, is designed to punish the unpunishable, by isolating them almost completely from everything but a tiny gray cell. It is said to be unbearable torment. It certainly is about time Dimon and those like him face punuishment for thier evil.

    2. Abigail Caplovitz Field

      I’m all for incarcerating Jamie Dimon and his ilk. However that doesn’t solve the systemic problem. We need a new Glass-Steagall to do that. I link to Warren & mention her because it’s the closest thing to a place to express enthusiasm for the idea. Even if she gets elected, we’re not getting it overnight. Unless of course a really big bet goes wrong. But until then, building broad awareness of the need for a new Glass-Steagall and documenting citizen support for it is helpful. Much better than not acting.

      1. Carla

        “I’m all for incarcerating Jamie Dimon and his ilk. However that doesn’t solve the systemic problem. We need a new Glass-Steagall to do that.”

        Yeah, me too. Jail his ass. But of course the problem is systemic.

        However, re-instating Glass-Steagall (and I’m not sure it has to be a new one – the original 37-pager might do) is only a first step to dismantling the oligarchic SYSTEM that now rules this country with an iron fist (and domestic drones).

        1. Susan the other

          Bhide scared me because I got the impression that even Glass Steagall couldn’t control the situation with the separation of commercial and investment banks. That investment banks could bring us down anyway if their massive bets destroy capital altogether. They just make money up and then burn it up and the things they are betting for or against suffer the equivalent of being fatally shorted or intolerably inflated and that trickles down to destroy the economy anyway. If this sort of trading belongs only in a sophisticated hedge fund, there should be even more rules to protect normal business and industry. If it is even possible.

          1. Carla

            Susan the other: everything you fear has already happened. The banks have brought us down, there is no capital, money IS just made up, and people are dying and starving and commiting suicide and losing their jobs and their homes FOR NOTHING.

            So we can try to make rules to control criminals, but generally speaking, criminals do not follow rules.

            We do not have political systems to govern ourselves, because our political systems are corrupt.

            We have to start over. Good luck to us.

  3. mario

    Most predators can sense weakness. Once sensed, the natural instinct is to close in for the kill. (c)

  4. Stump the Man

    With Warren, it’s better later than never. I don’t hear Ofraud saying anything about GS or his buddy Jamie Dimon for that matter.

  5. arr

    no wonder they handout 150 bucks just for opening a new checking account and another 100 bucks for savings….

  6. CaitlinO

    I’m still confused.

    What do the sources of “hot international money” call themselves when they’re at home? Who specifically are some of these individuals or organizations or states?

      1. indio007

        It’s a freakin daisy chain of BS. It comes from other banks.
        Welcome to the hall of mirrors aka The Federal Reserve System.
        These are imaginary assets that have value as long as other people share in the hallucination. I think they call it
        “Full (blind)Faith and (dis)Credit”

        1. readerOfTeaLeaves

          Not foily enough by half, Lambert ;-)

          In addition to your fine 2009 post, here’s a more recent item from the Guardian: http://www.guardian.co.uk/world/2011/apr/03/us-bank-mexico-drug-gangs

          Here’s a sample:

          …More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn – a sum equivalent to one-third of Mexico’s gross national product – into dollar accounts from so-called casas de cambio (CDCs) in Mexico, currency exchange houses with which the bank did business.

          “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” said Jeffrey Sloman, the federal prosecutor. Yet the total fine was less than 2% of the bank’s $12.3bn profit for 2009. On 24 March 2010, Wells Fargo stock traded at $30.86 – up 1% on the week of the court settlement.

          The conclusion to the case was only the tip of an iceberg, demonstrating the role of the “legal” banking sector in swilling hundreds of billions of dollars – the blood money from the murderous drug trade in Mexico and other places in the world – around their global operations, now bailed out by the taxpayer.

          At the height of the 2008 banking crisis, Antonio Maria Costa, then head of the United Nations office on drugs and crime, said he had evidence to suggest the proceeds from drugs and crime were “the only liquid investment capital” available to banks on the brink of collapse…

          …[A UN official] charts the history of the contamination of the global banking industry by drug and criminal money since his first initiatives to try to curb it from the European commission during the 1990s. “The connection between organised crime and financial institutions started in the late 1970s, early 1980s,” he says, “when the mafia became globalised.”

          Wachovia was bought out by Wells Fargo after the 2008 fiasco.

          If you are interested, do a search on ‘Wachovia’ in the NC Search box.
          Marcy Wheeler (i.e., “Emptywheel”) has also done some remarkable analysis about tax havens and drug money, including Wachovia. Here’s one of her posts:http://emptywheel.firedoglake.com/2011/04/03/how-allowing-money-laundering-keeps-our-bubblicious-finance-afloat/

          Finally, if you are interested in the general topic, read (or listen on Audible) “Treasure Islands: Tax Havens and the Men Who Stole the World” by Nicholas Shaxson. http://treasureislands.org/

  7. Warren Celli

    Oh yes, of course, petition number 3,678,532,432,000…

    Bring back “Howdy Doody!”

    At some point these old fashioned Vanilla Greed for Profit folks are going to have to wake up and realize that they are the problem. They have had their clocks thoroughly cleaned by the more Pernicious Greed for Control crowd and all that they are doing is wasting valuable time and resources appealing to the scum bags that so cleverly sold them out and screwed them.

    To seek remedy from the rapist is folly, they care not a twit about the wrongs that they have just so knowingly and willfully committed. The chicken does not beseech the fox for justice. The fly does not ask the spider to release him from the web. What is so difficult to understand here? One might just as well ask the sun to rise in the west, streams to flow up hill or pigs to fly. Do not hold your breath waiting for the results.

    Or they are part of a very crafty good cop bad cop game.

    Are we ready for the election boycotts yet!

    Deception is the stronest political force on the planet.

  8. run75441

    Hi Yves:

    I liked this comment by Bhide for a quick negative reply:

    “Absolutely. I mean I have nothing against these individual instruments per se…”

    Hell, I do have a problem with the lack of transparency and regulation of derivatives. We still end of bailing them out. If they fail, they drag Main Street into the fray. There is a decision to be made here. If you are a commercial bank then you should not be playing with hedge funds. If you are an investment company you can invest in whatever; but, we will not bail you out, you must maintain reserves on your investments, and you will be taxed for each transaction at a rate higher than capital gains.

    Where is Brooksley when you need her? Why do women such as Born, Mack, and warren understand this and most men do not (sorry Dorgan)?

    1. TK421

      “Why do women such as Born, Mack, and warren understand this and most men do not”

      You can’t be serious.

      1. scraping_by

        Because men have to be destroyed; women can be dismissed.

        I suspect there’s a keeping the head down thing. John Wayne had a stunt man.

  9. craazyman

    Mr. Bhide is now off my shit list in my gratitude for his Bloomberg performance. I put him on the shit list after his comment about “bank examiners of average intelligence yada yada elitist drivel”. It was a truly inauspicious comment, but if I consider how many stupid comments I’ve made, we have to have some charity to survive.

    And it’s clear the risk managers are the ones whose intelligence we need to worry about because it’s the intelligence of a parasite burrowed into the host. A bacteria-like hive intelligence — one that runs an instinctive program of feasting without regard to consequence or destruction, incapable of lucidity or reflection, an ineluctable drive to fatal engorgement and murder. This is where the intelligence failure originates.

    The bank examiner is a representative of the host, and if there’s any issue with intelligence it’s a matter of degree of antibiotic potency, not one of moral or ethical calibration.

    So Mr. Bhide is back on the A list in my book in a state of rehabilitation. Hopefully he gets on the telly more often. Maybe the ultra-hot Lauren Lyster can have him on her show.

    1. Heretic

      I like what you wrote:

      ‘And it’s clear the risk managers are the ones whose intelligence we need to worry about because it’s the intelligence of a parasite burrowed into the host. A bacteria-like hive intelligence — one that runs an instinctive program of feasting without regard to consequence or destruction, incapable of lucidity or reflection, an ineluctable drive to fatal engorgement and murder. This is where the intelligence failure originates’

      I is not intelligence failure, to rationale self interest without empathy or the other or conscience. I would characterize them as having the motivation of an avaricious predator animal like a vicious beast. Or perhaps they are human incarnation of The Beast…

      1. Heretic

        Spell check on the iPhone stinks…
        I meant to say that ‘ it was not a failure of intelligence, but an expression of intelligent self – interest, unbound by any sense of empathy, conscience, or values.’

  10. Conscience of a Conservative

    From what we know what Jamie Dimon did did not violate the Volcker rule or Dodd Frank. So far it appears an act of stupidity and an embarassment and for that reason the whale and his team were fired. If anyone should be ticked off it should be the board of directors and the share holders.

    That said, I’ve repeatedly felt that the Fed has some blame here. They’ve reduced rates to zero and engaged in quantitative easing which kills the NIM, the ability to lend securities for profit and encourage speculation. Hello!!!

    Any sane person knows, we kicked the can down the road in 2008, we need to end too big to fail, reinstate Glass Stegall, and break up the big 4(Citi, Chase, BAC & WFC), but this is not criminal. Let’s talk about this from a public policy perspective instead of what the CEO’s are doing to make a profit in an environment where profit is next to impossible. These CEO’s are clinging to an era that we need to say good-by to. Don’t hate them for it, just change it because we need to.

    1. Executive Con

      “The Fed made them do it!” – That doesn’t sound right does it?
      “Blame the shareholders” – What?

      1. Conscience of a Conservative

        I meant to say the Board of directors should be representing the share-holders.

  11. Conscience of a Conservative

    And both of them should ticked off at what the bank engaged in.

  12. Tony W.

    The comment that the “…Fed has some blame here..” Is a bit simple when viewed with the understanding that “the fed” is effectively controlled by “the banks”.

    Most smart, non-banker, business folks I interact with undertand very clearly that Sr. Bank mgmt. teams have anything but a benevolent nature. If they control the fed, then it would seem natural, given their buccaneer tendancies, that they would find ways to make it very easy for them to exploit the system to their personal gain.

    This from the “fed” wiki:

    “The Federal Reserve System has both private and public components, and was designed to serve the interests of both the general public and private bankers. The result is a structure that is considered unique among central banks. It is also unusual in that an entity outside of the central bank, namely the United States Department of the Treasury, creates the currency used.”

    Our Executive and Legislative branches of government were “designed to serve” the interests of the general publicl, principally, and we know how that is working out. Believing somehow that “The Fed” is an independent body, responsible for overseeing the banking industry in a way which “serves the interest of the public”….is a BAD JOKE.
    Believing such nonsense is part of the problem.

    None of the problems that we have now, nor that we are steaming relentless towards can be fixed until we get control of the banking system again. Glass Steagel should be reinstituted. AND MOST IMPORTANTLY, WE MUST GET ALL PRIVATE MONEY OUT OF POLITICS. THERE IS NO HOPE UNLESS WE DO.

  13. citizendave

    On the opinion pages of today’s Wall Street Journal there is a piece advocating reinstatement of Glass-Steagall, by Tom C. Frost, chairman emeritus of San Antonio, Texas-based Frost Bank. (After breakfast I was feeling invincible, else I would not have ventured into the belly of the beast.)

    He begins by describing what it was like working for his great-Uncle Joe at the bank as a recent college graduate in the early 1950s. His Uncle Joe told him that “…the very first goal we had was to take care of the community’s liquid assets and manage them safely so others could use them (via loans) to grow…”

    Mr. Frost lays out what should be seen as a common-sense argument: that the cultures of commercial banking and investment banking should be separated.

    The online title is “Tom Frost: The Big Danger With Big Banks”, in the May 16 edition. Page A15 in print. I read the first ten or so comments online, the majority of which are in agreement with Tom Frost. When I find myself in agreement with a majority of commenters at WSJ, I think either my analysis is flawed, or maybe we have arrived at a political moment where enough people may be able to find common ground to persuade Congress to act.

  14. Hugh

    We live in a kleptocracy. Glass-Steagall was repealed by the politicians the kleptocrats own. It will stay repealed because the kleptocrats still own them. I hate to keep harping on this but we need to look at what is going on in our society holistically, and the kleptocratic perspective does this. It is an integrated system run by our elites for the kleptocrats, who often happen to be themselves. They control all of our public institutions: the legislature, the executive, the judiciary, the media, and academia. The DOJ’s not prosecuting. The regulators aren’t regulating. The Fed and the Treasury are Wall Street sockpuppets filled with revolving door agents from the likes of Goldman.

    Even in the days after the meltdown, Glass-Steagall was never put on the table. Dodd-Frank ignored. There was one pro forma attempt by a few members to bring it up but this went nowhere. If Glass-Steagall had no chance then when banks were at their shakiest, it has absolutely no chance now. It will continue to have no chance until we the people take back our government and our country, and I’m not holding my breathe on that.

    I agree with those who disagree with Bhide on derivatives. Derivatives are supposed to reduce risk but what we have seen is the opposite where risks are not just transferred but magnified. The new crop of derivatives have been rife with fraud and are essentially extractive on the economy. They are just ways to make sure that the banks get a cut on everything. But even traditional derivatives, like futures, have also been heavily abused and their markets need to be severely restricted. And there are yet other instruments like CDS which should be simply banned with any current CDS nullified. Again none of this is going to happen unless and until we take our country back.

    1. Warren Celli

      Good post, I agree with you! Keep harping, persistence is the key, as is the holistic approach you mention to remedial action. Please consider election boycotts as an alternative to the present letter to Santa fantasy petition approach.

      Election boycotts organized bottom up can be the rallying arena for a Constitutional rewrite that will open the electoral process to direct democracy for all and re-balance the power structure. They can also at the same time serve to eliminate the old fashioned Vanilla Greed for Profit that this current crop of more Perniciously Greedy for Control have arisen from. We are talking about decades of aggregate generational corruption that needs to be erased.

      Whether you believe as I do that this is intentional or not we are rapidly being driven to a two tier ruler and ruled world with the ruled engaged by design in a contrived and well orchestrated perpetual conflict with each other.

      Election boycotts organized now, based in local sustainability, will send a far stronger message than petitions that are simply ignored, but more importantly, they will create a grass roots organization that will serve to thwart rioting and looting when it comes. And you can be assured that it is coming. We are well past historical jubilee time and running on pure Noble Lie deception. But you know that.

      Just as Japan was a pilot program for the massive ‘pump and dump to deflation’ that is now taking place globally — it is a herd thinning operation — so too is the drug war operation in Mexico a pilot program for cover elimination of political opposition. There is no doubt in my mind that it too is coming to America with a lot of infrastructure already in place. Getting to know your friends and neighbors now and working to gain control of your local police force is essential.

      These people currently at the helm are aberrant, immoral, self anointed elite scum bags. They are few, very few, we are many! But we need to get beyond addressing our grievances to an illusion. Far stronger measures are required.

      Deception is the strongest political force on the planet.

      1. citizendave

        A union strike to halt production produces an easily discernible effect. An election boycott is almost completely indistinguishable from routine voter apathy, at least in its effect: the result is that even fewer voters than normal will decide the outcome of the election. By voting for a third party, at least your vote sends a signal that can be distinguished from the background noise of those eligible voters who do not cast ballots.

        1. Warren Celli

          Citizendave, not true, I advocate highly vocal proactive voter boycotts organized on the public commons and the internet. Believe me they WILL get attention, and the Vanilla Greed for Profit crowd objects the loudest. Time does not permit my re-posting all the info but you can find some detail here in this comments thread if you care to look…

          http://www.nakedcapitalism.com/2012/05/barack-obama-the-great-deceiver.html#comments

          Deception is the strongest political force on the planet

          1. citizendave

            Warren, if what you say is true, then perhaps we could persuade the disaffected voters, and some of the apathetic non-voters, to claim they are actually boycotting the election(s).

            And thanks for the link. I did spend a lot of time reading the comments on Monday and Tuesday. As of 2:30 PM ET today, May 17, the comment count stands at 435 — the most I’ve ever seen here.

            I agree (Hugh, Abigail, others) it appears necessary to change the whole system. But I think anything we can do in the near term to try to avert another collapse, such as to restore Glass-Steagall, would help. Enforce current laws where applicable, and make new laws as needed. Maybe we could all chip in and buy them off, pay them to stop.

  15. SteveA

    The NYT is reporting tonight that the loss has increased by $1B in the last 4 days.

    Reuters is reporting that CIO unit, where the loss occurred (or rather is ongoing), had a separate VaR system that “used a less stringent calculation that gave a lower risk assessment of its trades.”

  16. GlibFighter

    You do remember that Bear Stearns & Lehman Brothers were not commercial banks. Yes?

    1. Abigail Caplovitz Field

      Yes, which is why reinstating Glass-Steagall is not enough. “Big dumb rules” (Felix Salmon’s term) that limit trading are also necessary. But what’s so critical about Glass-Steagall is it would immediately shrink the risks facing the taxpayer. But you’re right, alone it’s not enough.

  17. Economic Bluesman

    Great article, but curious that neither Ms. Fields nor Mr. Bhide mention even once the all-important piece of the puzzle, namely market manipulation. JPM’s usual billions and billions in trading profits do not come from the TBTF guarantee alone. The surprising thing about JPM’s $2B loss is that their trading strategy failed, i.e. this time at least, they failed to cheat traders on the opposite side of derivatives trades by manipulating market prices in the primary markets. Whether this happened because of “sloppiness” as JD implies (the complexity of derivatives becoming too great for even JPM’s algorithms to figure out), or because someone else beat them at their own game is not really important. The point is that TBTF trading desks must be shut down not only because they introduce systemic risk which can destroy the real economy in the blink of an eye, but also because they manipulate market prices, heavily taxing the real economy and killing it slowly but steadily.

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