JPMorgan's billions

These big bank folks don't have much fondness for government regulation of their business, but they sure make a good case for it.  Likewise, they are making a good case for voting Democratic in the November elections.

All of this is because of last week's news about the big bank JPMorgan Chase losing at least $2 billion in doing some bad trading in financial instruments called derivatives.  That's a whole lot of money.  Maybe it's not life-threatening for a bank as big as JPMorgan, but it was only about four or five years ago that similar things were said about the big financial companies Bear Stearns and Lehman Brothers, and we all know how things turned out for them, and consequently for the whole world's financial system, our nation's economy and several million American jobs:  pretty darned badly.

Simple math at JPMorgan = simple politics

Here's more perspective:  JPMorgan's CEO, a fellow named Jamie Diamon, has been quoted as grousing about the Dodd-Frank financial legislation because it will cost JPMorgan so much money to implement the new guidelines and to prepare for the regulatory oversight.  How much does he think it will cost?  Well, maybe something like $400 million to $500 million.  And yet they can drop four or five times that much in a single trade, and accept it as an affordable cost of doing business.

The math seems pretty simple to me:  if the nation's biggest bank can afford the cost of a single bad trade, then it can afford the cost of prudent oversight that is only a fraction of the cost of that bad trade.  That's true for all the other big banks, too.

The politics of this also seem pretty simple to me:  President Obama and the Democrats, in general, are the horses to ride in the November elections because they are the ones who are committed to implementing and using the financial oversight of the Dodd-Frank legislation.  The Republican challengers in this election are mistaken when they call for the repeal of Dodd-Frank and say that things are better when the big banks are allowed to oversee their operations without government involvement.  That's like saying the fox will be a great guardian in the hen-house.

Don't like Dodd-Frank?  Try remembering Bear-Lehman

Today's Republican Party is guilty of indulging in the same logic that helped Bear Stearns and Lehman Brothers to end up the way that they did.  And they took the rest us us along for a very bumpy ride.  We don't want another ride like that one.

Here's the eagle

Officially named the Dodd–Frank Wall Street Reform and Consumer Protection Act and accompanied by the mighty fine-looking Great Seal of the United States this hefty piece of legislation introduces itself with this goal statement:

"An Act to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail", to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes."

My guess is that somewhere in the Act's 848 pages there are things to be found that are imperfect and will need some modifications to deliver on the goal.  That's not unusual.  This is complicated stuff.  Mostly, though, it's got us going in the right direction to fix some very big problems.

Big banks, big deals, big money. . .big problems

Does anybody really understand everything that the big banks do these days?  Does anybody fully understand financial derivatives, collateralized debt obligations, mortgage-backed securities, and things whose names are beyond the everyday knowledge of at least 99% of the population but which are worth millions or billions of dollars as the banks trade them daily?  I don't.  But some people do.

Apparently, though, a few employees at one of the most accomplished and savvy banks in the world thought they knew more than they did, and so the end result of their recklessness is billions in red ink.

Perhaps there was nothing illegal about what went on at JPMorgan.  Maybe this is some kind of mole-hill that looks like a mountain right now, and the view might change in a few weeks.  There's no way of knowing what will turn up as the facts are brought to light.  As I am writing this, we are still in the dark on most of the facts of this case.

But for now, at least, it evokes bad memories of other really, really smart people having way too much fun playing with lots and lots of other people's money a few years ago.

Here's the evidence, so here's my vote

Government regulation and regulators are far from perfect, but I think it's time that we learn from the mistakes of our recent past, and accept the fact that the big banks will not regulate and oversee themselves.  They have no systemic motivation to do it, and even if they did have the motivation, they still don't know how to do it.  Instead, when let loose to play without enough adult supervision, they revert to their former bad habits.  The evidence for that just keeps on piling up.

It's the same evidence that says that President Obama and the Democrats in Congress are on the right track with their overhaul of financial regulation.

They have my vote to stay on the same track.