[D66] The JPMorgan debacle

[Antid Oto]

The JPMorgan debacle
15 May 2012

The economic and political fallout from JPMorgan Chase’s sudden announcement
last Thursday night that it lost more than $2 billion from speculative bets on
credit derivatives continued to grow on Monday. The biggest US bank announced
the forced retirement of Ina Drew, who headed up the bank’s London-based Chief
Investment Office, which placed huge bets on the creditworthiness of a
collection of US corporations. Other top executives and traders are expected to
be sacked or demoted.

The bank’s shares fell another 3.2 percent, bringing its two-day market
capitalization loss to nearly $19 billion. The Wall Street Journal reported that
JPMorgan was prepared for a total loss of more than $4 billion over the next
year from its soured stake in credit default swaps—the same investment vehicle
that played a central role in the collapse of Lehman Brothers and the government
bailout of insurance giant American International Group (AIG) in September of 2008.

In an interview on NBC’s “Meet the Press” program on Sunday, JPMorgan CEO Jamie
Dimon sought to present the loss as an innocent mistake, resulting from “errors,
sloppiness and bad judgment.” Only a month ago, Dimon, who has led the public
campaign by Wall Street against even the mildest restrictions on speculative
banking practices, dismissed warnings over the massive bets being made by his
Chief Investment Office as “a complete tempest in a teapot.”

The scale of the loss and the denials that preceded it raise the likelihood that
banking rules and laws against investor fraud and deception were breached.

President Obama, however, rushed to the defense of JPMorgan and Dimon, declaring
on a daytime television talk show Monday that JPMorgan was “one of the best
managed banks there is” and Dimon was “one of the smartest bankers we got.” At
the same time he cited the bank’s loss as a vindication of the Dodd-Frank
financial regulatory bill that he signed into law in July of 2010. “This is why
we passed Wall Street reform,” he said.

In fact, the JPMorgan debacle demonstrates that nearly four years after the Wall
Street crash nothing has changed for the financial aristocracy. No measures have
been taken to rein in the banks, which received trillions of dollars in
government handouts, guarantees and cheap loans. The same forms of speculation
and outright swindling that led to the financial meltdown and the worst economic
crisis since the Great Depression continue unabated.

The big banks, such as JPMorgan, have increased their stranglehold over the US
economy. They have recorded bumper profits by withholding credit from consumers
and small businesses, keeping unemployment high, while speculating on credit
default swaps and other exotic financial instruments that drain resources from
the real economy. On this basis, bank executives and traders, including those at
bailed-out institutions, have continued to rake in eight-figure compensation
packages. Last year, Ina Drew made $14 million, and Jamie Dimon took in $26 million.

The Dodd-Frank law trumpeted by Obama is a fraud, an attempt to give the
appearance of financial reform while enabling the banks to continue their
parasitic and criminal activities. A case in point is the so-called Volcker
Rule, named after the former chairman of the Federal Reserve and economic
adviser to the Obama White House, Paul Volcker.

The rule, incorporated into the Dodd-Frank Act and supposedly one of its most
daring provisions, ostensibly bars proprietary trading—speculation by a bank on
its own account—by commercial banks whose consumer deposits are guaranteed by
the federal government. The idea is to prevent government-insured banks from
speculating with depositors’ money.

But the regulation as drafted by federal regulators—under pressure from the
Federal Reserve and Obama’s treasury secretary, Timothy Geithner, as well as the
banks—would actually allow the type of speculative bet made by JPMorgan in the
guise of a “hedge” to offset risk in the bank’s overall investment portfolio.

The Volcker Rule, whose precise form is yet to be announced, will do nothing to
halt speculation by government-backed banks using small depositors’ money.

The JPMorgan scandal also throws into relief the government’s failure to
prosecute those responsible for the 2008 financial meltdown. Despite
overwhelming evidence of wrongdoing and criminality uncovered by two federal
investigations last year, those responsible have been shielded from prosecution.

When Iowa Senator Charles Grassley submitted a letter to the Justice Department
earlier this year asking how many bank executives had been prosecuted in
response to the financial crisis, the Justice Department replied it did not know
because it was not keeping a list.

According to a study by Syracuse University, however, federal financial fraud
prosecutions have fallen to 20-year lows under the Obama administration, and are
down 39 percent since 2003. Under Obama, the number of financial fraud cases has
fallen to one-third the level of the Clinton administration.

These facts demonstrate the de facto dictatorship exercised by the financial
aristocracy over the entire political system and both major parties. The Obama
administration, in particular, is an instrument of the most powerful financial
institutions. It has focused its efforts on protecting and increasing the wealth
of the privileged elite while utilizing the crisis to permanently slash the
wages and living standards of the working class.

For much of Obama’s tenure, Jamie Dimon was known as the White House’s “favorite
banker.” According to White House logs, Dimon visited the White House at least
18 times, often to talk to his former subordinate at JPMorgan, William Daley,
who had been named White House chief of staff by Obama after the Democratic rout
in the 2010 elections.

The incestuous and corrupt relations between Wall Street, the Obama
administration and the entire political system underscore the necessity for the
working class to build its own mass socialist movement to fight for its
interests in opposition to the ruling elite.

The bankers responsible for the financial crisis, including Dimon and his
co-conspirators, must be held criminally liable for their lawlessness and held
accountable for the social suffering that has resulted from their actions. The
ill-gotten trillions accumulated by the banks must be expropriated, with full
protection for small depositors and small businesses, and used to provide decent
jobs, housing, health care and education for all.

There is no way to rein in the banks and end their socially destructive
activities within the framework of the capitalist system. The only way to stop
the fraud and parasitism that go on every day on Wall Street is to nationalize
the banks and run them as democratically controlled public utilities.

Andre Damon and Barry Grey

http://wsws.org/articles/2012/may2012/pers-m15.shtml