Among the more laughable features of commentaries on Jamie Dimon’s recently revealed $2 billion (at least) gambling losses are earnest pronouncements that the debacle will stymie the efforts by Dimon and Wall Street in general to further deregulate the financial industry.
A scheduled vote this coming Thursday in the House Agriculture Committee should reassure Wall Street that nothing has changed.
The vote in question will be on H.R. 1838, the “Swaps Bailout Prevention Act” as exclusively reported
here back in February. The bill nullifies one of the few positive contributions of the Dodd Frank reform act, the so-called Lincoln Rule banning any federally insured institution, such as JPMorgan, from trading derivatives, thereby forcing them to set up separately funded subsidiaries for such trading. H.R. 1838 now enjoys bi-partisan support, has already been endorsed by the Financial Services Committee (agriculture has historic jurisdiction regarding derivatives) and will quite likely proceed on its merry way toward full enactment.
This melancholy development should come as no surprise to anyone who has followed the progress of financial reform in recent years. The last time naked credit default swaps (naked meaning they are traded as speculative bets rather than hedges) got in the headlines was the fall of 2008, when, via the massive exposure of AIG to these same instruments, the global financial system trembled on the brink. Fingers were being pointed at the CDS (Credit Default Swap) market as the detonator of the disaster. There were authoritative calls for tough regulation, re-enactment of Glass-Steagall and other worthy endeavors.
Major players on Wall Street were swift to take action. Led by Dimon’s JPMorgan Chase, nine leading financial institutions set up the CDS Dealers Consortium and hired the master derivatives lobbyist Ed Rosen, of Cleary, Gottlieb, to keep things in order. Rosen crafted a memo suggesting that the market remain under the benign supervision of the Federal Reserve (which at that point was underwriting the banks to the tune of $7 trillion and more.) Meanwhile Timothy Geithner at Treasury was working on his master plan for policing the CDS market. Eventually, in May, 2009, Geithner unveiled his proposal, identical in all essential respects to Rosen’s memo.
A lot of money has flowed under the bridge and into legislators’ pockets since then. The Dodd Frank financial reform legislation finally hit Obama’s desk, laced with loopholes and riddled with exceptions. The President is currently touting “financial reform” as one of his achievements. Chronicles of the crash meanwhile have touted Dimon’s statesmanlike role in keeping his bank out of the knacker’s yard while other totemic institutions crumbled around him. Dimon indeed has had the gall to claim that he had simply taken bailout money to encourage the others, telling shareholders in March 2010 that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve (only) to help motivate others to use the system,” without mentioning that at their peak, when the TAF program had been going a year, his Fed loans amounted to $48 billion, twice the bank’s own cash reserves.
