Chase’s $2 Billion Trading Loss Bolsters Calls for Regulation

Lindsey Kratochwill

JPMor­gan Chase’s dis­clo­sure yes­ter­day that it has lost $2 bil­lion in the last six weeks through a failed hedg­ing strat­e­gy has sparked renewed calls for tougher finan­cial reg­u­la­tion.Sen­a­tor Bernie Sanders (I‑Vt.) released a state­ment today call­ing the loss a deba­cle that needs to be pre­vent­ed by break­ing up the pow­er of the six big banks in the U.S.  In the wake of yes­ter­day’s announce­ment, Secu­ri­ties and Exchange Com­mis­sion reg­u­la­tors are already look­ing into the mega-bank for pos­si­ble civ­il vio­la­tions. Accord­ing to the New York Times: The inquiry, which is being run out of New York, will prob­a­bly exam­ine the bank’s past reg­u­la­to­ry fil­ings about the inter­nal unit that placed the trades, as well as recent state­ments from the firm’s top executives.
Sanders has been vocal about the state of big banks for years, and in 2011 he told Ed Schultz on MSNBC: Ed, today, you have six finan­cial insti­tu­tions, the largest six, that have assets that are the equiv­a­lent of 60 per­cent of the GDP of the Unit­ed States of Amer­i­ca.”Sanders’ full state­ment from today notes: The deba­cle at J.P. Mor­gan Chase reaf­firms my view that the largest six banks in this coun­try, includ­ing J.P. Mor­gan Chase, which have assets equiv­a­lent to two-thirds of our GDP, must be bro­ken up.  This is impor­tant in order to bring more com­pe­ti­tion into the finan­cial mar­ket­place and to pre­vent anoth­er ‘too-big-to-fail’ bailout. At a time when 23 mil­lion Amer­i­cans are either unem­ployed or under­em­ployed, huge finan­cial insti­tu­tions should not be involved in ‘mak­ing wagers or high-stake bets.’ They should be invest­ing in the pro­duc­tive econ­o­my cre­at­ing jobs and improv­ing our stan­dard of liv­ing. Oth­er mem­bers of the House and Sen­ate are also chastis­ing the big bank. The argu­ment that finan­cial insti­tu­tions do not need the new rules to help them avoid the irre­spon­si­ble actions that led to the cri­sis of 2008 is at least $2 bil­lion hard­er to make today,” said Rep­re­sen­ta­tive Barnie Frank, co-author of the Dodd-Frank finan­cil reform law of 2010. Chase Chief Exec­u­tive Jamie Dimon, who has tout­ed the bank’s rel­a­tive suc­cess dur­ing the finan­cial cri­sis, has posi­tioned him­self strong­ly against post-cri­sis reg­u­la­tion – but as Reuters reports, his cred­i­bil­i­ty is sub­stan­tial­ly under­mined by the loss.Dimon says that he does not believe that the hedge trades would have vio­lat­ed the Vol­ck­er Rule, which is still in the process of being final­ized. The rule would restrict the abil­i­ty of banks whose deposits are fed­er­al­ly insured from trad­ing for their own ben­e­fit.” But Sen. Carl Levin (D‑Mich.) says the rule would have like­ly pre­vent­ed what just hap­pened to JPMor­gan. Levin told CNBC “If the reg­u­la­tors do what the law says and define hedg­ing prop­er­ly, this activ­i­ty would not be per­mit­ted.” Ear­li­er this year, an off­shoot of Occu­py Wall Street called Occu­py the SEC draft­ed a let­ter crit­i­ciz­ing the Vol­ck­er Rule and offer­ing their own sug­ges­tions: Dur­ing the leg­isla­tive process, the Vol­ck­er Rule was woe­ful­ly enfee­bled by the addi­tion of numer­ous loop­holes and excep­tions.  The bank­ing lob­by exert­ed inor­di­nate influ­ence on Con­gress and suc­ceed­ed in dilut­ing the statute, despite the cat­a­stroph­ic fail­ures that bank poli­cies have pro­duced and con­tin­ue to produce.
Lind­sey Kra­tochwill, an In These Times edi­to­r­i­al intern, is stu­dent at North­west­ern University’s Medill School of Journalism.
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