May 15

No Separation – No Peace

Jamie DimonEven if your only source of news is FOX and Friends, you must certainly have heard by now that the nation’s largest bank, JP Morgan Chase, suffered a loss of at least $2 billion–and likely much more–in a botched credit derivatives trade. The trade, which spurred an all but dog-and-pony show investigation by the FBI and renewed lip-service on Capitol Hill for strengthening Dodd-Frank‘s Volcker Rule and swaps regulations, involved a corporate bond hedging strategy gone horribly wrong. A London based trader for JP Morgan assembled a huge portfolio of derivative credit default swaps and sold them off to investors based upon the trader’s wrong-headed belief that corporate bonds owned by JP Morgan would perform well. The market believed otherwise, and the once “well-intentioned” hedging strategy blew up in the face of JP Morgan chief Jamie Dimon and the rest of the masterly minds who also carry keys to the executive washroom. Losses began to mount, and rather than accept the losses commensurate with the oft-cited free market’s value of the underlying assets and derivatives, Dimon chose instead to attempt to call off the dogs by whining to the federal government yet again. Dimon, long the golden-boy of Wall Street for his perceived risk management acumen, suffered a scathing blow to his egregious ego.

Barack Obama is fond of referring to Dimon as one of Wall Street’s best and brightest.

JP Morgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion and counting,” the president said. “We don’t know all the details. It’s going to be investigated, but this is why we passed Wall Street reform.

I don’t know which claim in this sentence is the most absurd. First, if Jamie Dimon is one of the smartest bankers we’ve got, who is the worst? Good grief. If you have a potential loss looming into the many billions of dollars on a unnecessary and risky bet that was permitted to spiral out of control on your watch, you’re not a genius. If you beg Congress to limit the rules that could potentially prevent the loss from taking place in the first place, you’re an idiot whose hubris has digested whatever tiny amount of good sense you had remaining. You are by no stretch of the imagination to be held out as some captain of finance worthy of the respect of the common man and bankers alike. If you insult those who are attempting to promulgate rules to prevent you–yes you–from destroying the economy and sending millions back to the unemployment lines and soup kitchens, you are a sociopath incapable of understanding the profound effect your actions have on other human beings. You’re just another banker Mr. Dimon, and there are hundreds of thousands of people within fifty miles of Wall Street capable of stepping into your shoes and replicating your results in an instant. I only wish Barack Obama understood that simple fact. Let me backpedal a bit. In fairness, I am sure that he does understand, he just isn’t willing to act upon this knowledge. Continue reading

Apr 26

Bill Clinton Part II – Starring Barack Obama

Obama and ClintonWe all remember the wonderful carefree days of the Clinton Administration, notably the second lame-duck term during which much was accomplished, for good and for bad. The economy was growing, unemployment was low, and the stock market performed swimmingly. Congress impeached the President, but most of the balding white men involved in the Broadway production secretly played intern with their Bill Clinton action figures. President Clinton did not embroil us in some meaningless conflict murdering innocent civilians and upending an entire civilization for no good reason. Instead, although late and saturated with poor political and policy decisions, he brought an end to the bloody and disturbing conflict in former Yugoslavia.  With this and other foreign policy successes and a humming economy, it was peaches and cream in the United States. At least we thought it was.

What was overlooked  at the time was the legislative unraveling of significant and efficacious financial regulation that took place in the final years of the Clinton Presidency. Following a decade of banking deregulation, Glass-Steagall was demolished by the Gramm–Leach–Bliley Act, the depression era law that had kept banks and investment houses separate entities, and ensured that bank deposits were not ultra-leveraged and gambled with on risky Frankensteinesque financial products cooked up by some MIT graduate using complicated algorithms. The benign sounding and exceptionally complex Commodity Futures Modernization Act of 2000 also passed and was signed into law by President Clinton. The law ensured that over-the-counter derivatives, you know, those adorable little weapons of mass financial destruction that helped fuel the financial crisis and sank AIG into bankruptcy, would not be regulated by the SEC or the CFTC, or by anyone else for that matter. Each of these laws was boosted by Republican lawmakers, specifically Senator Phil Gramm, and his financial backers. Unfortunately, the economic and financial markets advisers that held Clinton’s ear signed on to the right wing plan willingly as well.

Times were great, and after more than a decade of lesser financial regulation, the conventional wisdom was that more regulatory downsizing would ultimately juice the system to yet new highs, lifting all ships and dominating the world’s financial system. Nothing could go wrong, well, at least that’s what President Clinton’s advisers counseled, notably Larry Summers, Alan Greenspan, Arthur Levitt, and William J. Rainer. Each man an imbecile in his own unique way. The first signs that the The Commodity Futures Modernization Act was a flop came not one year later when Enron Corporation crashed due to the collapse of unregulated single-stock futures and over-the-counter energy futures given the stamp of approval by the act. Continue reading