I drive each day by my local bank. It’s a Chase branch of J.P. Morgan. I don’t have much to save, but I count on my bank to invest my money. Not bet my hard earned dollars, but invest it. If I want to gamble for winnings, I’ll take my chances on the red and the black at a casino. I don’t need or want my bank to lay down a bet on some complicated credit default swap or other exotic roll of the financial dice. But that’s exactly what Chase has been doing with my money. They have taken a big hit. And I’m not happy.
J. P. Morgan Chase & Co. put a lady named Ina Drew in charge as chief investment officer. They paid her $14 million a year to grow my small investment. And she had a team of highly paid executives to follow her lead and see that my small savings continue to grow. But she bungled her responsibility to me and millions of other Chase savers, and now she’s been fired. Good riddance.
She apparently bears the bulk of the responsibility for a $2 billion investment loss that involved complex derivatives that were not adequately insured. There was a “make the big bucks” mentality rather than a focus on the quality of the loans that were being made.
Now don’t lecture me about taking chances and how any investment can lose money. I certainly understand, as do most Chase’s investors, that a bank investment can go bad. Yes, there is the risk that the business will fail. However, any bank should go into an investment with the understanding that it is supplying funds to a borrower that will create value.
But a responsible bank will review the business plan, look for adequate collateral, and continue with due diligence throughout the life of the investment. If the investment is sound, then everybody wins. The bank makes a profit; the business is set on sound financial footing and my investment in J. P. Morgan Chase continues to grow. Value is created and, of course, that is good for the investors and for the economy as a whole.
But when J. P. Morgan Chase & Co. “bets” my money, there is a different end result. There are winners and there are losers. It’s called a zero sum game, and the whole point is to beat the odds and win the bet. No new value is created, and the whole transaction is simply shifting dollars from winner to loser. And that’s exactly what my bank was doing -- betting my money instead of investing it.
Oh, but you say, J. P. Morgan Chase is awash with taxpayer-insured deposits, and my money is protected. That’s true, as far as the bank deposits themselves are involved. Not true for any investments I might have with J. P. Morgan as an investment entity. Extra fees on my Chase account as well as some of my tax dollars are charging me for the privilege of insuring my account. In other words, I’m having to pay, through higher bank fees and taxes, for the insurance to protect what savings I have at Chase. As far as my investments through J. P. Morgan, I’m on my own with no protection.
My banker is a guy named Jamie Dimon. Well, I don’t know him, but he’s the top dog at J. P. Morgan Chase, so I consider him “my banker.” Bankers nationwide took major pay cuts last year because of the economic doldrums and lack of bank profits. Not my guy. He was paid $23 million and apparently is in line for a hefty pay raise this year. I don’t mind Dimon making the big bucks as long as he produces. But the buck stops with him, and he apparently knew about the questionable loan portfolio problems for a good while. And he sure does have a conflict of interest
I was surprised to learn that Dimon sits on the board of the New York Federal Reserve Bank. This is the federal oversight board that regulates banks all over the east coast. So let me get this straight. Dimon sits on the federal board that regulates his own bank? You can’t get much more “insider” than that. How can Dimon be expected to regulate his own bank, which is regulated by the oversight board on which he sits, in the public interest?
Former New York Governor Eliot Spitzer puts it this way -- “The Fed conflict is so obvious that it defies any possible rationalization or explanation. For a decade, the New York Fed has failed to pick up on any of the significant Wall Street threats: excess leverage, subprime fraud, dangerous concentration in ‘too big to fail’ entities. Maybe the reason is that the board is controlled by the very voices that have been at the root of the failure.”
The use of derivatives backed by credit default swaps are all part of the tangled web of J.P. Morgan Chase & Co. losses. This is the same tar pit that A.I.G. found itself in a few years back when insurance regulators allowed this insurance giant to take some $200 million in losses without properly regulating the company’s shenanigans. If J. P. Morgan Chase is allowed to continue down its current path of rolling the dice for wishful high returns, they will be following the AIG path and praying for a government bailout if the bet goes bad.
All this complicated financial gibberish is a smokescreen created by the likes of J. P. Morgan Chase and insurance companies like A.I.G. to make this financial mess too complex for the average Joe to understand. And for good reason. Literacy is power. Remember that it used to be a crime in the Deep South to teach slaves to read.
In an excellent summary of the financial and insurance regulatory bungling appearing in Rolling Stone Magazine, Matt Taibbi concludes that in the age of CDSs, most of us are financial illiterates. “By making an already too – complex economy even more complex, a historic revolutionary change has taken place in our political system – transforming democracy into a two-tiered state, one with plugged-in financial
Despite J.P. Morgan Chase & Company’s $2 billion dollar bad bet, it is still not in deep financial trouble. But even with new and tougher regulations, the high waging, go for broke mentality points out how little has changed n Wall Street. After all, they are “too big to fail.” And they have this marvelous safety net protecting them no matter how irresponsible they might be. It’s called the American taxpayer—you and me. We continue to get stuck with the bill.
“I sincerely believe… that financial establishments are more dangerous
than standing armies, and that the principle of spending money to be
paid by posterity under the name of funding is but swindling futurity on
a large scale.” –Thomas Jefferson
Peace and Justice
Jim Brown’s syndicated column appears each week in numerous newspapers and websites throughout the nation. You can read all is past columns and see continuing updates at www.jimbrownusa.com. You can also hear Jim’s nationally syndicated radio show each Sunday morning from 9 PM till 11 PM, central time, on the Genesis Radio Network, with a live stream at http://www.jimbrownusa.com.