J.P. MORGAN – TOO BIG TO BAIL
by Greg Forest
Excerpted from the June 2012 issue of Hill Country Happenings.
MARCH OF THE LEMMINGS
In the race over the cliff by the “too big to fail” banks, J.P. Morgan has just nudged into the lead over Bank of America with their owning up publicly to a $3 billion dollar trading loss. Others monitoring the situation think the losses on this bet could be as high as $20 billion. Their horrendously bad bet by the “London Whale” trader Bruno Iksil is causing the bank to bleed money.
The bank is also under scrutiny from the FBI, the SEC and the Commodity Futures Trading Commission for their malfeasance and credit rating agencies – Standard and Poor’s and Fitch – have downgraded their assessments of the bank. This on the tail of recently paying out a $153 million dollar settlement with the SEC when J.P. Morgan mislead investors on mortgage/bond deals. Ever the Pollyanna, J.P. Morgan admitted no wrong-doing. And who has J.P. Morgan brought in to defend the bank? Former Securities and Exchange Commission enforcement chief William McLucas. Can you say revolving door? The admitted losses are not what outside observers are speculating – they think J.P Morgan is on the hook for over $7 billion in losses in this latest derivatives debacle. Although there has been a slight bounce back, J.P. Morgan shares have lost 20% of their value in the last 90 days.
The trustee of the group seeking to recover assets from the Bernie Madoff ponzie scheme, Irving Picard, has upped the ante in his lawsuit against J.P. Morgan from $5.4 billion to $19 billion. J.P Morgan was a big player in the Madoff scheme, knowing in full what was going on and letting the rip-off continue so that fees could keep flowing in. Now, for J.P. Morgan, there is blood in the water and the sharks are circling. Keep in mind that this is the investment bank thought to be the most secure and conservative. So what does this mean for the average citizen? Perhaps disaster.Behind the curtain and under the hood, the banksters have been working hard to make sure that the formula for disaster that caused the 2008 crash remains in place – but on steroids. They have been the most outspoken opponents of any banking regulation, including the wimpy Volcker Rule and the Dodd-Frank Act. As toothless as present reform legislation is, the bankers can’t even stomach reforms that don’t kick in until 2020.
The government regulators have so much fraud and dirty-dealing to investigate, lacking personnel and technology on a sufficient scale, they literally don’t know where to start looking. There have been no major investigations by the government although there are the usual Banking Committee hearings where the defiant bank officers blow PR bullshit up Congress’ skirt for media window dressing.What the media isn’t reporting is that J.P. Morgan has given money to 17 of the 22 members of the Banking Committee. Senator Richard Shelby (R), head of the Committee, has received $73,000 from J.P. Morgan but there is, of course, no conflict of interest. Dwight Fettig (D), the Committee’s staff director is a former J.P. Morgan lobbyist. J.P. Morgan also spent $7 million lobbying against bank reforms last year. Please join us for another chorus of “Revolving Door.”Jamie Dimon, J.P. Morgan CEO, commented that this was just a “tempest in a teapot.” Dimon, one of the “smartest guy in the room” types, claims he was not aware of the bank’s deflating positions until the press brought it to his attention.
Although $7 billion seems like a lot of money to some of us, it is chump change for J.P. Morgan whose total “assets” are said to be in the vicinity of $2.5 trillion dollars. That is the amount on the radar of business and money analysts.The other “assets,” held in derivatives, such as default swaps, are much larger and off the radar of public or government scrutiny. How much larger? You had better be sitting down and wearing your Depends – how does the figure of $70 trillion strike you? In recent months both J.P. Morgan and Bank of America have further risked our economic future by moving their derivative portfolios from investment subsidiaries into their FDIC. insured mainstream banking units. These instruments go from the investment trash heap into FDIC backed banks in a headlong rush for cover before the next hit hits the fan. Just take a look at the derivative exposure of some of our largest banks: J.P. Morgan Chase $70.1 Trillion Citibank $52.1 Trillion Bank of America $50.1 Trillion Goldman Sachs $44.2 TrillionIn total, the nine largest U.S. banks are on the hook for over $300 trillion – three times the global GDP! I guess the good news would be that all the governments on the planet, combining their total assets, would be unable to bail out anything approaching this scale. BUT THE F.D.I.C HAS MY BACK . . . RIGHT?We are told that we can sleep well at night regarding our personal savings because the FDIC. has our back – at least up to $250,000 per account, per bank. So if things go horribly south, we can at least count on our savings being secure up to a quarter million dollars. Not so. Unfortunately the numbers tell a different story.
Remember the old days when Washington Mutual went belly up? To cover the bank’s depositors the FDIC had to deplete their reserves by 20% just to keep a banking run from occurring on just that one bank.The FDIC is currently running a reserve ratio of 0.06%. In a nutshell, for every $10,000 you have in the bank, the F.D.I.C. has reserves to cover $6. That means that if you were sitting on the maximum covered amount, $250,000, you can count on the FDIC. to make good on only $150 of your acccount.
Even the recent “reform” legislation in the Dodd-Frank Act only require the FDIC to bring that ratio up to 1.35% which is still an incredibly paltry amount when there is $6.54 trillion of our savings and checking accounts on the table. How on earth can the FDIC make good on its promises to U.S. banking customers? Have the FED print up more devalued dollars and put the citizens on the hook for it. So once again my friends hang on to your hat and watch the next financial debacle unfold this election year where both candidates promise much more of the same.