Banking Reform in the US – the Standstill

Unlike all the financial institutions making rain or shine on Wall Street, JP Morgan was the only one to weather the storm of 2008 without reporting a dollar loss. On the strength of this performance, its leaders were transformed into determined adversaries against regulation. It took one person – and one only – burning more than three billion and Facebook’s IPO ending in a nosedive, for there to be a greater call than ever for the return of a certain discipline.

Here and there, it is argued that the crisis erupted in 2008. It is true that it was during this year Lehman Brothers, AIG and other financial players sank. In the case under consideration today, JP Morgan, reference should not be made to the financial beheadings of 2008, but rather to the bankruptcy of Barings Bank in the mid 90s.

With this bank, which also happens to be the bank of the royal family, JP Morgan shares many common issues, something that is not just troubling but also infuriating, as it seems no lessons were learned. The first common point: when the news agency said in mid-April 2012 that the London desk in charge of “synthetic credit” was in the red, Jamie Dimon took a similar attitude to that of Barings’ directors – namely, an arrogance that was struggling to hide his lack of understanding of the extremely complex mathematical formulas which a generation of brokers much younger than he was were juggling.

Such a demographic reality is highlighted to remind people that, in the report made by British parliamentarians in order to uncover the flaws that led to Barings’ collapse and of course to make recommendations, it was written in black and white that those directors who studied at Oxford and Cambridge in the ‘50s or ‘60s did not understand anything about the financial vehicles which brokers trained in the ‘80s were exchanging.

As with Barings, a single person and one only, we repeat, is causing JP Morgan’s recently recorded reversal of fortune. As with Barings, the setback in question arises from investments undertaken which were exposed to the same equity. As with Barings, Bloomberg had indeed sounded the alarm before the final fall. The tale of this is exhausting, depressing that 17 years after Barings closed nothing has been learned, absolutely nothing, from everything contained in the British parliamentarians’ analysis.

The so-called Volcker rule, named after the former president of the Federal Reserve, which is supposed to restrict speculative trading on the same equity, is subject to a barrage of incredible force. Just imagine, in the midst of financial institution regulation, banks with individuals’ deposits which are guaranteed by the government, are involved in the handling of financial products which have turned the world upside down and are fighting fiercely to minimize the scope of this rule.

Something to really worry about.