Not all that long ago, JP Morgan, supposedly one of those ingenious investment houses that are always working wonders with our money, lost $2 billion under circumstances that are, to put it mildly, still pretty murky. That money on this scale can simply disappear with no one being responsible should be a concern to anyone, even folks who work in that industry.
Yves Smith, of Naked Capitalism, wrote this yesterday in the New York Times Room For Debate:
Preventing blow-ups like the JPMorgan “hedge” that bears no resemblance to any known hedge isn’t difficult. What makes preventing it difficult is that banks that exist only by virtue of state-granted charters -- and more recently, huge transfers from the public -- have persuaded public officials and regulators that they have a God-granted right not just to high levels of profit but also high levels of employee and executive compensation.
For Starters, Reinstate Glass-Steagall
Now wait, you might be asking, isn't JP Morgan a bank? Well, yes and no. It used to be that banks just did safe things like lending money to people who could be generally relied on to pay the money back. They were heavily regulated, and the money depositors put in those banks were (and still are) backed by the Federal Deposit Insurance Corporation (FDIC). The "Glass-Steagall" Yves is referring to is the Glass-Steagall Act, which enforced that separation between what was a bank and what was an investment house. Nowadays, thanks to the repeal of Glass-Steagall, among other financial regulation, during the Reagan and Clinton Administrations, that separation no longer exists. Merrill Lynch is owned by Bank of America. JP Morgan does risky stuff that loses billions of dollars at a time on behalf of Chase Bank, which is now JP Morgan Chase.
What all the de-regulation of the banking industry has done for the rest of us is put us on the hook for the mistakes they are now free to make. The FDIC backs depositors, at least up to a certain limit. There's lots of our money out there, though, that doesn't qualify for FDIC insurance. Plus, as we've seen in the Crash of 2008, the Federal Reserve System has been used to keep the big banks afloat. Banking has become a casino where we end up paying for the gamblers' taxi fare home, plus all the damage they did while they were celebrating.
That's why I feel that on economic matters, at least, there is no difference between President Obama and a potential President Romney. Obama hasn't done a thing to clean up the aftermath of the financial industry's last binge, and he won't do anything to prevent the next one, if he can avoid it. That's what these last three years should have taught us, if they can teach us anything.