Jamie Dimon's Sudden Shift on Regulation: Opinion
By Jeff Nielson - 05/22/12 - 11:47 AM EDT
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
Tickers in this article: JPM
NEW YORK (Bullion Bulls Canada
) -- As we watch the absurd melodrama surrounding JPMorgan Chase's
multibillion-dollar "trading loss" unfold before us, there are many things we still don't know.
We can be sure, however, that the truth is totally different than what is being presented by JP Morgan and the talking heads of the mainstream media.
| JPMorgan Chase CEO Jamie Dimon
To understand that this is pure financial farce requires putting numbers into perspective.
Let's start with this one: JP Morgan's derivatives portfolio alone amounts to some $78 trillion in highly leveraged, ultrarisky bets, as noted by Zero Hedge
That is the amount JP Morgan admits to. Thus, whether we are talking about a $2 billion trading loss or the $4-5 billion figure now being rumored, it's irrelevant. These are trivial numbers in comparison to bank's overall derivatives exposure.
If the media Chicken Littles really wanted to stoke some fear, they would be talking about the imminent risk of JP Morgan (and its Wall Street cronies) being forced to make good on trillions of dollars of highly leveraged credit default swap contracts should one of Europe's other debtor nations "go Greek" and default.
So we can now conclude this is a totally staged event. If there were any doubts about this, Jamie Dimon himself has put an end to them with his poor job of acting.
For nearly four years Wall Street has fought even the tiniest bit of reregulation of their sector, simply restoring a small portion of the banking regulation regime which used to be in place.
This fanatical obstructionism -- led by Jamie Dimon and JP Morgan -- has occurred despite the massive bailout package heaped upon the (surviving) Wall Street oligarchs after they had completely wiped out their own sector (and themselves) with hundreds of billions of bad bets which had all detonated simultaneously in 2008.
Thus, what we are to believe is that even though JP Morgan saw no need at all for any regulation following the Crash of 2008, this $2 billion trading loss has caused JP Morgan to do a 180-degree turn on the subject of regulation.
Jamie Dimon has suddenly seen the light: The bankers need some regulation.
Knowing that this event has absolutely nothing to do with how it's being depicted in the mainstream media (and by JP Morgan itself), we must now speculate on what is really going on here. I've formulated several viable theories:
- This is nothing but a sleazy political ploy by JP Morgan to skewer the Republican Party, and ensure the re-election of Barack Obama.
- Knowing that some reregulation is inevitable, Wall Street's new strategy is to support that reregulation, but as a "club" to be used to kill off its remaining smaller competitors.
- The trading loss is much, much larger than what JP Morgan admits.
Taking these possible scenarios in order, (1) would seem to be the most plausible scenario, unless further facts should emerge that lend additional credence to one of the other two theories.
As Wall Street has spent the last four years saying "no" to any and every piece of proposed re-egulation, a large group of sycophants were nodding their heads in agreement every step of the way: the Republican Party. Indeed, it is only Republican obstructionism that has prevented even some minimal level of reregulation from taking place to date.
While the Democrat Party has shown itself to be extremely reluctant to engage in any reregulation (after all, it was Wall Street campaign donations that helped elect Barack Obama in 2008), they were prepared to pass all of the Dodd-Frank window-dressing simply out of shame and embarrassment. Conversely, when it comes to serving their banker masters, Republicans are totally immune to shame.
They stood shoulder to shoulder with Jamie Dimon in asserting that regulation was necessary.
But the born-again Dimon is now "pro-regulation," and in engaging in this transparent flip-flop Dimon has effectively inserted his stiletto into the back of the Republican Party. While Wall Street can now don its phony halos and rehabilitate its image at least somewhat by becoming pro-regulation, the Republican Party is in a no-win situation
If it continues with its antiregulation stance, Republicans now stand alone. With even the bankers now voicing support for the need of some reregulation, the Republicans would look like nothing but clueless obstructionists. On the other hand, if they immediately flip-flop on the issue of regulation themselves right after Dimon's rebirth, it only reinforces the image of Republicans being little more than banker puppets.
Worse still, they would have to smile and support the same Democrat legislation which they had been fighting and denouncing for nearly three years. How could they possibly justify stalling this legislation for years and then supporting it, even with their own constituents -- let alone the broader electorate?
This theory is further reinforced by the fact that Wall Street has once again stuffed Barack Obama's election coffers with its dirty money and bought his re-election. What is so ominous about this theory is that it seems like political overkill.
The Republican primaries were set up to be a sleazy knife fight among a field of lightweights and outright clowns. Except for Ron Paul, every candidate was portrayed as "the leader" by the media propaganda machine at some point -- ensuring that he/she would be attacked by the other candidates and politically damaged beyond any possible rehabilitation.
Inevitably, whoever emerged as winner would have so many puncture-wounds in the back that he/she would be no competition for a Wall Street-backed incumbent, especially a polished orator like Obama.
Thus, what readers should be asking themselves is this: What "storm clouds" do the bankers and/or Obama see between now and election day that convinced them Obama would need the additional political capital afforded by Dimon's betrayal of the Republican Party?
Although a political motive may be most likely at this juncture, we can't rule out that Dimon (and the rest of the Wall Street cabal) may have decided that some reregulation would be just the tool they needed to further decimate the numbers of their smaller competitors in the financial sector, and complete their consolidation.
These regulations would either be drafted in such a way that they only ensnared small fish, or simply only enforced against the small fish.
For an example of the latter approach to "culling the herd" of financial institutions we need look no further than the Commodity Futures Trading Commission. With the CFTC maintaining that it is "unable to see" any evidence of illegal/improper market manipulation in the precious metals sector (and the silver market in particular), many may have assumed this regulator to be nothing but a collection of see-no-evil, hear-no-evil, speak-no-evil monkeys.
That would be erroneous.
In fact, the Monkeys at the CFTC often "see" misdeeds occurring within their regulatory realm. However, the CFTC Monkeys suffer from a particularly unusual form of myopia, whereby they are only capable of "seeing" misdeeds by small Fish, and never those committed by big fish. Thus, it is entirely plausible that any new regulation in the banking sector could put the squeeze on smaller banks considerably, while (miraculously) leaving the Wall Street oligarchs totally unscathed.
Lastly, we also can't rule out what is the simplest and most obvious answer to our question of what is really taking place here: that the "trading loss" is much, much bigger than what Dimon and JP Morgan have led the market to believe at this date. Then our follow-up question would become: "How big?"
Recall that even a $5 billion loss would amount to less than a microscopic 1/10,000th of JP Morgan's collection of derivatives bets. To be "significant", we would have to assume that the real loss would amount to at least 10 times the $2 billion loss originally reported, in other words, a minimum of $20 billion. That would still amount to a tiny 1% of the "assets" that JP Morgan claims to possess.
However, the spineless Democrats and slavish Republicans have allowed these Banking oligarchs to continue to operate at a ridiculously overleveraged, undercapitalized level. JP Morgan's derivatives portfolio alone amounts to nearly 40-to-1 leverage of its asset base -- acceptable for a "riverboat gambler", insanely reckless for a "bank." Thus, even a relatively small $20 billion loss could be a life-threatening event for an absurdly overextended casino operator like JP Morgan.
What is interesting about my three theories is that none is exclusive of the others. Any two of these theories could be correct, or even all three simultaneously.
However, as I noted at the very beginning, we are simply not in possession of enough facts to determine the truth with any certainty, except to state that we haven't heard any of it so far.
At the time of publication, Nielson had positions in stocks mentioned.
Tickers in this article: JPM
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