Reich, Others Forecast JPMorgan Crisis Spreading, Call for Glass-Steagall
May 14, 2012 • 8:07AM

JPMorgan Chase Chairman and CEO Jamie Dimon appeared on NBC's "Meet the Press" Sunday morning and tried to chill out the crisis triggered by his bank's suddenly announced major derivatives-market losses: "It's not life-threatening," Dimon lied, and forecast his bank would still show a profit this quarter. Humorously, Dimon insisted on the one hand that he knows with absolute certainty that the huge London CDS trades were just hedging risk, not casino bets for the bank; on the other hand, he said he didn't know about the size or nature of these trades until this week!

Clinton Labor Secretary Robert Reich's blog entry was again on Glass-Steagall on Sunday, and he warned the truth will out: "Word on the Street is that J.P. Morgan's exposure is so large, that it can't dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street." Reich concluded: "What just happened at J.P. Morgan reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed's recent recommendation that Wall Street's giant banks be broken up, should be heeded."

An article in the Sunday London Guardian noted: "There is thought to be more than one high-profile trade behind the losses — which the bank has admitted could escalate. JP Morgan is being selective about the information being disclosed because its rivals might [!] try to move prices against it as it attempts to unwind the trades." Some sources estimate JPM's losses can go to $20 billion; the "wrong bets" were over $100 billion. Recall that LTCM's collapse, in precisely such a derivatives predicament, unfolded over a full three months at the end of 1998, until the verge of a global financial blowout was reached.

New York Times financial reporter Gretchen Morgensen endorsed Glass-Steagall in a Sunday column on JPMorgan and Dimon's hubris: "This much is clear: If the Glass-Steagall law were still around, the problematic trading at JPMorgan would not have occurred." This was after reviewing former FDIC Deputy Commissioner Michael Greenburger's arguments, circulated Saturday afternoon, a complicated scenario that the Volcker Rule plus the Lincoln Rule would have ameliorated the loss.

On NBC "Meet the Press," Sen. Carl Levin appeared opposite Dimon, strenuously arguing for the Volcker Rule and Levin-Merkeley: "So we've got to be very, very careful that the regulators here are not undermined by this huge effort to weaken the rule by putting in a huge loophole" that includes the trading involved in the JPMorgan loss. The "loophole" is the Obama Administration's anti-Glass-Steagall Dodd-Frank Act itself. Even one of the "Austrians" at the website commented, "The most important thing not said [on "Meet the Press"], was Glass-Steagall, the one law whose overturning allowed the commingling of deposits and hedge fund activity courtesy of Gramm-Leach-Bliley, hilariously called the Financial Services Modernization Act of 1999. If America is to have even a remote hope of returning to normalcy, Glass-Steagall has to be reinstated.