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Bill Moyers: Are the Monster Banks on the Verge of Unleashing Fresh Economic Disaster?

Culture change in the financial world may be coming, but not fast enough says banking expert Shelia Blair.

Photo Credit: Tatiana Popova/



BILL MOYERS: Welcome to the question of the week: are the banks – banks too big to fail and too big to jail – are these monsters courting another disaster?

That's what it looks like. As you no doubt heard, last week, the Senate Permanent Subcommittee on Investigations issued a report and hauled in key executives from JP Morgan Chase -- the world's biggest derivatives trader -- demanding to know how the bank blew 6.2 billion dollars in funny money -- I mean, derivatives – and hid the losses with some fancy accounting tricks aimed at fooling both regulators and the public.

Senator Carl Levin, the Chairman, bluntly summed up what they found out: “It exposes a derivatives trading culture at JP Morgan that piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight, and misinformed the public.”

The trail led directly to JP Morgan’s celebrated silver-haired Chairman and CEO, Jamie Dimon, said to be Barack Obama’s favorite banker. An e-mail requesting an increase in the bank's "risk-taking" received a two-word reply from Dimon: "I approve."

But the well-connected Dimon -- whose bank was being bailed out by almost $25 billion from taxpayers even as he was making $35 million a year -- was spared from testifying personally and having to disclose exactly what he knew about the shenanigans of his lieutenants -- and when he knew it.

Among the many of us who will be anxiously awaiting those revelations, should they come, is my guest, Sheila Bair. A long-time Republican, she was appointed by President George W. Bush in 2006 to head the FDIC, the Federal Deposit Insurance Corporation. During the financial collapse, she oversaw the takeover of more than 300 banks that went belly up and was an outspoken opponent of the taxpayer bailouts. As one influential observer wrote during that time, Sheila Bair never forgot that her most important constituency isn’t the thousands of banks she regulates, but the millions of Americans who use them.

She now heads the Systemic Risk Council. That’s an independent committee formed by the Pew Charitable Trusts to monitor what’s being done to prevent another financial collapse. She was at this table a few months ago to talk about her book,  Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself.

And I’m pleased to welcome you back.

SHEILA BAIR: Thank you. Thanks for having me.

BILL MOYERS: I felt perhaps we were getting the bull by the horns until I saw those hearings last week.

SHEILA BAIR: Yeah, it really was amazing. I mean, a lot of that we knew already. But it was really laid out in gruesome detail in that report. It was quite shocking. You know, I don't think-- I think the system's got incrementally safer, a little bit safer but nothing like the dramatic reforms that we really need to see to tame these large banks and to give us a stable financial system that supports the real economy, not just trading profits of large financial institutions.

BILL MOYERS: Were you surprised by anything that you heard at those hearings?

SHEILA BAIR: Well, I was, you know? I viewed, like a lot of people viewed JPMorgan Chase as a pretty well-managed bank. And so yes, I was surprised at the ability of this trader in London to build these huge positions. And even when he started calling foul the senior, the next level of management above him really didn't get on top of it. I was not surprised but appalled by the way they were manipulating their models that are supposed to be able to determine how much risk is involved in various trading positions.

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