Don't Look Now -- Banks Are Still Ruining America: 6 Harsh Lessons from the JP Morgan Fiasco
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JP Morgan, the white knight of banking, supposedly weathered the 2008 crisis with little difficulty. It was not in danger of collapsing like Lehman Brothers and it did not really need bailouts in order to survive, or so it proudly proclaims. Furthermore, its CEO, Jamie Dimon, was known as “Obama’s banker,” a relatively liberal financier who cared both about his bank and his country.
Now, we know this was all a sham.
The truth is that there are no good banks and bad banks among the giants of finance. That’s just a feel-good story that gives us false hope that individuals and individual institutions can fix a system that is rotten to the core.
JP Morgan Chase is no different than other big banks, except that it is the biggest. It is part of an entwined system of too-big-to-fail institutions that are ripping us off. Leading up to the 2008 crash, it was up to its eyeballs packaging and selling mortgage-backed securities that were designed to fail. It helped pump up the housing bubble, profited while it was inflating and profited again while it burst. It was forced to pay a $153 million fine last year for “misleading big investors about the riskiness of mortgage-related securities it was selling just as the home-loan market was melting down.”
JP Morgan helped to crash our system in 2008 and profited handsomely from the bailouts it claimed it really didn’t need (but thank you very much, we’ll take them anyway). And now it's back in the gambling business just like all the other big banks and hedge funds. And should another crash come, we’ll again be asked to pick up the tab -- it's still “too big to fail” according to the conventional wisdom.
But the problem is bigger and deeper than it was even before the horrendous crash. On a day-to-day basis, these large financial institutions use their vast gambling enterprises, to extract profits from our economic system while creating little or no value in return. Economists call these profits “economic rents.” That's French for “rip-offs.” Where does this money come from if the banks are not creating new economic value? It comes from the rest of us in the form of stagnating wages, higher fuel costs and excessive financial fees on mortgages, credit cards and loans. It also comes from tax breaks for the super-rich that the rest of us have to make up. And finally it comes from the costs associated with financial crashes – bailouts, job loss and deficit-related problems.
How big is big?
The top five U.S. banks own approximately 60 percent of all U.S. banking assets.
Their combined assets total $8.5 trillion which is slightly larger than China’s GDP ($7.2 trillion).
JP Morgan Chase heads the list with $2.3 trillion in assets, which is about the size of Great Britain's GDP. We’re talking big.
Fantasy finance fails again
While Jamie Dimon was using his political muscle to bend the Dodd-Frank rules so his bank could gamble at will, his bank was gambling at will. Oh, he would never call it gambling. He says it’s just hedging its other investments, which is the prudent, banker-like thing to do. But really, hedging is just a phrase that bankers use to justify any and all bets they want to place. And they want to place those bets because they are sure they can win. JP Morgan Chase made billions of dollars of profits on tens of billions in bets designed, supposedly, to protect the value of its corporate bond portfolio. (If you have a strong stomach for finance, you can get some of the gory details here.)