WoD – The Filled-in Blanks, Part IV

I know the topic of the economy and financial system isn’t everyone’s bag, so I don’t bring up this topic too often.  But with JP Morgan’s announced $2 billion loss on one hedge bet Friday, I thought it worth revisiting this mini email stream from 2-3 years ago just once.  To me, this debacle is a strong example of “The financial system almost collapsed because… of the repeal of the Glass-Steagall Act of 1933.”  (I wrote about this back in October, 2009 – thus the Part IV to this WoD).

Banks like JP Morgan should not be allowed to make large, principal bets using other people’s money, when as an entity they are too big to fail, i.e. the taxpayers have to bail them out if/when they get into trouble.  This was what the repeal of Glass-Steagall put in motion.  Full stop.

Banks house people’s money.  (Our deposits are their liabilities.)  They then take managed/measured credit risk lending this to others.  They collect a fee for the difference between what they pay us in interest and what they collect in interest from their loans.  I think we all understand this as a truism, and as what WAS their business model.  Now think of any of the big, money center banks today, and how vastly different they are from this model.

I heard a good quote Friday on this (from Senator Merkley) who said, “If you want to be the head of a hedge fund, be a hedge fund.  Terminate your access to the Fed’s discount window, terminate your access to deposits, and then we have no quarrel.”

Can we put the toothpaste back in the tube?  Probably not.  And it is “only” a $2 billion loss.  But, this is a big enough breakdown that we all should be a bit pissed off by this kind thing, this time around…

Monday:

COCKAMAMIE* (COCKamaymee)

Outrageous, ridiculous

In light of his recent disclosure, Jamie Dimon’s pleas against the Volcker Rule and rants on the ignorance of regulators look a bit cockamamie now.

* I have to be honest, I never realized this was a Yiddish word.  Although given how funny of a word it is, I should have figured it…

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