Courtesy of Pam Martens
Eight long years after the greatest Wall Street crash since 1929 and the ensuing Great Depression, U.S. mega banks on Wall Street still pose a systemic risk to the safety and soundness of banking and the overall financial stability of the United States.
The public no longer has to guess as to whether the above statement is factual or simply the wild imagining of Wall Street activists. No less than the bank-cozy Federal Reserve confirmed on April 13 that three of the largest Wall Street banks (JPMorgan Chase, Bank of America and Wells Fargo) did not have credible plans to unwind themselves without taxpayer assistance if they were to fail, raising the specter of another epic taxpayer bailout adding to the already staggering $19 trillion national debt, much of which resulted from the last bailout. In the case of JPMorgan Chase, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) sent a joint letter with the stunning pronouncement that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.”
Following JPMorgan’s 2012 foray into using its depositors’ money to make wild gambles with derivatives in London (the London Whale saga), the U.S. taxpayer via the U.S. Senate’s Permanent Subcommittee on Investigations spent significant sums investigating how the bank came to lose at least $6.2 billion of depositors’ money on its own wild speculations. At the conclusion of the investigation, which produced a 307-page report, Senator John McCain had this to say at the March 15, 2013 Senate hearing:
“This investigation into the so-called ‘Whale Trades’ at JPMorgan has revealed startling failures at an institution that touts itself as an expert in risk management and prides itself on its ‘fortress balance sheet.’ The investigation has also shed light on the complex and volatile world of synthetic credit derivatives. In a matter of months, JPMorgan was able to vastly increase its exposure to risk while dodging oversight by federal regulators. The trades ultimately cost the bank billions of dollars and its shareholders value.
“These losses came to light not because of admirable risk management strategies at JPMorgan or because of effective oversight by diligent regulators. Instead, these losses came to light because they were so damaging that they shook the market, and so damning that they caught the attention of the press. Following the revelation that these huge trades were coming from JPMorgan’s London Office, the bank’s losses continued to grow. By the end of the year, the total losses stood at a staggering $6.2 billion dollars.”
JPMorgan Chase is the largest bank in the U.S. with more than $2 trillion in assets. And yet it was saved from potentially devastating losses to its depository bank because of inquiring minds, not at its regulators, but at Bloomberg News and the Wall Street Journal. These exotic gambles in derivatives were occurring just four years after the largest Wall Street crash since 1929 and just two years after President Obama assured the country that the 2010 Dodd-Frank financial reform legislation would never allow these types of abuses to happen again.
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