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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 9, 2011 at 10:10 AM

Jamie’s whining: The reality of bank non-reform

While you were being distracted by Weinergate, the real issues on which America will succeed or fail continued to percolate under most of the media radar. One example: JPMorgan Chase CEO Jamie Dimon’s confrontation with Federal Reserve Chairman Ben Bernanke on Tuesday.

Dimon, who bought Washington Mutual for half a song to extend his banking empire nationwide, complained that new banking regulation goes too far and will hurt the recovery. He ran through a list of corrective actions the banks have already taken. Among them: Higher capital and liquidity, subprime mortgages are gone, mortgage underwriting has become more conservative, “most of the bad actors are gone” and “most of the very exotic derivatives are gone.”

Now, before you go “huh?!” about the last two points, stay with me. Dimon wondered if someone writing a book 10 or 20 years from now will point to increased regulation of banks and conclude they held back recovery. Some 300 new rules are coming, he said, then asked Bernanke, “Do you have a fear, like I do, that when we look back and look at them all, that they will be a reason it took so long that our banks, our credit, our businesses and most importantly job creation started going again? Is this holding us back at this point?”

Bernanke had none of it. Wall Street cheered Dimon. And the too-big-to-fail banks went on raking in huge profits, even though they suffered a rare defeat in the Senate over debit-card fees. JPMorgan profits shot up 67 percent in the second quarter and deposits rose 8 percent.

But Dimon’s complaints deserve more attention. In reality, the Dodd-Frank legislation, meant to reform the dodgy practices that led to the Great Recession, is quite mild, watered down by the powerful lobbyists of the “financial services industry.” Much of it isn’t even in place. As the New York Times reported, more than two dozen major rules are behind schedule and mired in dissent. “Of the 385 new rules to be written, the law firm says, regulators have completed only 24 requirements; they were supposed to have taken 41 such actions by now.” The story quotes Micheal Greenberger, a former official at the Commodity Futures Trading Commission: “There’s an attempt to kill this through delay.”

The big problem with Dodd-Frank is complexity, the very same place where the frauds and taxpayer-backed gambling hid during the 2000s. The root of the problem was deregulation in the 1990s which for the most part still stands, and the excessive risks and swindles of the banking industry and Wall Street. Not for nothing did the Congress of the 1930s pass Glass-Steagall, which among other things separated risky investment banking from taxpayer-backed commercial banking. Industry leaders such as Dimon couldn’t wait to ditch Glass-Steagall. Now the top TBTF banks, saved by taxpayers during the panic they caused, bring in huge profits from trading, not providing job-creating capital to businesses.

We already know what historians will say in two or three decades. You can read it now with Simon Johnson and James Kwak’s 13 Bankers, or watch HBO’s Too Big to Fail. It won’t be Dimon’s version, unless it’s a professor whose chair is paid for by whatever iteration of the House of Morgan still exists.

Today’s Econ Haiku:

Arizona fire

The future of the Southwest

Climate change a hoax?

Comments | More in Bailout, Banking

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