Friday, May 11, 2012

When Will Big Banks Learn?

At what point is enough... enough?

At least, before companies realize that sometimes, through their own greed, they're bringing government intrusions into their industries onto themselves?

News from J.P. Morgan Chase Co. last night about their stunning $2.3 billion loss may turn out to be more than just risky business gone bad.  And it didn't even go as bad as it might have:  the storied bank still earned about $4 billion for the quarter.

But it could have been six.  Billion.  With a "B."

Of course, on Wall Street, any time somebody loses, somebody else wins.  And in this case, it may have been our wonderful friends, the hedge funds.  You know:  those beneficent traders who take the risk and bet against their fellow moneymen, in a world where people are pawns and profits exist solely in the eyes of the beholder.  The ones that be holdin' the bag of cash when the music stops, that is.

Sure, few of us really understand how credit default swaps - again, our wonderful friend from the mortgage crisis - work.  We're told that we don't need to; that these financial brainiacs down on Wall Street have everything under control.  Most of us have our 401k's riding on this brave new world of shady profits and illusory money "products," so we'd better keep our mouths shut and let the greedy boys - and they're almost all men - work their sleazy magic for us.

Except that this time, Washington has already taken notice.  Just this morning, word began to wash through the halls of Congress that the 2010 Dodd-Frank legislation designed to reign-in banks deemed "too big to fail" has suddenly acquired a whole new lease on life.  Even up until yesterday, efforts were still circulating to gut Dodd-Frank of regulations and restrictions that could imperil how banks currently like to do business.

Maybe we ignorant masses, as bankers must see us, really do have it all wrong.  Maybe all of these mechanisms our big banks have devised to make money off of money are in our best interests.  Maybe what we don't know really won't hurt us.  But if that's true, why do these big banks keep shooting their own feet?  They obviously don't play their own game well enough sometimes.  And we're supposed to sit by and let the averages work themselves out?  After all, Chase still turned a profit for the quarter.  We're supposed to content ourselves with the assumption that usually, gambling with high-stakes finance does pay off?

If we weren't coming off of our mortgage mess, perhaps banks would encounter a less skeptical audience in the general public, and in Washington.

Even if these banks and hedge funds operated with the fullest of integrity and in support of our national economy, you'd think they'd voluntarily design built-in safeguards against the kind of risks that just backfired for Chase.  To improvise on a phrase, a billion here, a billion there, and pretty soon, you're talking about real money.  $2.3 billion, to be exact.

And now Washington has fresh, new fodder in its campaign to add the dreaded "R-and-R" onto the back of America's banking industry:  regulations and restrictions.

How many times must it be said:  if an industry can't regulate itself, somebody else is going to.  And that "somebody else" is most likely going to be the government.  And how many times must it be said that greed alone isn't a reliable mechanism for regulating an industry?

Granted, like most everything else on Wall Street, Chase's loss was somebody else's gain.  It sounds like plenty of hedge fund managers will be buying those extra beachfront estates along Long Island and the Bahamas this summer after all.  Indeed, the stock market today barely took notice of Chase's $2 billion blunder, treating it as just part of the game.

But what about a bank as internationally leveraged and domestically ubiquitous as Chase?  If a bank like Chase can't keep their paws on two billion dollars, doesn't that create the impression that other risks may not be so solid, either?  And it's not just innocent talking heads like me wondering that.  People who can actually make life even more complicated for commerce - politicians and bureaucrats - are wondering that.

When will the banks - indeed, every industry in the United States - learn that if they don't guard against unbridled greed, our government will be more than happy to do it for them.  Which, in a way, is just transferring the greed from one group of people to a group of people who really can penalize the whole country for their own mistakes.  Doesn't it make more sense having industry insiders fixing these problems, rather than Washington insiders?

No matter how you slice it, if we're not careful, the greed some capitalists claim fuels free markets could prove to be their very undoing.  Then, there would be nothing to Chase... in more ways than one.
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