The shocking admission on May 11 by JP Morgan Chase CEO Jamie Dimon that the bank had suffered a $2 billion loss on a bad derivatives bet at their London office has served as a painful reminder that nothing has really been done, since the financial meltdown of 2008, to fundamentally change the gambling mania with "other people's money" on Wall Street. In just one week since the original Dimon admission, the price tag on the London derivatives blowout by JPMC has more than doubled. As of today, the bank is acknowledging $4 billion in losses, and the figure is expected to reach $20 billion by the time the complex highly leveraged bets are unraveled.
The JPMC revalations are particularly embarrassing to President Obama, who has publicly praised Dimon as one of the most competent bankers on Wall Street, and who had him at the top of his list of candidates to replace Tim Geithner as his Treasury Secretary, should he win reelection. Sources close to the White House have told me that the President and the First Lady maintain their personal bank accounts with Chase. At least the President puts his money where his mouth is.
Far more important, the JPMC admissions have sent long-overdue shockwaves through Capitol Hill and through leading political circles around the country, provoking a revived demand for a simple and obvious solution: Forget the 2,000 pages of gibberish in the Dodd-Frank bill, and forget the Volcker Rules which have not yet been written, and have already been repudiated by their namesake, former Federal Reserve Chairman Paul Volcker. The simple solution is to repeal the 1999 Gramm-Leach-Bliley bill and reinstate the original 1933 FDR era Glass Steagall Bill, which created an absolute fire wall of separation between commercial banking and all the other speculative activities. From 1933 through 2000, the US banking system was largely crisis-free, regardless of the ups and downs of the US and world economy. Bankers, especially Wall Street bankers, knew that they could not legally gamble with depositors money.
A bill to do precisely this is already introduced into the House of Representatives. HR 1489, introduced last year by Rep. Marcy Kaptur (D-Oh.), with bipartisan support, already has more than 60 co-sponsors, and a surge of additional support has been generated by the JPMC debacle. Suddenly, the obvious is obvious: The Wall Street mess surrounding the collapse of Lehman Brothers and IAG, the trillions of dollars in taxpayers bailout of Wall Street, has done nothing to improve the situation. The financial fiasco is not a thing of the past. It is now and the near future unless a more serious solution is accomplished. Both Houses of Congress are headed back to their districts for the Memorial Day holidays, to reconvene at the end of the month. By then, the JP Morgan crisis will have likely mushroomed, and no one can even forecast the date when the European banking and sovereign debt crisis will blow up--whether in Greece, Portugal, Spain or Italy. The degree of Wall Street exposure to the European debt crisis is enormous but incalculable.