By Richard (RJ) Eskow
Senior Fellow, Campaign for America’s Future
When Jamie Dimon revealed that JPMorgan Chase had lost billions through risky and legally questionable trading, he said the losses would be about $2 billion and maybe more. Apparently it is more — a lot more. People in a position to know are saying the real figure is probably in the $5-7 billion range.
The JPMorgan Chase scandal — and yes, it is a scandal — shows us why we need to break up the big banks as quickly as possible.
But that won’t happen unless we can get our hands around the real scope of the problem, which is probably far greater than we’re being told. That means cutting through the enveloping shroud of jargon, euphemisms and double talk — “crap,” if you will — that keeps us from seeing the situation as it really is.
Here’s why we need to do it, and here’s how.
Two images come to mind when considering too-big-to-fail banks like JPMorgan Chase: The first is of the gigantic spaceships hovering over all of the world’s cities in Independence Day, leaving the citizenry in shadows and the world in fear and uncertainty.
The second image is of an old New Yorker cartoon which shows a husband and wife chatting with guests over drinks and h’ors d’oeuvres while an enormous monster scowls in the corner. The caption reads: “We deal with it by not talking about it.”
Most politicians are either talking about tighter regulations for too-big-to-fail banks, or about the virtues of self-regulation and the so-called “free markets.” But the real problem isn’t how to manage too-big-to-fail banks, which are inherently unmanageable. The real problem is that they exist, an everpresent menace that hovers over our economy while we go about our daily lives.
They deal with that problem by not talking about it.
JPMorgan Chase is either our largest or second-largest bank, depending on when and how you ask the question. News stories often point out that it has $2 trillion in assets, which sounds impressive. But they usually fail to mention that it has liabilities of more than $2 trillion, too, leaving it roughly $183 billion in the black.
That ain’t bad — but it’s not much more net worth than you’ll see sitting around the table when Mitt Romney’s super PAC friends get together for lunch.
And we can’t trust those numbers. We now know that these risky London deals weren’t accurately conveyed in last year’s annual report. What else don’t we know about JPM’s liabilities?
All of our big banks were on the hook for hundreds of trillions of dollars in the run-up to the financial crisis of 2008. And now they’re bigger than ever. How big? We don’t know for sure — and that’s a big part of the problem.
Our four largest banks have 95 percent of the total exposure to derivatives. Two years ago we analyzed the raw data and found that JPM alone held 44 percent of that risk — and JPM has grown since then.
Because they intend to keep right on growing. As Jamie Dimon promised shareholders, “I want to assure you that your company will be bigger and stronger and better a year from today.”
If that doesn’t frighten you, you haven’t been paying attention.
Bigger ≠ Better
Here’s an example of what we mean when we say it’s time to “cut the crap” when we talk about big banks:
Writers should no longer be allowed to tell us, even in passing, that “I agree we need large institutions” unless they tell us why we need them.
Jamie Dimon was leading the chorus of bankers saying that their large size leads to increased efficiency and economies of scale. Okay, Mr. Dimon: Where are they? Is the cost of borrowing cheaper at JPM than it is at community banks? Are ATM fees lower? Are loans easier to get?
“Economies of scale” work well for customers — when you’re manufacturing toasters. But banks like JPM aren’t in the toaster business. They’re not even in the customer business anymore. Ordinary clients at the big banks are like cannon fodder in a colonial army: They’re there to be used and discarded, not to be served or respected.
(John Reed’s interview with Bill Moyers offers an enlightening glimpse into this shift in banking culture.)
So let’s stop repeating the mantra that big institutions have anything to offer us — anything, that is, except moral hazard. We did fine without them for centuries, and we’ll be better off once they’re gone. (more…)