How J.P. Morgan Chase Has Made the Case for Breaking Up The Big Banks and Resurrecting Glass-Steagall

J.P. Morgan Chase & Co., the largest bank in the United States, has announced a loss of $2 billion in trades over the past six weeks, with the potential for an additional $1 billion in losses due to overly risky bets. Chief Executive Jamie Dimon has attributed the losses to “many errors, ‘sloppiness’ and ‘bad judgment’. He has stated that the bank will “admit it, fix it and move on”. 

However, the Street is abuzz with speculation that the size of J.P. Morgan’s exposure is so large that it cannot offload these bad bets without affecting the market and incurring further losses. This could have a ripple effect on the rest of the banking sector.

Dimon has long been a vocal opponent of increased regulation of Wall Street, and has been particularly critical of the Volcker Rule, which is a watered-down version of the Glass-Steagall Act. He has argued that the financial system can be trusted, and that the banking crisis of 2008 was a one-off event. 

J.P. Morgan’s lobbyists and lawyers have since attempted to create exceptions, exemptions and loopholes that would allow the bank to continue with derivative trading. 

The losses at J.P. Morgan raise questions about the transparency of the banking system and the efficacy of the Volcker Rule. Dimon’s response to the losses, which was initially dismissive followed by a promise to “fix it and move on”, does not inspire confidence. 

The Dallas Federal Reserve has recently recommended that Wall Street’s giant banks be broken up, a suggestion that should be taken seriously in light of this latest incident.

The Robert Reich’s Blog

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