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It was caused by allowing Wall Street to create derivative structures that were next to impossible to mark to market. Derivative structures are the product of Wall Street greed.
It's time to disband many of the structural designs that we did not have before when this whole mess slowly began. With regard to the Volcker Rule, there is a grey differential between proprietary trading and market-making. When you mix in "mark to myth" for derivatives, you have the "time bombs" that are ticking today. Evaluating the risk in a mix of toxic and liquid assets cannot be prudently accomplished. Receive full access to our market insights, commentary, newsletters, breaking news alerts, and more.
I agree to TheMaven's Terms and Policy. JPM Report is an isolated situation, and that the stock was a buy on share price weakness. TheStreet Recommends. By TheStreet Staff. By Brian O'Connell. He said he trusted his deputies — including Drew — to tell him when problems were occurring, and that he believed them when he said they were "comfortable".
Drew's testimony this morning was the first real hole in this armor. It was to be followed by others. The Senate subcommittee on investigations had handed in a damning report, true. It indicated that Dimon knew as early as January that JP Morgan had breached its risk limits, and that he had personally approved raising them. But the most damning moment of the hearing happened after lunch, when everyone was probably pretty sleepy and not paying much attention.
Senator Levin asked a bank regulator with the OCC what had happened, how the regulator stopped getting information. The regulator said JP Morgan had stopped sending daily reports in August At this meeting, the regulator said, Dimon said the bank was afraid of leaks, and that it was changing how it was distributing its information. Dimon allegedly hammered the OCC regulator on why he needed the information — which, at that time, was standard and expected information for the regulator to have.
Braunstein said he had already sent the reports. Dimon turned on Braunstein, the regulator remembered. This moment was damning, as damning as Ina Drew's moment of truth earlier. It showed the pattern of bullying that JP Morgan showed towards its own regulator, and that Dimon himself had a hand in it. He prevented a bank regulator from getting necessary information, and, according to the testimony, personally kept that information out of the regulator's hands in August It was compounded because since last year, Dimon and Braunstein had both said the bank's regulators were fully informed — which, as we now know, they were not.
On the stand, Braunstein, his mouth firmly set into a downward-facing crescent, denied remembering the incident at all. The upshot is that the Senate report and the hearing show that JP Morgan treated its regulators high-handedly.
You might expect this of other banks, but JP Morgan was supposed to be the exception. It was not, however, the exception. Faced with deepening losses, it reacted the way any other bank would: with increasing panic, bad decision-making, and attempts to either erase the loss through more gambling or cover it up by publicly minimized the impact.
JP Morgan showed it was sorry, but it also had a lot to be sorry for. More importantly, this bullying, this panic, this misleading of regulators and the public, reflected badly on its popular, charismatic CEO. But Dimon was seen as the capable steward, the principled stalwart against bad behavior. It changes the narrative significantly to see that he had engaged in bad behavior himself. Dimon — and JP Morgan — have shown a lot of compunction.
It's clear they are embarrassed by the London Whale debacle. But it is embarrassed for the wrong reasons. JP Morgan has indicated that it believes it got the facts wrong, that a group of people screwed up and those people are gone, and now the bank can go about its moral, principled way.
However, Dimon repeatedly argued that this second trade was actually a portfolio hedge and would be permissible under the Volcker Rule. If anything, industry participants had been hoping for a kinder, gentler Volcker Rule. Before the JP Morgan debacle, the Securities Industry and Financial Markets Association, the American Bankers Association, the Financial Services Roundtable and the Clearing House argued that the proposal set forth by regulators established an onerous compliance regime that would mandate scrutiny of every transaction.
We believe they both will be properly resolved in a way that will allow us to compete fairly. Now the ground may have shifted. The Federal Reserve signaled support for these additional requirements. The new G-SIB requirements mandate for a company our size approximately 2. So, will the Volcker Rule get tougher and tighter than it otherwise might have? It may depend on whether this trading strategy or similar strategies that could be utilized by big banks in the future pose a real danger to the public.
With stupidity affirmed, the more difficult trick for policymakers may be establishing that what JP Morgan did was dangerous to anyone but the company. Dodd Frank Update October Cover Story: Leading through massive change. LOG IN. Today's other top stories. Freddie Mac purchases manufactured housing resident-owned loan.
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