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EDITORIAL

JPMorgan’s gamble

Published May 28, 2012 11:06 PM

The CEO of JPMorgan Chase, Jamie Dimon, had egg on his face — literally. He was covered with eggs thrown by protesters outside the gate of his company’s annual stockholders’ meeting in Tampa, Fla.

The May 15 meeting came only a few days after the bank announced it had lost nearly $3 billion in speculative trades, which Dimon called “riskier, more volatile and less effective” than previously believed. The bank bigwig, who raked in $23 million in salary and bonuses last year, said his bank was guilty of “errors, sloppiness, bad judgment and egregious mistakes” and then proceeded to fire a high-paid underling.

Markets around the world immediately wiped an additional $14 billion off JPMorgan’s share value. But the eggs thrown in Tampa did not come from the stockholders, who actually gave a resounding vote of confidence to their CEO. They came from progressives who were protesting against big banks: “I’m here because I’m against corporate greed and against the influence corporations have over government,” said David Wasman. (Channel 10, Tampa, May 15)

Hedge funds and others who had invested in JPMorgan, especially in London where the suspect trades took place, found themselves facing huge losses.

Some executives from rival companies worried that the losses could also affect confidence on Wall Street. With President Barack Obama’s administration pushing for more regulation of investment banks, “the timing could not have been worse,” said a spokesperson for the competing big U.S. bank, Citigroup. (RTE News, May 14)

JPMorgan’s shock losses “will likely impact all capital market-sensitive stocks due to increased concerns of a more restrictive Volcker Rule,” Citigroup said, warning that “it would severely impact liquidity in the markets.” (RTE News)

The Volcker Rule is a specific section of the Dodd-Frank Wall Street Reform and Consumer Protection Act slated to go into effect this July. It was originally proposed by economist and former U.S. Federal Reserve Chairperson, Paul Volcker to restrict banks from engaging in certain kinds of speculation. Supporters of the Volcker Rule hope regulation will prevent another financial crisis of the type that hit in 2008.

The Volcker Rule is a much-watered-down attempt to reinstate some of the provisions of the Glass-Steagall Act of 1933. Passed during the Great Depression after the collapse of thousands of banks, Glass-Steagall tried to erect a wall between the activities of investment banks and commercial banks. At that time, some banks were using depositors’ money, often without their knowledge, to speculate on the markets. Among the most egregious of these were J.P. Morgan and NY City Bank (now Citibank).

Over the years, the Glass-Steagall Act was watered down. It was finally repealed with the passage of the Gramm-Leach-Billey Act, named for the three Republican senators who introduced it. With the big banks pushing hard for it, the Democrats went along and it was eventually signed into law by President Bill Clinton in 1999.

The large banks have also been lobbying to get the Dodd-Frank Act repealed. Thus, the angst on Wall Street that JPMorgan’s shenanigans may now make greater regulation more likely.

But the problems of capitalism cannot be resolved by more regulation. Leaving aside for the moment that the banks and other big businesses invariably find loopholes and ways around the laws, the question remains: Just why do banks and other big businesses take the sorts of risks demonstrated by the JPMorgan debacle? Why did the stockholders in Tampa rally around their CEO instead of egging him?

Bourgeois economists don’t talk about this, but there has been a steady trend within the imperialist countries toward the domination of finance capital. This trend was observed by Russian revolutionary V.I. Lenin over 100 years ago:

“A steadily increasing proportion of capital in industry … ceases to belong to the industrialists who employ it. They obtain the use of it only through the medium of the banks which, in relation to them, represent the owners of the capital. On the other hand, the bank is forced to sink an increasing share of its funds in industry. Thus, to an ever greater degree the banker is being transformed into an industrial capitalist.” (V.I. Lenin, “Imperialism, the Highest Stage of Capitalism”)

Attempts at regulation like Glass-Steagall and the Volcker Rule are nothing more than feeble attempts to slow down this trend.

The big capitalists do not gamble merely because they are greedy or imprudent (even if most of them are). Increasingly over the past few decades, and especially since the recent financial crisis, they are afraid to invest the enormous wealth they have stolen from the workers into expanding production because markets are shrinking in relation to productivity. Investing in goods and services is less and less an option; without jobs or adequate income, fewer and fewer people can afford to purchase them. And profit margins become smaller as the enterprises grow larger, all leading toward a crisis of the system itself.

So the financiers have gone for gambling on complex, obscure financial instruments as their best remaining option. The profits are huge, but so are the risks. When things fall apart, they count on saving their hides by squeezing more out of the workers and oppressed, or with government bailouts, or both. Workers and oppressed people everywhere must see to it that they don’t succeed.