JP Morgan Loss Sparks Outcry
May 16, 2012 (EIRNS)The $2 billion blowout at JP Morgan, the nationalization of Bankia in Spain, and the building Greek insolvency, are clear signs that the trans-Atlantic financial system is ready to explode in an unstoppable chain reaction. This is a turning point, and an opportunity, Lyndon LaRouche emphasized in discussions on May 15: It's time to ram through Glass-Steagall, an act that will immediately put the other two planks of the LaRouche programa national credit system and NAWAPAat the top of the political agenda.
While public opinion is "shocked" at discovering that the megabanks are playing exactly the same games they played before the crisis, there should be no surprise. All the other large banks have been doing the same, with taxpayer support from the bailouts. The entire sovereign debt sector is affected by derivative bets which manipulate the "market value" of government bonds.
JP Morgan's London Investment Office had been selling credit default swaps (CDS) on an index of 125 companies (CDX IG 9 Index), essentially betting the index would improve. According to the Wall Street Journal, traders said at the time that the size of JP Morgan's positions helped move the index up. But the hedge funds decided to bet against it. Ultimately, JP Morgan lost.
CEO Jamie Dimon knew all the time what was going on. Indeed, he pushed the bank's London office, under the chief investment office's (CIO) top executive there, one Achilles Macris, to expand risky derivatives bets in order to expand profits. At the same time, Dimon was lobbying against banking regulation in Washington, attacking even the soft "Volcker Rule" separation of proprietary trade.
But the Volcker Rule is, as expected and planned, bogged down in endless negotiations. The only solution is the reintroduction of Glass-Steagall, and there has been an explosion of calls for it throughout the U.S. financial and other press, and from prominent political figures, such as Massachusetts Democratic Senate candidate Elizabeth Warren. Warren authored an e-mail petition on May 14, in which she called for the reintroduction of Glass-Steagall. Within 24 hours, she had over 50,000 signatures.
What the new campaign has so far ignored is the fact that Rep. Marcy Kaptur (D-Ohio) already has a bill in the U.S. Congress, H.R. 1489, with 58 cosponsors, ready to reinstate FDR's Glass-Steagall. This is the immediate lever available to push this policy through, now.