TIMOTHY NOAH MAY 11, 2012
So let me get this straight. JP Morgan loses more $2 billion, reportedly thanks to the recklessness of a trader nicknamed “the London Whale” and “Lord Voldemort,” and all Morgan CEO Jamie Dimon has to say is “it was bad strategy, executed poorly”? Well, no, that isn’t precisely correct. Dimon also says he remains only “barely” a Democrat because the Democrats want excessive regulations, including the so-called “Volcker Rule” banning some types of proprietary trading. Of which Lord Voldemort’s misadventure would seem a particularly worrisome example.
At the risk of driving Dimon out of the Democratic party altogether, let me point out that the Volcker Rule is insufficient. Had Morgan’s trades been a bit worse the company would have gone broke and the federal government would have bailed it out. I’m sorry, Tea Partiers and Occupy Wall Streeters. As things stand today, we can’t let JP Morgan go out of business, even as Republicans seek to cut poverty programs with gleeful abandon. An inevitable consequence of another banking crisis—even one in which Morgan or any other bank were bailed out—would be additional bank consolidation that would make allowing any surviving bank to go under in the next crisis even more unthinkable. (According to Business Week, the U.S. already has fewer than half the number of commercial banks it had in 1984.)
There is another way, as David Rohde helpfully points out on Atlantic.com: Break up the big banks. Any lingering suspicion that this is some unacceptably left-wing idea was dispelled in last year’s annual report from the Dallas Fed, which says:
As a nation, we face a distinct choice. We can perpetuate [“Too Big To Fail”], with its inequities and dangers, or we can end it. Eliminating TBTF wont’ be easy, but the vitality of our capitalist system and the long-term prosperity it produces hangs in the balance.
These words, written by the head of the Dallas Fed’s research department, are wholeheartedly endorsed in the annual report by Dallas Fed President Richard W. Fisher. According to Business Week, three other Fed presidents “have voiced similar worries about the risk of a renewed crisis” if the bank concentration trend isn’t reversed. Even Alan Greenspan has said of banks, “If they’re too big to fail, they’re too big.” Exasperatingly, both Mitt Romney and Barack Obama resist breaking up the banks. At this point, that’s tantamount to endorsing the next bank bailout.