Simon Johnson: Our Big Banks Rely On Three Myths

The New York Times:

Global megabanks have had a tough summer.

Jamie Dimon, the chief executive of JPMorgan Chase and a vociferous opponent of restrictions on reckless risk-taking by big banks, presided over large losses because of exactly such behavior in the company's London office.

Read the whole story at The New York Times

Comments

[redscarecrow]

02:09 PM on 08/04/2012

If you rightly expect no change from Obamney 2012, where then do you go for redress of your greivances?

[kamact]

01:06 PM on 08/04/2012

These big banksters are the greatest threat to Americans...to most people...The threat from these financial terrorists should be eliminated immediately....

[jtabs]

08:15 AM on 08/04/2012

Unfortunately Americans, especially today's Americans are huge believers in myths so the prospect of meaningful financial reform is a long shot at best.

[loki]

02:03 AM on 08/04/2012

Love it. Calling for them to be broken up. Why? so there are a million tiny hungry vermin nipping away at the hard earned money of working people, and it will be much harder to keep track of who is doing what and when?

You know if they cream of the crop is calling for something, there is a pure profit and protectionism motive behind it.

[MathIzhard]

05:10 AM on 08/04/2012

At least then when one gets it's head caught in a trap the economy isn't crushed to save it. Maybe if we're lucky they'll nip at each other and leave the working people alone.

[Chris Morene]

01:01 PM on 08/03/2012

I find it interesting that the big banks like BofA, Wells Fargo and US Bank need to nickle and dime its account holders with fees to make a profit. It used to be that banks made money off of sound investments in the market, but times have changed with the markets being so volatile and share holders demanding strong dividends, fees are the new money makers. Banks cannot survive without them.
I find that banks and insurance companies should not be traded on the market. Their job is not to make money for share holders, but for its account holders.

[JBS]

05:38 PM on 08/03/2012

The banks DO NOT "need" to nickle & dime account holders to make a profit. They do so because they can get away with it.

Who's going to stop them?

You're confusing investment banking with commercial banking. Commercial banks, the ones that took in depositor's money, used to make a profit by loaning those deposits out. The bank's profit came from the difference in the rates of interest charged for loans & interest paid for deposits.

Investment banks couldn't legally accept demand deposits. They weren't allowed to take depositors money and speculate in the markets.

The two were separated for good reason. Diverting depositors' funds into speculative investment was one of the major causes of bank failures after the stock market crash of 1929. It's why the crash precipitated the Great Depression. The banks lost the depositors money.

The Glass-Steagall Act of 1933 separated commercial and investment banking to protect ordinary depositors from the consequences of the bankster's negligence and greed. The banksters devoted the next 66 years to undermining and overturning it, finally succeeding with the Gramm-Leach-Bliley Act of 1999.

Allowing the commingling of investment banking and commercial banking had absolutely predictable results. We're right back where we were in 1932, but this time around, there's no one in the administration, in Congress or those who want to take the place of the administration and Congress, who gives a damn about depositors being plundered & pillaged.

This time you're on your own.

[Gandhifan]

05:41 PM on 08/03/2012

You make a great point! I've been thinking about this whole everything needs capital nonsense. Why? Why can we not have the basic banking function without being held hostage to wall street? It was great when being traded meant books cant be cooked and markets actually provided clarity and comparability. But with Jamie Dimon flaunting violations of sarbanes-oxley and happily sitting in his top floor office, whats the point anymore?

[cabinetmaniac]

07:58 AM on 08/03/2012

The only part of this I take issue with is:

"Putting the big banks back on their feet, with essentially no conditions requiring real change, was a mistake – reinforcing the moral hazard and implicit government subsidies that are now at the heart of our financial system."

It was hardly a mistake.

It was the plan.

The banks had just wrecked the economy.

Who but bankers like Paulson & Geitner would think giving them bailouts with no conditions made sense.

This is a plutocracy and State Capitalism which socializes the losses while privatizing the profits is the preferred method of the oligarchs.

☮

[darkmark]

09:10 PM on 08/02/2012

The Bankers' Psalm:
The Federal Reserve is my Shepherd; I shall not want.
It maketh me to lie down in green papers
It leadeth me beside the stimulus.
It restoreth my capital:
It leadeth me in the paths of high risk for profit’s sake.

Yea, though I walk through the valley of the shadow of insolvency
I will fear no losses: For the Fed art with me;
Its interest rate and its printing press, they comfort me.
It preparest a bailout before me in the presence of mine creditors;
It annointest my head with bonuses; My pockets runneth over.

Surely Power and Privilege shall follow me all the days of my life,
And I will dwell in the House of the One Percent forever.

psalm stolen from mmm on yahoo finance.

[Nutcase]

07:49 PM on 08/02/2012

The term "populist" is being used much as redneck.

There are only two political positions: for the people or for the corporations. The former is called populism. Populism has an honored history. Historians voted Robert "Fighting Bob" La Follette the best senator of all time (that was in 1982). He was a populist.

Those on the other side should be called corporatists. Benito Mussolini, somewhat of an expert on the subject, claimed, "Fascism should more properly be called corporatism because it is the merger of state and corporate power."

I am not a Republican. I am not a Democrat. I am not a socialist. I am not a capitalist. I am not a communist. I am proud to be a populist.

Just a thought. If corporations are people and Bain Capital killed a number of corporations, will Mitt be prosecuted for murder?

[mp905]

07:04 PM on 08/02/2012

The biggest myth is that individuals are powerless. We are not. Pull some/all of your money out and move it to a credit union, speak to your bank manager about your disappointment in the tactics of these big banks, don't use their credit cards. Small changes will add up if everyone does them and send a clear signal. Don't forget, the big banks need our money for their shenanigans.

[Gandhifan]

05:53 PM on 08/03/2012

I work for a big bank and I hate to say this, but No, they don't need your money. They've found every which way to allow the 1%ers to park their money. That is where the marriage of investment and commercial banking has benefited these institutions the most. Think about it, if they can have $100 million of one guys money (who knows that only a TBTF is safe because uncle Sam stands behind it) then why would they want 100 thousand accounts?

[mp905]

07:23 PM on 08/03/2012

Because greed knows no limits. They are interested in our money. 

[StopMakingSense2]

04:47 PM on 08/02/2012

Of course their all conservatives. Their whole ideology is a mountain of discredited myths! What color is the sky in their world? Not blue that's too commie liberal!

[falco]

04:11 PM on 08/02/2012

Simon mentions his discussions with the Peter C. Peterson Institute for International Economics. Their Board of Directors:
http://piie.com/institute/board.cfm#52

Gnarly bunch there.

There must be some huge profit for the 1% or potential consolidation of power in the proposal to break up the banks. What, are we going to trust these guys now?

[Aristophones]

12:08 PM on 08/02/2012

We must beware here. The big banks would love nothing more than to be forced to break into smaller pieces. They would put all their toxic assets into one or two companies and put their most successful portions of business into other companies. Then the toxic asset companies would be bankrupted and they would walk away with nothing but the successful parts. This is very much like Brer Rabbit saying "whatever you do, don't throw me into that briar patch". Be careful, they are incredibly devious.

[Sundialsvc4]

10:49 AM on 08/02/2012

These banks also perpetuate the notion that "banking," "finance," and "insurance" can be lumped together into one gigantic business unit ... period. (Let alone "profitably.")

They can't. Messrs. Glass and Steagall got that right. Here's why I think so:

The three arms have differing objectives. Banks provide liquidity; finance maximizes capital; insurance minimizes risk. "None can survive without the other two."

Each of these, IF kept separate, is pulling constantly against the other two, and this creates a three-legged stool: a tripod. An extremely stable, self-righting structure.

What these people did was to lash the three poles together into a structure that can't stand up because it's constantly pulling itself to the ground.

They lavished ==bribes== upon their supposed regulators and legislators, armed with the apparent ability to tap an inexhaustible supply of cash. "Money Talks" like nothing else in D.C.

Their system is "money for money's own sake." It's not linked to any sort of trade or business. It consists only of lightning-fast transactions occurring in the databases of an interconnected web of computers. It's Rumpelstiltskin. It's the gleam of gold in the moonlight that's a pile of stinking straw come morning.

[einzelgaenger]

10:40 AM on 08/02/2012

This issue, of what to do about the fire starters once everyone was out of the burning building, is the real 800lb gorilla. The President keeps it alive, but Romney wants to feed it, give it steroids, allow Monsanto to gen-engineer it and let it grow into King Kong, and then release it to wreak more and bigger havoc.

So Mitt can't really go after the President's Achilles' Heel.