For public interest advocates fighting the David vs. Goliath battle to win meaningful reform of the financial system, there was a certain satisfaction in watching Jamie Dimon eat humble pie last week as he announced that JPMorgan has lost a little over $2 billion trading credit derivatives. After all, no one has been less apologetic for the role Wall Street played in triggering the 2008 financial meltdown that left millions of Americans jobless, cost millions more their homes, and brought the financial system to the brink of collapse. No one has been more dismissive of efforts to rein in the reckless bank practices that put the global economy at risk. And no one is accorded greater respect in the halls of power.
To his credit, Dimon has been nearly as caustic in his criticism of the bank's "egregious, self-inflicted" mistake as he has been in the past toward those, such as former Federal Reserve Bank Chairman Paul Volcker, who dared to disagree with him on policy issues. But even as Dimon acknowledged that the trading strategy behind the $2 billion loss "was flawed, complex, poorly reviewed, poorly executed and poorly monitored," he couldn't resist a dismissive reference to the "pundits" who would seek to capitalize on the news to make the case for tougher regulations to rein in the banks.
There is, of course, a very good reason why reform advocates would make that connection. The trading practices that led to the $2 billion-plus loss are at the heart of a number of the most contentious battles that banks are fighting, and all too often winning, to gut reform efforts. The question is whether JPMorgan's dramatic loss will be enough to change the terms of the debate.
In leading the fight to fend off tough regulations, Dimon has argued not only that the regulations are misguided, but also that they are simply too costly. But, as Congressman Barney Frank pointed out in a news release last Friday, JPMorgan lost roughly five times as much in this one set of transactions as it has estimated its total annual cost of compliance with Dodd-Frank regulations to be. In other words, while regulation comes with a significant price tag, those costs pale beside the losses that banks can incur when left to their own devices. If the banks succeed in gutting regulations and winning passage of the many bills now moving through Congress that would blow a hole in financial reform, the cost is going to make $2 billion look like chump change. Will regulators take the hint that the cost-benefit fight is one they can win and stop cowering every time industry threatens to take them to court over a rule they don't like?
Right now, the fate of regulatory reform hangs in the balance. And, make no mistake about it, the banks are winning. Before we can reverse this dangerous trend, Congress and the regulators must recognize that the arguments that Dimon and his fellow Wall Street titans have put forward to justify their assault on Dodd-Frank are just as "flawed" as JPMorgan's costly hedging strategy. Given everything that is at stake, if JPMorgan's $2 billion trading loss provides that lesson, it will have been well worth the cost.
Follow Barbara Roper on Twitter: www.twitter.com/ConsumerFed