Buyer Beware: Bankers Selling Administration on Watered-Down Financial Regulation

The bankers are cozying up to the regulators, and what good could come of it? Goldman Sachs and JPMorgan Chase rake in record profits and get off the taxpayer dole. It seems good that taxpayers aren't bankrolling them anymore, but now they aren't accountable either. The only way to make them accountable is to regulate them effectively, and you can be sure that they're going to fight that tooth and nail, just like the health insurers will fight health care reform that eats into their profits.

The New York Times reports that Jamie Dimon, CEO of JP Morgan Chase, is in close personal contact with Rahm Emmanuel. What is Mr. Dimon selling the administration? Clearly he wants to limit the reach of new regulations, especially regulation of derivatives -- which is one of the products that landed Wall Street and the global economy in this mess in the first place. When the Wall Street eliminated fixed commissions in 1975 in response to SEC pressure, it reduced their revenue stream from institutional investors, who could suddenly demand volume discounts instead of paying the same price per share as small investors. What did Wall Street do to remain profitable, and grow dramatically over time? Increasingly they created derivative products so that they could build their fees into the products themselves.

As the NYT reports, "While JPMorgan favors new reporting requirements for the complex financial instruments, it opposes the administration proposal to force trades onto public exchanges; doing so would likely cut into the firm's lucrative business of selling clients custom-made instruments." Custom-made instruments mean that more fees can be built in. As others have noted regarding the problem of derivatives based on sub-prime mortgages, derivative products contain a murky combination of assets, some of which may not be as sound as they first appear. But they certainly are profitable for Wall Street firms!

Taxpayers and investors are often the same people, and even more so in the era of the big banking bailout. But this is another case where the buyer must beware. Wall Street and the health insurance industry both deserve no trust when it comes to your interests -- they are focused on their own profits. We've seen what unfettered markets bring, and it's time to abandon market fetishism.

Follow Louise Marie Roth on Twitter: www.twitter.com/louiseroth

Comments

[Louise Marie Roth - Huffpost Blogger]

Henry,

Most excellent point. I know traders who view their jobs as great fun because they are so much like gambling - on the part of the house!

Keep them coming.

[Henry]

"But they certainly are profitable for Wall Street firms! "

Louise,
The problem with the derivatives segment of the financial market is this: derivatives are based on some preference or bet in the market place that functions as a result of otherwise normal market functions. In short, the derivatives may produce a paper profit but they put nothing into the GDP the tangible production pie. As a result, these profits all scam from the pot.
Now, if you were to hedge future payment revenues in a foreign currency because you would not receive payment until after delivery of product you produced, the "hedge" would be an expense of locking in the profit at the current rate. But when your entire game is gaming the moves of artificial instrument­s... then you are a taker and not a contributor. Jamey Dimon knows this and he'd just as soon that you thought his casino was some esoterica of the brilliant and flashey glitteratti. This is a game that is fixed and it's played by the casino managers..­. yet it contributes nothing,