On October 23 , 2008 in Congressional testimony Alan Greenspan, as reported by the New York Times "a humbled Mr. Greenspan admitted that he had put too much faith in the self correcting power of free markets." This coming from someone who near ten years before, as Federal Reserve Chairmanof long standing, was one of the most forceful voices in Washington clamoring for the repeal of the Glass-Steagall Bank Act, the law which had clearly prohibited banking firms from gambling with their depositors money held directly or held in affiliated commercial banks. Yet, when all is said and done it seemingly, as in this case, becomes impossible to teach old dogs new tricks.
This past week (06.21.12) talking with Tom Keene on Bloomberg TV, Greenspan sprung to the aid of the Wall Street Mafia militating to emasculate the Dodd- Frank legislation by proclaiming loud and clear there is no need to return to the Glass -Steagall Bank Act and all it would imply in restricting the proprietary trading of banks. "Glass-Steagall was never a useful vehicle" Mr. Greenspan's words. The issue of proprietary trading, that is the risk prone casino gambling in such non-banking related position taking be they commodities such as oil, oil products, grains, base metals, etc., or uncovered financial derivatives such as CDS' were swept into a homogenous category by Greenspan, that banks are structured to take risks. This, as though making loans to businesses, industry, municipalities, home owners, financing trade through letters of credit, were of the same construct than the rote commodity and financial instrument gambles undertaken by the likes of Goldman Sachs, Morgan Stanley, JPMorgan Chase et al.
Citigroup, for one, well understood this distinction and their responsibility to the banking community, their shareholders and the economy at large after the financial disaster of September 2008 and thereafter divested themselves of their commodity trading division, Philipp Brothers, which at the time was among the largest oil traders in the world. This in sharp contrast to JPMorgan Chase, the biggest bank proponent of prop trading and the biggest adversary of the Volker Rule core to the Dodd-Frank legislation. JP MorganChase just before and after September 2008 expended billions to acquire the trading divisions of Royal Bank of Scotland's Sempra Commodities, the trading division of Bear Stearns, and making extensive investments in the gaming tables themselves, by becoming the largest shareholder of the London Metals Exchange.
JPMorgan's ambitious venture into prop trading, as has been reported extensively, was to have their huge unhedged (gambling) position in financial instruments blow up to a trading loss initially reported as a $2 billion wipe out, but now understood to be nearing $6 billion. Perhaps manageable for JPMorgan Chase, but such an extraordinary digression from traditional banking methodology has become, by example, and with the support of the likes of an Alan Greenspan springing to the aid of the Wall Street Brigade proclaiming there is no need to return to the Glass-Steagall Bank Act and by extension its Volcker Rule, placing our entire financial system at risk.
As an aside, the recent Congressional Hearings on JPMorgan's recent trading losses, might well have been far more enlightening if questions were also posed to Dimon about JPMorgan's proprietary trading in commodities such as crude oil, copper, and the like, and exactly what does that have to do with banking?
Oh, by the way, it has just been reported that Jamie Dimon will be getting a double digit raise for 2011 on top of his tens of millions in 2010.
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