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Raymond J. Learsy

Raymond J. Learsy

Posted: June 9, 2009 06:28 AM

Is JPMorgan a Bank or a Government-Funded Casino?


CNBC reported yesterday that up to nine banks will soon be allowed to pay back their TARP loans. JPMorgan has received some $25 billion from the TARP program, has petitioned the government to permit repayment, and will, in all likelihood, be among the banks permitted to do so.

Yet, by a long stretch that is not the end of the government's involvement with JPMorgan. The government stood able and ready to assist the financial sector through probably the most difficult financial crisis since the Depression, and certainly JPMorgan was one of the main beneficiaries of those actions. The $25 billion may no longer be needed now, but it was certainly crucial then to reestablish public confidence and trust in the system and each bank's viability. The ultimate aim was, and is, to permit these banks to function as banks, making it possible for JPMorgan and others to continue lending to business and consumers, unfreezing the credit markets and returning badly needed liquidity to the system. That was what was meant to be, but our banking institutions seem to have lost all ballast to what a bank is meant to be doing and its responsibility to its depositors and the public which in this instance helped it stay alive.

Just last week, a leading source of tanker operations info reported that the good people of JPMorgan hired the good ship, or better put, the VLCC Super Tanker 'Front Queen' for nine months, I repeat nine months, to carry 2 million barrels of heating oil for storage duty off Malta. One is compelled to question how many homes in California, in Michigan, or any where in the United States could have been saved from foreclosure, how many payrolls could have been met with the hundreds of millions poured into an oil trading gambit sitting off the coast of the far distant Mediterranean island of Malta. Is this why JPMorgan is rushing to repay its TARP monies so that its free wheeling ways of the past can proceed without the possibility of TARP constraints.

Our banks' propensity to risk other people's monies, while latching on to the public purse, seems to continue unabated. When a bank such as JPMorgan plays in the oil casino it does so with depositors monies which are guaranteed in part or in whole by our government's Federal Deposit Insurance Corporation. Is that what bank deposits are meant for? Is this a bank fulfilling its banking mandate? And this from a "bank" that has received an implicit guarantee from the government that in case of extremis the taxpayers will bail it out because the alternative would be unthinkable.

The very least one can ask is that the bank act as a bank and not as a trading house, making casino like bets that if they go sour, the taxpayers would be expected to pick up the pieces.

By playing the oil game JPMorgan bilks taxpayers twice. First, it is in part their money being played against them, and second by causing them to pay more for their oil, gas and heating oil. The kind of transaction entered into by JPMorgan provides a phony market for oil in that had the physical product entered the marketplace and not been stored away, it would have weighed on the price of oil and heating oil, pushing prices down. It is exactly these moneyed players/speculators who are keeping up a gamed level to oil prices. It is not coincidence, nor certainly not the free hand of the market that has natural gas prices, a commodity that usually trades in tandem with oil, at the cheapest to oil prices since 1992, and with natural gas touching a six year low this April.

It is untenable that banks, whose responsibility it is to provide the liquidity needed by the economy to prosper, use depositors monies to delve into trading of all manner of ancillary risk laden products be it derivatives, "securitized" real estate and residential debt, credit default swaps and on to title shipping documents attaining to cargos of oil, heating oil and soon to be if not already, bananas.

There is nothing wrong with a world-class bank helping in the financing of trade, and that is as it should be. But here the determinants are the competence of the parties to the transaction and their business viability, a determination that banks normally are schooled to make. And in doing so, they provide a healthy measure of oversight to the viability of the trade in question. But when the bank itself becomes the principal, the abyss and the next financial crisis is not far around the corner.

Are our banking regulators truly going to wake up to the profound dangers of the current construct of our banking institutions, or are they too closely aligned with the powers to be to change the ongoing risk fraught structure in a meaningful way!?