05/16/2012 10:39 am ET Updated Jul 16, 2012

What Makes You Madder: JPMorgan's Recklessness or the Fed's Cluelessness?

The good news is that JP Morgan Chase is about to eat some humble pie. The $2 billion trading loss announced May 11 as a result of a bad bet on derivatives should encourage consumer activists to finally rein in our nation's bad banks. Only nine days earlier the banks held the upper hand; six bank bosses met with a top Fed official so they that could communicate their "concerns" about a slew of new rules tied to Dodd-Frank, such as the Volcker rule that prevents banks from taking excessive risks by curtailing their ability to speculate with their own money.

JPMorgan President Jamie Dimon claimed that these new higher capital rules will make it "prohibitively more expensive" to lend to folks with subprime credit scores, about 40% of Americans! So Dimon wants to keep selling folks with limited credit history -- like me and my husband 25 years ago -- reckless adjustable rate mortgages that reset to unaffordably high AND undisclosed interest rates, instead of advising them to wait until they've built a better credit score as banks used to do back when they loaned prudently.

As is the case time and time again, the delay is due to banks pressuring congressional Republicans and those sellout Dems known as the New Democrat Coalition -- aka the "NOT Democrat Coalition -- to let banks have their way. After a four-month lobbying blitz by Goldman Sachs, JPMorgan Chase and others, regulators and lawmakers are "receptive to delaying and revising their plans to stop banks from making speculative trades." As a result, Fed Chairman Ben Bernanke admitted that the measure won't be finished by the July deadline imposed by Congress.

The even better news should be that there's a new group called Americans for Financial Reform that's trying to ensure that reform takes place. The bad news might be that K Street's got a bigger budget and, therefore, more clout. Marcus Stanley, policy director for the group, told Bloomberg News that his group has at most a couple of dozen people communicating to the agencies and members of Congress compared to hundreds of banking representatives. I would urge you to go to their website and support their efforts so that the citizens lobby can have more clout than the banking lobby.

Here is where you can take action and exhort the Commodity Futures Trading Commission to adopt a strong Volcker rule and where you can contribute to their cause. Among other things I learned at their website is that the majority of the nine directors at each of the Fed regional banks is either picked by -- surprise, surprise -- bankers or directors who were picked by bankers.

So I wasn't surprised at the recent New York Times article citing at least two cases in which the Fed opposed shareholders who wanted to turn around badly performing banks.

But even if the Volcker rule gets enforced, I'm concerned that the bank failures will continue because the agency that's supposed to oversee banks, the Fed, is clueless. For one thing, they apparently don't see any need to require banks to disclose the "reset" on adjustable rate mortgages, one of the most reckless financial products out there. As a Fed PR person confirmed in an email, "for most ARM home loans, creditors do not have to include the maximum interest rate on the TILA (Truth in Lending Act) disclosure."

As I pointed out in a previous post, a survey of homeowners by the AFL-CIO in 2007 indicated that 75 percent had no idea how high their new monthly payment would be after the reset -- even when an increase was disclosed it was in the form of "points", not monthly payments. More than 30 percent of loans that reset weren't based on the raise in the prime rate and the average monthly increase consumed 10 percent of after-tax incomes. Unfortunately, the Consumer Financial Protection Bureau has no plans to spell out the specific dangers of ARMs.

But even more astounding is the fact that the Fed is clueless about the financial stress facing most Americans -- despite the fact that monitoring it is one of its responsibilities.

While the Fed claims that 15 of the 19 largest financial firms have enough capital to withstand a severe recession, measured by weathering an unemployment rate of 13%, a 21% drop in housing prices and economic slowdowns, the Fed appears not to have realized that inadequate 401(k) assets will make it impossible for many pensionless Boomers to keep paying their mortgages. This cluelessness is unconscionable, given that the Fed conducts a periodic Survey of Consumer Finances on retirement savings and mortgage expenditures.

The 2009 SCF survey showed that around 52.2% of Boomers age 55 to 64 were still paying mortgages, with an average value of $140,000 in 2007--compared to 18 years earlier when only 34.1% of Boomers were contending with much lower balances mortgages of around $55,000. My husband and are among the scores of Boomers who "traded up" to our current house in 2000 -- if our mortgage payments weren't a small fraction of our household income we wouldn't be able to "retire" our mortgage until I reach age 82 -- no, that's not a typo.

Since the typical Boomer has only accumulated about one fifth of what he needs in his 401(k) and rollover accounts to meet expenses, I predict that about half will run out of money in five years. Since the SCF survey showed a median 401(k) account balance/rollover savings for Boomers of around $120,000 at the market's peak a few years ago, that translates into yearly expenditures of $4,800 a year -- since you're only supposed to withdraw 4% of the balance -- or about a measly $400 a month along with Social Security. Given that monthly payments on a $140,000 mortgage would be around $670 (assuming a fixed interest rate of 4%) attention must be paid.

No worries, since Boomers will be able to sell their homes, enabling them to pay off their mortgages? Not necessarily -- just ask the Fed! Apparently banks are leery about offering mortgages to recent college graduates because even those who've been able to find jobs -- and only one out of two can -- have so much student loan debt, totaling close to $1 trillion, they probably can't afford the payments. As a result, according to a recent Fed study, only 9% of 29- to 34-year-olds could qualify for a first-time mortgage between 2009 and 2011, compared with 17% 10 years earlier. (The Fed's public relations office didn't respond to several requests for comments.)

Then of course we've got the added financial burden of health care costs in retirement, which could total $240,000, according to a recent Fidelity survey. So we not only need to rein the banks in but we've got to delegate the responsibility for measuring household wealth -- and hopefully come up with ways to boost it -- to an agency that's more in touch with "the 99%." I'd love your feedback and I'll keep you posted.