06/04/2012 11:54 am ET Updated Aug 04, 2012

Double Standards at Work

JPMorgan Chase's recent $3 billion trading loss made a splash in the news, though it's begun to fade from the spotlight. But there are parts of this story that haven't gotten nearly enough attention and shouldn't be forgotten.

You've heard wiser folks than me talk about why banks should be boring -- stable, reliable, all that sort of thing. If your bank starts acting like a casino, you're in trouble.

And there's been plenty of discussion about why big banks shouldn't be allowed to act like casinos. That's not a trivial matter. The so-called "Volcker Rule" included in the Dodd-Frank financial reform law, supposed to keep banks' speculative investment activities separate from customers' deposits, is important, and the lobbying aimed at weakening it is disturbing. There's a good case to be made for the stronger solution advocated by, among others, Massachusetts U.S. Senate candidate Elizabeth Warren: Bring back the Glass-Steagall Act of 1933, which kept commercial banks -- the kind that take deposits from you and me -- completely separate from the more speculative investment banks.

Ah, some will say, but the market is self-correcting! JPMorgan Chase got a lot of bad press, their stock has taken a hit, and they'll learn -- nothing to worry about!

That leads us to one part of the story that hasn't gotten enough focus: Those market self-corrections necessarily happen after a disaster. Learning a lesson is great, but not much help if the financial system is already in shambles. The fact that this mini-disaster happened just four years after the cataclysms of 2008 suggests that Wall Street's learning curve isn't as steep as it should be.

The other problem with this "the market will self-correct" view is that it assumes that markets -- which are, after all, composed of human beings -- are rational. But humans can be pretty irrational. The New York Times reported that the JPMorgan trading debacle was propelled in part by "long-simmering internal divisions and clashing egos." If people always behaved rationally, society would need a lot fewer rules, but the reality of human behavior is pretty messy.

Even less noticed in the media universe has been the double standard. The anti-regulation forces regularly rail about "irresponsible borrowers" as the source of the foreclosure crisis and economic meltdown. And any effort to help homeowners fighting to keep their homes, as one such writer put it recently, "rewards the bubble's most irresponsible borrowers while honest homeowners suffer the consequences."

Actually, that's not what's happening. In the real world, responsible borrowers who got in trouble for a variety of reasons partly or fully beyond their control have struggled to get help, while multibillion dollar Wall Street gambling -- which could send the world economy spinning into depression -- gets met with a shrug of the shoulders and no certainty at all of adequate rules or tough enforcement.

Struggling homeowners commonly get the sort of runaround described in this Bay Citizen article:

"I've done everything that I asked them to do, faxed them and called them, and I keep getting denied," said Raymond Rivera of Chula Vista.

Rivera, who was laid off from his job as a substance abuse counselor in 2009, still owes $369,000 on a three-bedroom condo he bought in 2006 with a loan from the California Housing Finance Agency.

Last June, Rivera declared Chapter 7 bankruptcy, and in January, the agency declared him "conditionally eligible" for a principal reduction under Keep Your Home California, in part because his home has lost half its value and is now worth just $181,000, according to real estate website Zillow.

Five months later, however, the housing agency still has not given final approval for his principal reduction.

Here at The Greenlining Institute, we've heard plenty of similar stories. One husband and wife who lost over half their income due to a recession-induced job loss went through more than a year of forms to fill out, delays, new forms, new delays, and what seemed like an endless array of moving goalposts before they finally got some relief, just barely in time. Because this was a case we were able to watch closely, I know exactly how much sheer luck was involved in this family managing to keep their home.

So sure, let's have a strong Volcker Rule. But how about a second rule -- call it a Common Sense Rule: Banks big enough to tank the world's economy should be held to standards at least as strict as the standards struggling homeowners have to meet.