Last week, in direct confrontation and in an effort to bring an end to the irresponsible risk taking of major banks and trading programs that came within a whisker of bringing the economy to its knees, the president called for limiting the size and trading activities of financial institutions. The president's words were directed at the "proprietary trading," whereby the banks trade for their own account having access to, as chartered banks, virtually cost free money subsidized by the government, FDIC insured deposits, myriad Fed programs and most ominously the implicit guarantee of "too big to fail." In other words, a formula that encourages wild risk taking on the back of and sustenance of government programs with virtually no accountability at the end of the line if things go wrong.
Earlier that week this post printed "Our Banks Becoming Casinos and Washington Yawns." Well Washington has certainly stopped yawning as President Obama has called for an end to the casino gambit inherent in too many of today's banks and their activities. The post did touch upon an egregious effort by a leading bank to immerse itself ever more deeply into the quagmire of proprietary trading in a full gamut of commodities. It reported on JPMorgan's exclusive talks to purchase RBS Sempra, lock, stock and barrel, a major commodity, energy and derivatives trader. Sempra became available because European regulators were forcing the Royal Bank of Scotland to divest itself from this proprietary trading arm, and the post went on to question where were our regulators and what justification does a bank have with all of its access to government support and protection, immersing itself even more deeply into this swamp.
Well the president made clear where our government now stands. Banks and proprietary trading do not mix because when they do they put the whole economy at risk.
Was JP Morgan listening? Today Reuters reported that JPMorgan is about to close a $4 billion purchase of Sempra, a company which comprises:
- One of the three biggest U.S. gas and power trading desks.
- The biggest physical base metals trading and broking shops
- A global oil team with a decade of experience in trading physical crude oil cargoes and diesel barges, markets in which JPMorgan has only begun to trade.
Clearly this is a challenge and a blatant disregard of President Obama's interdiction. If allowed to pass without constricting JPMorgan's access to the fed window and use of FDIC deposits it will a clear example that Wall Street runs Washington.