This is yet another political letter home. This letter discusses a mundane topic: banking as a public utility. Traditional banking services arguably act like utilities in that they are ‘natural’ monopolies, like municipal water companies or local electric utilities. That is to say: their unhindered interest in providing these services is to maximize economies of scale to make themselves a ‘market of one’ reaching out to the limits of a self-contained service area.
In earlier times, with the prevalence of community banks, these areas were most often cities or towns. As communications made the world a village, states and regions became that perimeter of self-containment. Finally, globalism and the inter-net turned much of the world into a rumpus room. Big banks got even bigger, spanning continents and occasionally spreading financial incontinence.
Speculative ‘hot-money’ currency trades and, later, derivatives, questionable value propositions and corrupted ‘gain-on-sale’ accounting fueled these dislocations. The derivatives were particularly hazardous because they frequently were not hedges but the means by which an institution could squeeze a few basis points (i.e., per-cents of a per-cent; e.g., one basis point of $100 being a penny) out of an efficient market through algorithms.
In the late 1990s, after wearing down regulations argued to be archaic, the U.S. Congress finally knocked out the last of the bank laws legislated sixty-six years before. The Bank Act of 1933 (37 pages long and known as ‘Glass-Steagall’, to honour its Congressional sponsors, Senator Carter Glass, D-VA, and Representative Henry Steagall, D-AL) had split the investment banks from the commercial banks for a very good reason.
Investment banking tended to bet money while traditional banking (think Bailey Home Loan from It’s a Wonderful Life) tended to preserve it, through savings accounts, and intermediate it. In other words, in earlier times, when investment banks underwrote securities, they often assumed the ‘market risk’ of the stock or bond issue. That is to say: the institution effectively purchased all of the securities, for a cheaper price than expected in the market, directly from the company raising money through the re-sale of stocks or bonds. These investment banks then re-sold those securities to the larger capital market at the anticipated price.
In earlier times, with the prevalence of community banks, these areas were most often cities or towns. As communications made the world a village, states and regions became that perimeter of self-containment. Finally, globalism and the inter-net turned much of the world into a rumpus room. Big banks got even bigger, spanning continents and occasionally spreading financial incontinence.
Speculative ‘hot-money’ currency trades and, later, derivatives, questionable value propositions and corrupted ‘gain-on-sale’ accounting fueled these dislocations. The derivatives were particularly hazardous because they frequently were not hedges but the means by which an institution could squeeze a few basis points (i.e., per-cents of a per-cent; e.g., one basis point of $100 being a penny) out of an efficient market through algorithms.
In the late 1990s, after wearing down regulations argued to be archaic, the U.S. Congress finally knocked out the last of the bank laws legislated sixty-six years before. The Bank Act of 1933 (37 pages long and known as ‘Glass-Steagall’, to honour its Congressional sponsors, Senator Carter Glass, D-VA, and Representative Henry Steagall, D-AL) had split the investment banks from the commercial banks for a very good reason.
Investment banking tended to bet money while traditional banking (think Bailey Home Loan from It’s a Wonderful Life) tended to preserve it, through savings accounts, and intermediate it. In other words, in earlier times, when investment banks underwrote securities, they often assumed the ‘market risk’ of the stock or bond issue. That is to say: the institution effectively purchased all of the securities, for a cheaper price than expected in the market, directly from the company raising money through the re-sale of stocks or bonds. These investment banks then re-sold those securities to the larger capital market at the anticipated price.
Sometimes, the pricing did not work out, leading to losses by the investment bank. Though it is not often assumed anymore, this underwriting risk of a securities offering presents us with an instructive example of proprietary trading. Most securities trading is similar to traditional banking: brokers intermediate funds between people selling securities and others buying them with a few basis points skimmed (i.e., the bid-ask spread) by the broker-dealer for handling fees.
When, however, the institution represents one side of the trade without offsetting it in a symmetrical transaction (i.e., funds are not intermediated, as they were not in a bond underwriting) in which an institution expends some of its ‘capital’ on a trade in the capital markets, that bank or broker is making a bet by assuming the risk inherent in its particular side of the transaction.
These bets, more like educated guesses most of the time, have higher profit margins than the less glamorous, more prudent service of intermediation. Yet these bets entail higher risks because losses can burn through the institutional capital very quickly. Since most brokers and banks make the bulk of their business from intermediation, they tend to lend out all but a small amount of funds taken in as capital and deposits (i.e., as a safety margin).
These bets, more like educated guesses most of the time, have higher profit margins than the less glamorous, more prudent service of intermediation. Yet these bets entail higher risks because losses can burn through the institutional capital very quickly. Since most brokers and banks make the bulk of their business from intermediation, they tend to lend out all but a small amount of funds taken in as capital and deposits (i.e., as a safety margin).
So there is little capital left to burn through before the ship is sunk. These one-sided 'proprietary' banking transactions, these bets, explained events like cornered gold markets and the crashes that accompanied them in the 150 years before the Great Depression. The consequences would ripple or metastasize through the financial system since intermediation, in mature markets, meant that almost everybody had a piece of the action by re-lending out funds received.
(Nowadays, the securitization of risks via sales of existing portfolios of loans and computer-driven trading accelerates this metastasis.) Such betting, intuitively, ought not to involve others’ money, especially without their knowledge and consent. Thus, for many years, these activities involved partnerships in which people bet their own money or funds entrusted by people whom they knew and who understood the risks involved.
(Nowadays, the securitization of risks via sales of existing portfolios of loans and computer-driven trading accelerates this metastasis.) Such betting, intuitively, ought not to involve others’ money, especially without their knowledge and consent. Thus, for many years, these activities involved partnerships in which people bet their own money or funds entrusted by people whom they knew and who understood the risks involved.
For the rest of us, the only loans from the banks were often secured; that is, there were fixed assets pledged as collateral (i.e., the house in a mortgage). If the borrower reneged on his commitment to repay the loan, the bank would re-possess the collateral for sale to generate the proceeds to repay much or all of the debt still to be re-paid.
Investment banks often had to pledge securities, usually issued by well-respected companies (i.e., traded frequently and indicative of underlying value), as collateral with a significant haircut (a 20-50% discount from the market price on the date of the pledging). If collateral values dropped sufficiently, the investment banking / trading partnership or individual investor in the 1920s had to put up more collateral.
If there were a long and proven history of cash-flows able to absorb short-term borrowings for working capital, some large corporate borrowers would need to pledge collateral, as valued net of its 'hair-cut', at less than the full amount of the borrowing (i.e., all the way down to no collateral for 'unsecured' loans). This traditional, lower-risk financial intermediation, based on a skinny-income business model, made banks natural utilities.
Investment banks often had to pledge securities, usually issued by well-respected companies (i.e., traded frequently and indicative of underlying value), as collateral with a significant haircut (a 20-50% discount from the market price on the date of the pledging). If collateral values dropped sufficiently, the investment banking / trading partnership or individual investor in the 1920s had to put up more collateral.
If there were a long and proven history of cash-flows able to absorb short-term borrowings for working capital, some large corporate borrowers would need to pledge collateral, as valued net of its 'hair-cut', at less than the full amount of the borrowing (i.e., all the way down to no collateral for 'unsecured' loans). This traditional, lower-risk financial intermediation, based on a skinny-income business model, made banks natural utilities.
That is, the ideal supplier would be one giant generic bank for a market that minimized non-intermediation expenses relative to the customer-base and income generation. But, like any monopoly, the bank would then elevate prices (interest rates on loans) to its market to maximize profits for its owners (be they partners or shareholders). Like any ‘monopsony’ (i.e., one purchaser, the bank taking deposits, versus a splintered array of sellers, average-Joes with their pay-checks, etc.), the bank could get away with paying little or no interest on people’s savings.
As a natural monopoly fulfilling a vital function in the larger economy, banks came to be viewed, and, under the provisions of the Banking Act of 1933, regulated as public utilities. Like any utility – and particularly one that took on debts to produce more debt (as opposed to taking on debt to provide water or electricity) – banks required a sufficient capital base (i.e., money sitting in the vault) to withstand occasional shocks to the system.
Remember the scene in It’s a Wonderful Life when George Bailey pulled the last dollar out of his pocket to pay off a depositor withdrawing money and, in doing so, dissuaded others from withdrawing funds? The newlyweds, George and Mary, forfeited their honeymoon to save his bank and their town. That was a classic bank run since, pre-New Deal, banks would lend out almost every dollar they got to earn interest, thus leaving them unable to honor more than a modest spike in withdrawals.
While Frank Capra’s family film may seem innocently simple to us today, the mechanics were not all that different in 2008, except for the level of sophistry flowing around the market and the business news circles to justify a similar impulse toward speculation heedless of the longer term fall-out. So the New Deal, under a lot of heat these days, brought in two new key measures and reinforced another to stop the three banes of banking and investment banking:
Remember the scene in It’s a Wonderful Life when George Bailey pulled the last dollar out of his pocket to pay off a depositor withdrawing money and, in doing so, dissuaded others from withdrawing funds? The newlyweds, George and Mary, forfeited their honeymoon to save his bank and their town. That was a classic bank run since, pre-New Deal, banks would lend out almost every dollar they got to earn interest, thus leaving them unable to honor more than a modest spike in withdrawals.
While Frank Capra’s family film may seem innocently simple to us today, the mechanics were not all that different in 2008, except for the level of sophistry flowing around the market and the business news circles to justify a similar impulse toward speculation heedless of the longer term fall-out. So the New Deal, under a lot of heat these days, brought in two new key measures and reinforced another to stop the three banes of banking and investment banking:
- a tendency of traditional banks to start taking speculative positions in a search for more income after a market had been fully exploited – a brand extension strategy that seems logical but entails a discrete change in the risk profile from that of a pure monopoly to a book-maker;
- a run on the bank when depositors lose confidence in the bank and want to get their money out before others do, lest there be none left for them (i.e., the slower fool theory); as well as,
- abusive pricing or speculative practices, in lending or in attracting deposits, of a natural monopoly if left unchecked.
As an inherently high-risk proposition, rational capital markets professionals assumed that investment (or merchant) banking activities would be best left to smaller groups of partners investing what they could afford to lose or those funds entrusted to them by others of means and similar risk appetites.
That is to say: a market where people knew they were preserving most of their assets and betting what money they could manage without. The only market related risk among these partnerships was the hazard of perpetrating frauds on unsuspecting investors. So, what did the New Deal do to try to prevent a repeat of the 1930s?
That is to say: a market where people knew they were preserving most of their assets and betting what money they could manage without. The only market related risk among these partnerships was the hazard of perpetrating frauds on unsuspecting investors. So, what did the New Deal do to try to prevent a repeat of the 1930s?
While I am not familiar with the laws and have forgotten the alphabet soup of regulations from the Federal Reserve, the régime built on traditional usury laws (to prevent over-charging on interest levied against borrowers) with three basic pillars, one dependent upon the other:
- splitting investment banking from traditional financial intermediation;
- capping rates paid to depositors; and,
- insuring people’s deposits.
The bettors kept betting, but through partnerships meant to remain small enough not to bring down an entire system when they failed, as many would over the normal course of time and betting. The Federal Reserve either received the power or was encouraged to assume the power of direct intervention to maintain the orderly function of the capital markets, when these partnerships got to be big enough to disrupt the markets, as they did by the 1950s.
Through Glass-Steagall, banks became the public utilities they were all along by virtue of being natural monopolies. Like such monopolies, the public interest was served by enumerating clear and universal pricing limits (like those imposed on the water company for pricing its services).
Finally, the base of the utility (i.e., people’s savings and deposits) was insured to forestall bank runs; that is, people could trust the public utility. This system worked very well. Depositor insurance was extended to people with savings invested through broker-dealers.
Finally, the base of the utility (i.e., people’s savings and deposits) was insured to forestall bank runs; that is, people could trust the public utility. This system worked very well. Depositor insurance was extended to people with savings invested through broker-dealers.
This interview with Senator Elizabeth Warren (D-MA), backs up an unmistakable track-record of good regulation done right. To be sure, there was more than one exception to the success of Glass-Steagall, a lot more. Yet, by drilling down in cases as diverse as Hutton, Continental-Illinois, Barings, Long-term Capital, Drexel and the rest, one will see a variant of one of two reasons underlying these spectacular collapses:
- taking the eye off the ball and over-leveraging money relative to risk assumed; or,
- actions that betrayed or lost the confidence of the market.
That is to say: good rules make markets work better but can not prevent occasions of stupidity or malfeasance.
In fact, in the majority of these collapses, the very depositor insurance often gave the struggling bank a deep and stable deposit base, thanks to the New Deal programs, to buy enough time for them to muddle through (Mellon) or merge with somebody else (Hutton).
In those cases where this was not the case – Barings, Continental-Illinois, Long-term Capital – regulators could intervene and proceed with an orderly recapitalization (Continental) or liquidation of a partnership (Barings and Long-term Capital). In the case of Long-term Capital, the Federal Reserve used its discretion artfully, just as it failed to do in 2008.
In those cases where this was not the case – Barings, Continental-Illinois, Long-term Capital – regulators could intervene and proceed with an orderly recapitalization (Continental) or liquidation of a partnership (Barings and Long-term Capital). In the case of Long-term Capital, the Federal Reserve used its discretion artfully, just as it failed to do in 2008.
After thirty years of work-arounds, loop-hole arbitrage and gradual erosion, Glass-Steagall finally fell. The rationale was not greed but efficient capital markets. The big reason I heard back then for repealing Glass-Steagall was that the obsolete structure was an economic friction and disadvantage for U.S. money-center banks in the now supra-nationalized global banking market.
The argument basically stated that money was a form of capital and for capital to create wealth, it had to be mobilized. In the information age, with "business @ the speed of thought”, the higher the mobility (or velocity) of money, the more projects or purchases it could finance and the more growth enjoyed by everyone. At least, that's how I think the argument proceeded: the swirling dollar becoming a whirling dervish.
The argument basically stated that money was a form of capital and for capital to create wealth, it had to be mobilized. In the information age, with "business @ the speed of thought”, the higher the mobility (or velocity) of money, the more projects or purchases it could finance and the more growth enjoyed by everyone. At least, that's how I think the argument proceeded: the swirling dollar becoming a whirling dervish.
The division of banks and investment banks decreased the hallowed free-flow of this capital and, therefore, diminished the profitability for which financial institutions thirsted in an era of a perceived market discipline of grow-or-die. As long as Glass-Steagall remained in place, depositors’ insurance need not be a visible moral hazard because banks tended to be limited to traditional lending.
True, that frame-work did not prevent stupidity but it had largely assuaged cupidity, as spectacular exceptions – like The Bank of New England – proved the rule. Since depositors’ insurance was, by the 1990s, as American as apple-pie, its repeal would almost certainly never occur. As long as Glass-Steagall remained in place, it did not need to go anywhere. The problem became one of identity.
True, that frame-work did not prevent stupidity but it had largely assuaged cupidity, as spectacular exceptions – like The Bank of New England – proved the rule. Since depositors’ insurance was, by the 1990s, as American as apple-pie, its repeal would almost certainly never occur. As long as Glass-Steagall remained in place, it did not need to go anywhere. The problem became one of identity.
Over time, senior executives (at least a large enough number) of the traditional banks saw themselves less as stewards of a public utility and more the captains of industry bent on a profit that would reward them handsomely in bonuses and symphony chairmanships. Investment banks, in their turn, looked ravenously at the deep pools of money (i.e., capital and deposits) languishing on banks' balance sheets.
That damn Glass-Steagall stood in the way. The thinking went something like this: look at all of that dormant capital those fat sluggish banks are sitting on! Boy, if we could only get at that pot of money. That ‘archaic’ New Deal law slowed the flow of money and, therefore, profits, jeopardizing New York’s pre-eminence of the global financial hub (or so the argument went).
Besides, with the on-rush of globalism ushered in by the E.U. and N.A.F.T.A., American banks were at a ‘systemic disadvantage' to European and Japanese banks that brooked no such 'petty' distinctions. (Now let us take a generational view of what happened to European and Japanese banking. Neither system has fully recovered from a leveraged betting binge.)
That damn Glass-Steagall stood in the way. The thinking went something like this: look at all of that dormant capital those fat sluggish banks are sitting on! Boy, if we could only get at that pot of money. That ‘archaic’ New Deal law slowed the flow of money and, therefore, profits, jeopardizing New York’s pre-eminence of the global financial hub (or so the argument went).
Besides, with the on-rush of globalism ushered in by the E.U. and N.A.F.T.A., American banks were at a ‘systemic disadvantage' to European and Japanese banks that brooked no such 'petty' distinctions. (Now let us take a generational view of what happened to European and Japanese banking. Neither system has fully recovered from a leveraged betting binge.)
So, good-bye Glass-Steagall BUT NOT depositor insurance with the Gramm, Leach Bliley Act of 1999. The two together created the moral hazard that caused the meltdown within a few years. Here’s why the dynamic duo of free-wheeling financial betting and depositors' insurance was dynamite.
- As long as Glass-Steagall remained in place, insured deposits tended to be passive, adding a 'soft' layer to the utilities’ capital base.
- If Glass-Steagall were repealed along with depositors’ insurance, at least in theory, bankers would have to look over their shoulders, lest their excesses in betting would precipitate runs on the banks they mismanaged.
- Lastly, the repeal of Glass Steagall and the retention of depositors’ insurance allowed the bettors to mobilize, or leverage, all that ‘dormant’ capital through proprietary trading (i.e., betting) and corporate finance to earn higher margins than had been realized by antiquated banking practices.
This 'reform' and 'modernization' enabled financial speculators to bet with other people’s money, knowing that almost all, if not all, of the other people would get completely bailed out by depositors’ insurance. To be sure, at the time as an international banker, I felt ill-at-ease with the undoing of this New Deal pillar of sound finance.
My mentality was more that of the lazy mind of the middle-manager: "if it ain't broke, don’t fix it." Yet, whenever I questioned the wisdom of this ‘reform’, I endured a torrent of verbal abuse for being a reactionary idiot. Upon conceding my double-digit I.Q. and pressing on for explanations, none that really seemed coherent came along. It all sounded like so much peer pressure to smoke cigarettes at sixteen.
My mentality was more that of the lazy mind of the middle-manager: "if it ain't broke, don’t fix it." Yet, whenever I questioned the wisdom of this ‘reform’, I endured a torrent of verbal abuse for being a reactionary idiot. Upon conceding my double-digit I.Q. and pressing on for explanations, none that really seemed coherent came along. It all sounded like so much peer pressure to smoke cigarettes at sixteen.
Confessing to being a curmudgeon before my time did not work, either. When it came to questioning the economics and mechanics of derivatives trades, particularly credit derivatives, I will 'not even go there' when it comes to the words that came bouncing back to me at times. So, like Winston Smith in 1984, I swallowed hard on the fake gin, suppressed a tear of surrender and went along with the true-speak.
Fast-forward to the night before the 2008 election, when I looked up the respective stands on the financial crisis of Senators John McCain (R-AZ) and Barack Obama (D-IL). By then, I was out of banking and on tour in Iraq for the State Department. In truth, I had already decided on Senator McCain because he had been a war-hero but, impressed with the first African-American presidential candidate, I made one last due-diligence check.
Senator Obama’s ideas on the detestable bail-out of Wall Street seemed unclear and muddled to me; Senator McCain was much more in line with what I felt. By then, I had accepted the fact that President Bush had had one day to react for the first banking bail-out; that is, he took the immediate course, the only one open to him to buy the time for more comprehensive reform. Any president would have done what President Bush had done, though doing so was a regrettable necessity.
Fast-forward to the night before the 2008 election, when I looked up the respective stands on the financial crisis of Senators John McCain (R-AZ) and Barack Obama (D-IL). By then, I was out of banking and on tour in Iraq for the State Department. In truth, I had already decided on Senator McCain because he had been a war-hero but, impressed with the first African-American presidential candidate, I made one last due-diligence check.
Senator Obama’s ideas on the detestable bail-out of Wall Street seemed unclear and muddled to me; Senator McCain was much more in line with what I felt. By then, I had accepted the fact that President Bush had had one day to react for the first banking bail-out; that is, he took the immediate course, the only one open to him to buy the time for more comprehensive reform. Any president would have done what President Bush had done, though doing so was a regrettable necessity.
But I was damned if another bail-out was going to happen because people had made other people’s money into an ingredient of intellectual tinker-toys (i.e., structured finance) yet would not face up to the consequences of the cultural malaise, if not corruption, pervasive within so many banks. What I recall as being the big argument for another bail-out was that Main Street needed to be protected from Wall Street’s mess.
One way the money center banks had skimmed a few pennies, seemingly for free, was in overnight lending to smaller banks to balance out the books of the banking system on a daily basis. That vital utility of local banking would go away without the bail-out to preserve overnight lending, so the argument seemed to go. That premise sounded tinny and rather false to me.
In fact, since the largest wire-transfer systems were under, or easily placed under, the control of the Federal Reserve, there was no reason why the Federal Reserve could not take that money, proposed under T.A.R.P., to liquefy the overnight market and keep it functioning, under its direct auspices rather than pump fictitious greenbacks into flagging Banks.
One way the money center banks had skimmed a few pennies, seemingly for free, was in overnight lending to smaller banks to balance out the books of the banking system on a daily basis. That vital utility of local banking would go away without the bail-out to preserve overnight lending, so the argument seemed to go. That premise sounded tinny and rather false to me.
In fact, since the largest wire-transfer systems were under, or easily placed under, the control of the Federal Reserve, there was no reason why the Federal Reserve could not take that money, proposed under T.A.R.P., to liquefy the overnight market and keep it functioning, under its direct auspices rather than pump fictitious greenbacks into flagging Banks.
The big-bank theory (of bail-outs) could be shattered as the institutions filed for bankruptcy (under an express plan) and got to work on re-building the compromised public utility. During that Chapter-11 catharsis, the banks would disgorge their money drains (securities structuring and underwriting as well as proprietary trading) as well as spin their bad assets off into trusts so they would re-emerge as the utilities of the Glass-Steagall era.
The Federal Reserve might need to guarantee bank capital for a while to absorb the accounting losses incurred with 'sunk' funds being securitized at 20-40¢ on the dollar. Such losses from spinning off squidgy assets would be book-keeping in nature, since the money financing them was already gone forever. That guarantee until organic recapitalization could occur, however, would not be nationalizing the banks in the sense of managing them.
The T.A.R.P. money would not go – as it eventually did – to the banks for purchasing assets or, as it turned out, to sit idly on the balance sheets matched by preferred stock, both of which created money out of thin air. Investment banking and trading would be dead, but only for a short while until hedge funds would begin to see opportunities in the bundled baddies being mis-priced and new companies came to the market (savings banks?), etc.
In fact, Senator McCain’s thinking, informed by his ordeal during the savings and loan crisis of twenty years before, was far closer to a regulatory philosophy of ground rules in an open arena rather than trying to control people through rules-based behaviors. Wall Street Reform and Consumer Protection Act, ('Dodd-Frank' per the legislative sponsors) with its 848 pages, was D.o.A., a ready victim to human nature and frailty, not to mention the blah blah blah ad blauseam inherent in most contemporary legislation.
Much of Dodd-Frank may make sense over time; let that be legislatively ingested incrementally. But, as Blaise Pascal observed so long ago, men may be as weak as reeds (grass blown over by the wind) but men are thinking reeds... dammit. Regulation should empower oversight to be equally clever in reigning in those thinking reeds who are 'too clever by half'.
After all, clear and explicit ground rules, enforced with latitude to respond to unique ‘next-war’ circumstances, enable limited and rational government. The recent bill introduced by Senators Elizabeth Warren; Angus King, I-ME; and, John McCain answers that necessity of republicanism. This tri-partisan trifecta is overdue and welcome.
In fact, Senator McCain’s thinking, informed by his ordeal during the savings and loan crisis of twenty years before, was far closer to a regulatory philosophy of ground rules in an open arena rather than trying to control people through rules-based behaviors. Wall Street Reform and Consumer Protection Act, ('Dodd-Frank' per the legislative sponsors) with its 848 pages, was D.o.A., a ready victim to human nature and frailty, not to mention the blah blah blah ad blauseam inherent in most contemporary legislation.
Much of Dodd-Frank may make sense over time; let that be legislatively ingested incrementally. But, as Blaise Pascal observed so long ago, men may be as weak as reeds (grass blown over by the wind) but men are thinking reeds... dammit. Regulation should empower oversight to be equally clever in reigning in those thinking reeds who are 'too clever by half'.
After all, clear and explicit ground rules, enforced with latitude to respond to unique ‘next-war’ circumstances, enable limited and rational government. The recent bill introduced by Senators Elizabeth Warren; Angus King, I-ME; and, John McCain answers that necessity of republicanism. This tri-partisan trifecta is overdue and welcome.
Bringing back Glass-Steagall will not be a panacea for human failings but it will lead to reasonable incentives and behaviors for a sector of the economy rightfully deemed as key public utility. And, no, Wall Street has not learned. The hearings led by Senator Levin (D-MI) on the ‘whale-trade’ derivatives portfolio in London of J.P.Morgan of six months ago reminded me so much of the type of evasiveness I encountered from people who did not know, or refused to say, the answers to my questions as a risk manager, tedious as they were.
Finally, I should have known the jig was up with the hope that bankers had shed their hubris when, in the preceding year, J.P.Morgan Chairman, Jamie Dimon, testified to a Congressional Committee that revoking Glass-Steagall had not precipitated key problems underlying the 2008 melt-down. Masterfully, Dimon was half-right, it was that revocation without a simultaneous end to deposit insurance – accelerated by corrupted micro-incentive structures – that did.
