Monday, June 25, 2012

"Follies of Big Banks and Government": Matt Taibbi and Yves Smith Rip JP Morgan's Jamie Dimon a New One (JPM; GS; MS; C; WFC)

Although I liked Bill Moyers better when he was a straight up political hack (informal Chief-of-Staff/Press Secretary for President Johnson during the Viet Nam escalation '65-'67) he has, over the years, gotten some good guests.
Yves has the video at naked capitalism, "Matt Taibbi and Your Humble Blogger on Bill Moyers".
Here's the transcript from Moyers & Company:
BILL MOYERS: Welcome. This past week, Jamie Dimon, CEO of JP Morgan Chase, was back on Capitol Hill, testifying before the House Financial Services Committee, as he had earlier done before the Senate Banking Committee. He was being questioned on how his bank had lost two billion dollars -- or more -- on risky trading. His reception in the House was less fawning than what he got from the senators. Although many of them also are beneficiaries of JP Morgan largesse, House members were more combative.

BARNEY FRANK: You said you have a fortress balance sheet. That assumes there's something special about the way you are that made us have to worry less. But we can't assume that's going to be the case for every financial institution.

JAMIE DIMON: But I also said that we'd be solidly profitable this quarter. So relative to earnings–

BARNEY FRANK: That's not the question. Mr. Dimon, please don't filibuster.

SEAN DUFFY: You didn't know about these trades. You didn't know about these losses. How do you come forward today and say the regulators should have known that -- what one of the best CEOs in the industry didn't know and couldn't have known?

MICHAEL CAPUANO: With the regulatory regime that we have today -- we both agree that it's not what we want, but it's what we have. Do you really think it's a smart idea to be cutting the legs out of one of those major regulators? Do you think that's good for America?

JAMIE DIMON: I have enough problems. I'm going to leave that to you.

MICHAEL CAPUANO: Well, Mr. Dimon, the only reason I ask is because you have had no hesitancy whatsoever in expressing opinions on other matters. I thought you might want to take an opportunity to express one today.

BILL MOYERS: Coincidentally, just before Dimon’s House testimony, Bloomberg News published data indicating that JP Morgan Chase receives a government subsidy worth about 14 billion dollars a year in taxpayer money.

Money, said Bloomberg editors, that “helps the bank pay big salaries and bonuses, and more important, distorts markets, fueling crises such as the recent subprime-lending disaster and the sovereign-debt debacle that is now threatening to destroy the euro and sink the global economy.”

With me are two guests who can guide us through the thicket of testimony and beyond. Matt Taibbi, contributing editor at "Rolling Stone" magazine, has investigated the folly and corruption of banks and government with scathing, often profane wit and perception. His book, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America, described the events leading up to the financial meltdown in 2008. His newest piece for Rolling Stone is a chilling expose called “The Scam Wall Street Learned From the Mafia.”

Yves Smith created and runs Naked Capitalism, the popular blog on finance and economics. She once worked for Goldman Sachs, McKinsey & Company, and Sumitomo Bank, and now heads a management consulting firm. You'll want to read her book, ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism.
Welcome to both of you.

YVES SMITH: Thanks so much.

MATT TAIBBI: Thank you.

BILL MOYERS: So in this particular case, what is JPMorgan's sin? That's the question Representative David Schweikert raised on the day of the hearing. He asked, "What sin has JPMorgan committed other than being big enough to lose billions of their own money in a quarter and still turn a $4 billion profit?" Want to take a stab at answering?

MATT TAIBBI: Yeah, sure. Their sin wasn't the loss. The sin was in being a too-big-to-fail company where we can't afford to have them go under. Why are we there in the first place? If this was a company that, if it went out of business, it wouldn't affect our lives personally and wouldn't have major ramification for the economy, we wouldn't be holding hearings in the Senate and the Congress.

We would say, fine, they lost so much, a bunch of money. Too bad for them. But that's not the case. As we saw in 2008, when these companies go down, we all end up paying for it. You know, we ended up financing of, what, five, six, seven trillion dollar bailout in 2008. And if a company like JPMorgan Chase goes under, there will certainly be some sort of federal action, which is why we have to know about it. We have to know what goes on when they have unexpected two, three billion dollar losses that affects all of us.

YVES SMITH: They were guilty of gaming the system. And the way that they've done it is this unit was using depositor money and yet taking very large bets.

And in this unit, all the other banks similarly have similar units in their treasury department, and the purpose of these portfolios is supposed to be to have liquid assets in case there's a run on the bank.
And Bloomberg News had a story where they actually reported that all the other banks take less risk in these portfolios. And that's before we get to the credit default-- that's before we get to the blow-up part, just in the, even the simpler part of the portfolios. They have, they keep more in treasuries. And they have less in corporate bonds. So Dimon is already taking more risk in this unit than he should have.

And this is something which is frustrating about the testimony. There's a sort of, you know, one of the, again, stories that Dimon was promoting was, oh, well, we didn't find out about it. And then when we found out about it, we jumped on it and now it's all fine. And, therefore, the regulators shouldn't have been able, you know, how could the regulators have found about it?

And, therefore, since the regulators couldn't found out, you know, more regulation is futile. And, in fact, you could have found this information from the outside. You could have seen that prices were moving in this instrument in a really weird way.

BILL MOYERS: Was everybody looking the other way? Have we forgotten so quickly?

MATT TAIBBI: Well, the entire derivatives market is essentially a gigantic black box. It's not like the regulators have access to all this information.

YVES SMITH: I think they're not used to looking for the information.

YVES SMITH: I think it's been acculturated that they're used to having tea and cookies with the banks and reviewing their internal reports and not doing any type of external validation and this kind of basic external checking they could do that they're not habituated to doing.

BILL MOYERS: A very curious thing happened when the House hearings opened. Some members of that committee felt that Dimon should be sworn in. But the chairman of the committee, a Republican from Alabama, Spencer Bachus, said, no, that wasn't necessary. Am I making too much out of that?

MATT TAIBBI: I thought that was an incredible moment for a couple of reasons. Obviously, the reason there was a hullabaloo over that was because of what happened when Lloyd Blankfein, the CEO of Goldman Sachs, came and testified before the Senate a couple of years ago. There later was a controversy over whether or not he had perjured himself in those hearings.

So the question was if, you know, Jamie Dimon is going to be sworn in, whether he would have to tell the truth, would be obligated, or whether it would just be a friendly conversation. But what was amazing about that, was that it Spencer Bachus who came to Jamie Dimon's defense. Spencer Bachus is the congressman for the Birmingham, Alabama, region which has been decimated by the Jefferson County swap disaster, which was caused by Chase, which was fined $700 million by the SEC.

So here's a guy who represents the county that has been most affected by Chase's bad behavior, and he comes to Chase's defense in the hearing, which I thought was-- it set the tone for the whole thing.

YVES SMITH: Matt mentioned the toxic swaps. Jefferson County isn't the only example.
There have been a whole series of, you know, since Jefferson County and other municipalities blew up by deals they did before the crisis, there have been a series of swaps done after the crisis with transit authorities, where they are losing a tremendous amount of money. You can look at the way JPMorgan has serviced mortgage loans.

You know, they had to get up and admit that they had been basically breaking the law, and there were criminal penalties associated with this law, by foreclosing on servicemen in Iraq and not giving them rate breaks that they were entitled to. And there are some egregious cases.

MATT TAIBBI: There's $228 million fine that they paid last year for municipal bond bid rigging. There was another $153 million fine that they paid for failure to, for fraud in CDO trades. I mean, there are case after case after case that involve these criminal charges. And what I thought was amazing about these hearings is that nobody brought any of those things up....MORE
Here's Taibbi's piece on the bid-rigging in Municipal bonds:
The Scam Wall Street Learned From the Mafia
He has some additional notes on his Taibblog.