Sunday, June 17, 2012

Is JP Morgan Chase "Too Big to Manage" and Dodd-Frank "too big to work"?

At last week’s U.S. Senate Banking Committee hearing, JPMorgan Chase CEO Jamie Dimon responded to questions about trading loses lead by the London Whale” at it chief investment office (CIO).  His comments included 1) “this portfolio morphed into something that, rather than protect the firm, created new and potentially larger risks”,  and 2) regarding large banks “There are some negatives to size” such as “greed, arrogance, hubris, lack of attention to detail.” Comments and questions by several senators focused on the effectiveness of the Dodd–Frank Wall Street Reform and Consumer Protection Act as well.

When enacted, the Dodd–Frank Act was a 2,300-page document – it is still working its way through regulatory interpretations and continues to expand. When the Glass-Stegall Banking Act of 1933 was passed by Congress “to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes”, it was 30 pages long.  Perhaps it is time to return to simplicity and introduce Glass-Stegall version 2.0.  NOTE: During testimony, Dimon commented on the U.S. debt problem and suggested that something like the Simpson-Bowles proposal (titled "The National Commission on Fiscal Responsibility and Reform"), a package of spending cuts and tax increases, should be pursued by Congress.

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