The groveling of the Senators was so obvious that Jon Stewart did a spoof news clip on it, featured in a Huffington Post piece titled " Jon Stewart Blasts Senate's Coddling Of JP Morgan Chase CEO Jamie Dimon," a nd Matt Taibbi wrote an op-ed called " Senators Grovel, Embarrass Themselves at Dimon Hearing." He said the whole thing was painful to watch.
"What is going on with this panel of senators?" asked
Stewart. "They're sucking up to Jamie
Dimon like they're on JPMorgan's payroll."
The explanation in a news clip that followed was that JPMorgan Chase is the
biggest campaign donor to many of the members of the Banking Committee.
That is one obvious answer, but financial analysts Jim
Willie and Rob Kirby think it may be something far larger, deeper, and more
ominous. They contend that the $3
billion-plus losses in London hedging transactions that were the subject of the
hearing can be traced, not to European sovereign debt (as alleged), but to the
record-low interest rates maintained on U.S. government bonds.
The national debt is growing at $1.5 trillion per year. Ultra-low interest rates MUST be maintained to
prevent the debt from overwhelming the government budget. Near-zero rates also need to be maintained because
even a moderate rise would cause multi-trillion dollar derivative losses for
the banks, and would remove the banks' chief income stream, the arbitrage
afforded by borrowing at 0% and investing at higher rates.
The low rates are maintained by interest rate swaps, called by
Willie a "derivative tool which controls the bond market in a devious
artificial manner." How they control it
is complicated, and is explored in detail in the Willie piece here
and Kirby piece here.
Kirby contends that the only organization large enough to
act as counterparty to some of these trades is the U.S. Treasury itself. He suspects the Treasury's Exchange
Stabilization Fund, a covert entity without oversight and accountable to no
one. Kirby also notes that if publicly-traded companies (including JPMorgan,
Goldman Sachs, and Morgan Stanley) are deemed to be integral to U.S. national
security (meaning protecting the integrity of the dollar), they can legally be
excused from reporting their true financial condition. They are allowed to keep two sets of books.
Interest rate
swaps are now over 80 percent of the massive derivatives market, and
JPMorgan holds about $57.5 trillion of them.
Without the protective JPMorgan swaps, interest rates on U.S. debt could
follow those of Greece and climb to 30%.
CEO Dimon could, then, indeed be "the guy in charge": he could be controlling
the lever propping up the whole U.S. financial system.
Hero
or Felon?
So should Dimon be regarded as a national hero? Not if past conduct is any gauge. Besides the recent $3 billion in JPMorgan
losses, which look
more like illegal speculation than legal hedging, there is JPM's use
of its conflicting positions as clearing house and creditor of MF Global to
siphon off funds that should have gone into customer accounts, and its
responsibility in dooming Lehman Brothers by withholding $7 billion in cash and
collateral. There is also the fact that Dimon
sat on the board of the New York Federal Reserve when it lent $55
billion to JPMorgan in 2008 to buy Bear Stearns for pennies on the dollar. Dimon then owned nearly three
million shares of JPM stock and options, in clear violation of 18 U.S.C.
Section 208, which makes that sort of conflict of interest a felony.
Financial analyst John Olagues, a former stock options
market maker, points out
that the loan was guaranteed by $55 billion of Bear Stearns assets. If Bear had that much in assets, the Fed
could have given it the loan directly, saving it from being swallowed up by
JPMorgan. But Bear did not have a
director on the board of the NY Fed.
Olagues also notes that JPMorgan received an additional $25
billion in TARP payments from the Treasury, which were evidently paid off by
borrowing from the NY Fed at a very low 0.5%; and that JPM executives received some
very large and highly suspicious bonuses called Stock Appreciation Rights and Restricted
Stock Units (complicated variants of employee stock options and restricted
stock). In 2009, these bonuses were
granted on the day JPMorgan stock reached its lowest value in five years. The stock quickly rebounded thereafter,
substantially increasing the value of the bonuses. This pattern recurred in 2008 and 2012.
Olagues has evidence of systematic computer-generated
selling of JPMorgan stock immediately prior to and on the dates of the granted
equity compensation. Collusion to
manipulate the stock to accommodate the grant of options is called
"spring-loading" and is a violation of SEC Rule 10 b-5 and tax laws, with
criminal and civil penalties.
All of which suggests we could actually have a felon at the
helm of our ship of state.
There is a movement
afoot to get Dimon replaced on the Board, on the ground that his
directorship represents a clear conflict of interest. In May, Massachusetts Senate candidate
Elizabeth Warren called for Dimon's resignation from the NY Fed board, and
Vermont Senator Bernie Sanders has used the uproar over the speculative JPM
losses to promote an overhaul of the Federal Reserve. In a release to reporters, Warren
said:
"Four years after the financial crisis, Wall Street has still not been held accountable, and that lack of accountability has history repeating itself--huge, risky financial bets leading to billions in losses. It is time for some accountability. . . . Dimon stepping down from the NY Fed would be at least one small sign that Wall Street will be held accountable for their failures."
But what chance does even this small step have against the
gun-to-the-head persuasion of a nightmare collapse of the entire U.S. debt
scheme?
Propping
Up a Pyramid Scheme
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