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Monday, May 21, 2012

Paul Krugman: Dimon’s Déjà Vu Debacle

Opponents of regulation end up making a strong case for it:

Dimon’s Déjà Vu Debacle, by Paul Krugman, Commentary, NY Times: Sometimes it’s hard to explain why we need strong financial regulation — especially in an era saturated with pro-business, pro-market propaganda. So we should always be grateful when someone makes the case for regulation more compelling and easier to understand. And this week, that means offering a special shout-out to two men: Jamie Dimon and Mitt Romney. ...
First,... let me talk about Mr. Romney... Here’s what the presumptive Republican presidential nominee said about JPMorgan’s $2 billion loss (which may actually have been $3 billion, or $5 billion, or more, but who’s counting?): “This was a loss to shareholders and owners of JPMorgan and that’s the way America works. Some people experienced a loss in this case because of a bad decision. By the way, there was someone who made a gain.”
What’s wrong with this statement? Well,... it’s not O.K. for banks to take the kinds of risks that are acceptable for individuals, because when banks take on too much risk they put the whole economy in jeopardy — unless they can count on being bailed out. And the prospect of such bailouts ... strengthens the case that banks shouldn’t be allowed to run wild, since they are in effect gambling with taxpayers’ money.
Incidentally, how is it possible that Mr. Romney doesn’t understand all of this? His whole candidacy is based on the claim that his experience at extracting money from troubled businesses means that he’ll know how to run the economy — yet whenever he talks about economic policy, he comes across as completely clueless.
Anyway,... Jamie Dimon ... has ... been ... posing as a responsible banker who knows how to manage risk — and therefore the point man in Wall Street’s fight to block ... regulation... Trust us, Mr. Dimon has in effect been saying, we’ve got this covered and it won’t happen again. Now the truth is coming out..., even as Mr. Dimon was giving speeches about responsible banking, his own institution was heaping on the risk. ...
The point, again, is that an institution like JPMorgan — a too-big-to-fail bank ... whose deposits are already guaranteed by U.S. taxpayers — shouldn’t be engaged in this kind of speculative investment at all. And that’s why we need ... much stronger financial regulation...
Will we get that kind of regulation? Not if Mr. Romney wins... Even if President Obama is re-elected, getting the kind of regulation we need will be an uphill struggle. But as Mr. Dimon’s debacle has just demonstrated, that struggle remains as necessary as ever.

    Posted by on Monday, May 21, 2012 at 12:24 AM in Economics, Financial System, Politics, Regulation | Permalink  Comments (118)


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