Report on JPMorgan should worry Americans
To the editor:
Last week, the Federal Reserve released a 19-page letter that it and the Federal Deposit Insurance Corporation (FDIC) had issued to Jamie Dimon, the chairman and CEO of JPMorgan Chase & Co., on April 12 as a result of the failure to present a credible plan for winding itself down if the bank failed. The letter included frightening passages and large blocks of redacted material, instilling in any careful reader a sense of panic about the U.S. financial system.
A rational observer of Wall Street's serial hubris might have expected some key segments of this letter to make it into the business press. A mere eight years ago the U.S. experienced a meltdown of its financial system, leading to the worst economic collapse since the Great Depression. President Obama and regulators have been assuring us since that things are under control as a result of the Dodd-Frank reform legislation. But according to the letter the Fed and FDIC issued to JPMorgan Chase, the country's largest bank with over $2 trillion in assets and $51 trillion in notional amounts of derivatives, things are decidedly not under control.
The regulators reveal that they have "identified a deficiency" in Morgan's wind-down plan which if not properly addressed could "pose serious adverse effects to the financial stability of the United States." That statement should strike fear into even the likes of presidential candidate Hillary Clinton who has been tilting at the shadows in shadow banks while buying into the Paul Krugman nonsense that "Dodd-Frank financial reform is working" when it comes to the behemoth banks on Wall Street.
How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the U.S.? Because, as the U.S. Treasury's Office of Financial Research (OFR) has explained, five big banks in the U.S. have high contagion risk to each other, and JPMorgan poses the highest risk.
The Federal Reserve and FDIC are clearly fingering their worry beads over the issue of "liquidity" in the next Wall Street crisis. That obviously has something to do with the fact that the Fed has received scathing rebuke from the public for secretly funneling more than $13 trillion in cumulative, below market-rate loans, often at one-half percent or less, to the big U.S. and foreign banks during the 2007-10 crisis.
According to the Office of the Comptroller of the Currency's (OCC) derivatives report, as of Dec. 31, 2015, JPMorgan Chase is only centrally clearing 37 percent of its derivatives, while a whopping 63 percent of its derivatives remain in over-the-counter contracts between itself and unnamed counter-parties. The Dodd-Frank reform legislation had promised the public that derivatives would all become exchange traded or centrally cleared. Indeed, on March 7, President Obama falsely stated at a press conference that when it comes to derivatives "you have clearinghouses that account for the vast majority of trades taking place."
Equally disturbing, the most dangerous area of derivatives, the credit derivatives that blew up AIG and necessitated a $185 billion taxpayer bailout, remain predominately over the counter. According to the latest OCC report, only 16.8 percent of credit derivatives are being centrally cleared. At JPMorgan Chase, more than 80 percent of its credit derivatives are still over-the-counter.
Maybe it's time for the major newspapers to start accurately reporting on the scale of today's banking problem.
Charles Steinhacker, Great Barrington