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Gretchen Morgenson

The financial system is at greater risk than you know

After bailing out the nation’s banking system in 2008, taxpayers and investors have been assured that such a crisis will not happen again. The Dodd-Frank legislation was supposed to make our system safe from the kinds of reckless banking activities that brought the economy to its knees.

The Senate report disproves this premise with vigor.

Its pages of e-mails, testimony, telephone transcripts and analysis show that traders in the bank’s chief investment office hid money-losing derivatives positions, if only temporarily; that risk limits created by the bank to protect itself were exceeded routinely; that risk models were changed to minimize losses; that bank executives misled investors and the public; and that regulations are only as good as the regulators enforcing them.

Remember that this is a report examining JPMorgan Chase, the bank that enjoys the best reputation among its peers. One can only wonder: if JPMorgan Chase traders think nothing of misrepresenting the value of their trades to minimize losses, what are the financial world’s lesser players up to?

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It would sure be a shame if all these banks went back to, oh, say, lending money instead of doing all this risky trading crap.

Before we break them up.

trigon on March 17, 2013 at 9:04 PM

I’m hopping it crashes soon. I’d love to see home prices plummet before my wife and I buy our first home. We all know this recovery is a joke.

jhffmn on March 17, 2013 at 9:15 PM

Before we break them up.

trigon on March 17, 2013 at 9:04 PM

Too Big To Fail? TARP ended up driving more small banks out of business. Typical government “solution”.

John the Libertarian on March 17, 2013 at 9:17 PM

Cyprus was goaded, overseen, and then “harvested” by the International Monetary Fund, which is chaired by Christine Legarde, who is a Chicago player, and who actually was a partner at Baker & McKenzie before being placed at the IMF by the Obama regime and bankster oligarchy. Cyprus was Christine Legarde’s play, and Legarde is in the Chicago oligarch circle.

from Barnhardt

tom daschle concerned on March 17, 2013 at 9:22 PM

How exactly does forcing everyone to follow the same continuously reduced set of rules make a system stable? We used to have hundreds of thousands of different systems in place where people could choose between them and pick winners and losers. If some lost, the whole of the nation was able to absorb the loss easily and move on in a matter of months. Now when things go bad it destroys everything, because it all is based on the same small set of permissible actions.

astonerii on March 17, 2013 at 9:27 PM

The move by the IMF in Cyprus was a test run. The banksters and corrupt politicians are preparing for a massive heist of people’s saved wealth. The next move may be in Europe, or it may be in the USA.

Funds to pay the levy were frozen in accounts immediately, ECB Executive Board Member Joerg Asmussen said. The levy will be assessed before Cypriot banks reopen on March 19 after a March 18 national holiday. Sarris said electronic transfers will also be limited until then.

What is known, however is that Cypriots have taken the news in stride…. and to their local ATM machine, which sadly is showing the following message: “Your transaction has been cancelled due to a technical issue. This ATM cannot complete withdrawals at this time” (courtesy of Yannis Mouzakis).

At zero-hedge.

for those of you who never venture into the financial blogosphere, do it now. Live in ignorance no longer. This is theft on scales the world has never seen before without bloodshed. The bloodshed is coming.

On topic, learn about repos/reverse repos, check out how over leveraged the big banks are (between 200-500). Look at how much funds are in teh FDIC, and consider what percentage of total deposits they can cover. It is all a joke. 70% of market activity is comprised of computers trading with computers, algos. Zero Interest Rate Policy is setting up an inevitable collapse.

From Market-ticker

Cypriot officials insisted no levy on smaller depositors was impossible. One senior Cypriot official involved in the talks said that because about 35 percent of all deposits are below the threshold, exempting them would mean a rate so high for the rest that it would no longer be viewed as a tax.

“If this is successful then it will be used in the future,” said the dejected official, predicting Spanish and Italian banks could face similar levies. “If this is not successful then who cares about Cyprus.”

Did you read that?

“If this is successful then it will be used in the future,”

At this point, you are foolish to have assets and liabilities in ones and zeros. To be sure, going cashless which will happen maybe sooner than later, will solve the problem of you not allowing access to your money to the government/banksters.

I believe the world is about to change in a big way.

tom daschle concerned on March 17, 2013 at 9:38 PM

I just hope it blows up with a Dem president this time.

WisCon on March 17, 2013 at 9:52 PM

Yes, it is still at risk – by the federal government and its bank. The government spends – the Fed inflates – the economy contracts – and the banks lose on loans and investments. Wait until Obamacare fully kicks in. If I were a banker, I believe I would retire immediately, rather than risk becoming a scapegoat.

rickv404 on March 17, 2013 at 9:59 PM

I think some take “Too big to fail” to be a dare.

Flange on March 17, 2013 at 10:19 PM

The move in Cypress may be the domino that sets in motion the financial crisis that unravels the whole system, and sends the worlds economies spiraling into a great new depression. The mistrust engendered WMF and Eurozone actions could be the beginning of bank runs that start on just a whisper and grow into full-scale riotous avalanches.

claudius on March 18, 2013 at 1:26 AM

The Dodd-Frank legislation was supposed to make our system safe from the kinds of reckless banking activities that brought the economy to its knees.

It wasn’t reckless banking activities that did it. It was the feral government forcing misvaluations of debt (the debt market being the largest and most important one there is) in order to give hidden subsidies to its pet classes that did it. The reckless banking activities were required in order to support such a perversion of the system … and the forced misvaluation of debt that the feral government imposed on everyone (while supercharging Fannie and Freddie to turn loan originators into nothing but brokers with no attachments to the loans they created) eventually percolated through the debt market finally exploding when it ran out of room to run – in the last place it could hide, the CDS market.

These people are still lying about the whole disaster. Well, that, and some of them are just too stupid to understand what happened.

ThePrimordialOrderedPair on March 18, 2013 at 1:32 AM