By Pam Martens: June 18, 2012
You didn’t really think the ubiquitous U.S. Chamber of Commerce would stay quiet for long regarding the JPMorgan Chase fracas on Capital Hill did you?
They’ve got a post up today at their blog comparing JPMorgan’s Chief Investment Office to getting hit by a bus. While that’s exactly what it has felt like to shareholders who have lost a quarter of their investment in the stock since Bloomberg News first started reporting on the problem on April 5, the Chamber actually attempts to twist the bus analogy into an argument for giving JPMorgan a free hand to blow up depositors’ money as it sees fit.
One suspects that someone connected to JPMorgan has asked the Chamber to trumpet a warning to frisky Congressmen on the House Financial Services Committee who will be probing Jamie Dimon, Chairman and CEO of JPMorgan Chase, tomorrow. After the humiliating press the Republican sycophants on the Senate Banking committee received last week, following their groveling at Dimon’s feet, there is no doubt fear at JPMorgan that the kids’ gloves will come off tomorrow.
Below is a portion of the blog post from the U.S. Chamber. There’s pretty much nothing accurate in these three paragraphs. JPMorgan Chase didn’t need to hedge corporate loans. It has a miniscule amount of U.S. corporate loans on its books compared to its trading assets. According to its filing with the Federal Reserve as of March 31, 2012, JPMorgan Chase held $454 billion in trading assets while its commercial and industrial loans to businesses in the U.S. totaled just $91.49 billion. That’s out of total assets at the firm of $2.3 trillion.
Secondly, hedging is not selling protection to hedge funds on corporate debt as JPMorgan’s Chief Investment Office did. That’s allowing hedge funds to protect their balance sheet while putting JPMorgan’s balance sheet at risk in the same way AIG’s balance sheet was blown up by their Financial Products unit.
No one is talking about restricting banks from being able to hedge legitimate risk – and the U.S. Chamber clearly understands that and is being disingenuous with its farcical second paragraph below. The hearings and hubbub are about JPMorgan being allowed to gamble with insured depositor funds, blow up billions of those funds in high risk trading in London that was a pure gamble to boost earnings and thereby boost Jamie Dimon’s and his gun slinging traders’ bonuses for the year.
And the last sentence below has clearly lost touch with reality. Large corporations don’t trust Wall Street either and are issuing their own bonds rather than borrow from firms that may blow themselves up. Small businesses are turning to their community banks where they have trust and cordial relationships. The big Wall Street firms continue to demonstrate that they prefer to be hedge funds that can’t hedge. And that’s what the marketplace will let them be unless Congress imposes real regulations that restore trust.
After Jamie Dimon announced JPMorgan’s losses on May 10, Senator Jeff Merkley, who is on the Senate Banking committee, made the following public comment:
“…hedge funds blow up periodically because they take high risks and when things don’t go the direction they’ve anticipated, their strategy doesn’t pan out, they take huge losses. That’s just fine in a hedge fund. The point is, it doesn’t belong in a traditional banking system that is subsidized by the taxpayer and designed to provide liquidity that is lending to families and businesses…My specific message to Jamie Dimon is, if you want to be the head of a hedge fund, be a hedge fund. Separate yourself from the banking community, terminate your access to the discount window, terminate your access to insured deposits, and then we have no quarrel.”
When the U.S. Chamber of Commerce speaks, idiots listen:
“Every time you leave the house, to go to work or school, you take on the risk of being hit by a bus. You can reasonably try to mitigate that risk by driving carefully, or looking both ways when you cross a street. You can also transfer the risk by buying life insurance to guarantee that your loved ones are cared for if you are hit by the bus. On the other hand, you can try to eliminate the risk entirely by sitting at home and staring at a wall….
“J.P. Morgan was trying to hedge the risk of corporate debt. In other words, issuing corporate debt or loans to businesses is risky—the business could fail and shutter its doors. On the other hand, the business could be a success, pay back the loans and bring more business to the bank. There is a risk of loss—sure, but there is much more upside to success. If you can mitigate the potential loss, the upside is even greater and provides the opportunity to extend more credit.
“So what happens if banks can’t hedge risk? Banks will become risk adverse, write fewer loans and extend less credit to businesses. With capital drying up, businesses will not be able to expand, hire new workers and in many cases, simply have to close up shop.
“Some pundits are opining that we need to crimp the banks. To do so, they push things like the Volcker Rule, impending money market fund proposals, derivatives and Basel III capital requirements. At the end of the day, all these hurdles end up at the doorstep of the corporate treasurer. So when the treasurer can’t get a loan, is prohibited from mitigating risk and is shut out of the debt and equity markets thanks to all of these regulations, it will be businesses, not banks, that will find themselves in a vise.”
