By Pam Martens and Russ Martens: August 10, 2021 ~

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) became the law of the United States. Its promise to Americans was that it would reform the corrupt practices on Wall Street that had led to the worst financial collapse in 2008 since the Great Depression and the largest taxpayer bailout of Wall Street in history.

But here we are, 11 years later, with every one of those corrupt practices in full display at the Wall Street mega banks today. Losses from wild derivative bets check. Trading for the house (proprietary trading), check. Secret bailouts from the Fed, check. Credit Default swaps, check. The continuance of the private justice system on Wall Street, check. Banks paying rating agencies for ratings, check. Banks giving insanely leveraged loans to hedge funds, check.

And if we wanted to find the poster child for every failed financial reform promise, we need look no further than JPMorgan Chase, the largest federally-insured bank in the United States as well as, officially, the riskiest. The bank has also racked up five felony counts from the U.S. Department of Justice since Dodd-Frank was signed into law.

Just three years after Dodd-Frank became law, the Senate’s Permanent Subcommittee on Investigations released a 300-page report on how JPMorgan Chase had allowed traders in its London office to use bank depositors’ funds from its federally-insured U.S. bank to gamble in exotic derivatives and lose $6.2 billion. Proving just how weak and ineffective Dodd-Frank was at reining in the cowboy casino on Wall Street, the woman who was in charge of supervising JPMorgan’s traders in London, Ina Drew, didn’t even have a trading license.

Equally outrageous, even though the legislative intent of Congress in the Dodd-Frank Act was clearly to prevent federally-insured banks from owning hedge funds, JPMorgan Chase has skirted that mandate for the past 11 years, with no pushback from its federal regulators. Throughout that period and to this day, JPMorgan Chase has owned the hedge fund, Highbridge Capital Management. (Adding an extra element of revulsion, the purchase of the hedge fund by JPMorgan Chase was brokered with the assistance of the sexual pervert and predator, Jeffrey Epstein, according to the New York Times.)

To attempt to mollify progressives in 2010 that were demanding the restoration of the Glass-Steagall Act, which would have legally separated federally-insured commercial banks from the trading casinos (investment banks) on Wall Street, Section 619 was placed in the Dodd-Frank Act instead.

Section 619 was known as the Volcker Rule, named after former Federal Reserve Chairman Paul Volcker. It promised the following:

“PROHIBITION.—Unless otherwise provided in this section, a banking entity shall not— (A) engage in proprietary trading; or (B) acquire or retain any equity, partnership, or other ownership interest in or sponsor a hedge fund or a private equity fund. ”

The public, correctly, took that language to mean that going forward federally-insured banks would not be allowed to trade for the house and blow themselves up as they did in 2008, nor would they be allowed to own hedge funds and blow themselves up as they did in 2008.

But Wall Street’s lobbyists succeeded in stalling the implementation of the Volcker Rule. The final rule was not even released by federal regulators until June of last year. The final rule contained so many exceptions that it was just one more on a heaping pile of jaded and broken promises by Congress to reform Wall Street.

According to the March 30, 2021 Form ADV that Highbridge Capital Management filed with the SEC, it is 100 percent owned by JPMorgan Chase and it has $6.4 billion in regulatory assets under management. According to the accompanying brochure, Highbridge Capital Management “has discretionary authority to manage the securities portfolios of its Clients pursuant to investment management agreements with such Clients, which customarily do not place limitations on HCM’s authority to manage a Client’s portfolio.”

Placing short bets to drive companies into the ground in the midst of a national health emergency appears to be one of the discretionary trading tactics used by Highbridge. According to reporting at Hedgeweek last month, Highbridge is one of the hedge funds that are “continuing to pile” short bets against Cineworld, “with the beleaguered global movie theatre chain – whose share price tumbled again this week – now the most-shorted, UK-listed stock.” Cineworld’s share price has fallen by 50 percent since March.

Bloomberg News reported in December that Highbridge was planning to raise as much as $2 billion to $3 billion, including leverage, for a new strategy (of equally dubious value during a pandemic). Bloomberg wrote:

“Highbridge, which has made wagers on blank-check firms through its flagship hedge fund, plans to spend much of its new vehicle on SPAC-related instruments including private investments in public equity, or PIPEs, convertible debt and warrants. PIPEs represent new equity that’s issued to support a merger with a target company once a deal has been agreed.

“ ‘We believe that 2020’s record SPAC issuance represents the potential for more than $100 billion of near-term transactional value,’ the firm said in a presentation discussing the vehicle, known as the Highbridge SPAC Opportunities Fund, seen by Bloomberg. ‘This activity level has created multiple asymmetric trading opportunities.’ ” 

The Dodd-Frank Act was passed with President Obama, a Democrat, in the White House and Democrats in control of both the House and Senate. President Biden, a Democrat, now occupies the Oval Office. Democrats are once again in control of the House and Senate. Yes, there is much on their plate in the middle of a pandemic. But there will be a lot worse on their plate if there is another financial panic on Wall Street. It’s long past the time to clean up this toxic mess that threatens the financial stability of the United States and, thus, the national security of the nation.