http://www.usnews.com/opinion/blogs...5/14/why-jp-morgans-jamie-dimon-should-resign (PS: Click on "James Rickards" name to see his other stories; the one about the hidden role of gold at IMF is good.) Why J.P. Morgan's Jamie Dimon Should Resign By James Rickards May 14, 2012 RSS Feed Print Of all the tricks Wall Street uses to pull the wool over the eyes of regulators, Congress, and everyday Americans, none is more effective than the pretense that the strategies used in finance are so complicated that few outside the banking industry could possibly understand them. Wall Street CEOs ask to be treated like nuclear engineers and say "trust us" when it comes to the complexity of their tasks. In fact, no trust could be more misplaced and no claim to superior knowledge could be further from the truth. The $2 billion loss announced at J.P. Morgan last week is the latest example. Management, starting with CEO Jamie Dimon, would have the public believe that the loss was due to a complex hedging strategy involving hard-to-value instruments and embedded risk that eluded the best and brightest minds at the bank until it was too late. This is nonsense. The trade was a simple bet on the difference, or "spread," between the price of a group of bonds and an index based on those bonds. In theory, those two prices should be about the same. In practice, they may vary due to factors such as the relative liquidity of the bonds and the index. At a certain point, the J.P. Morgan trader, known as the "whale," took a view that the index was expensive and the bonds were cheap. In effect, by selling the index and buying the bonds, the whale would own the spread. As the spread comes back to normal, the whale reaps enormous profits and finally unwinds the trade by selling what he bought and buying what he sold at better prices. The problems begin when the trade is done in huge size. Others in the market such as hedge funds smell blood. Instead of bringing the spread back to normal they begin to widen it by buying the index and selling the bonds. Whether this makes fundamental sense is irrelevant. What matters is that if they inflict enough pain on the whale in the form of daily mark-to-market losses, he will eventually have to get out of the trade by selling it back to the hedge funds. Sooner than later, the original spread will return to normal, but it will be too late for the whale. Jamie Dimon has been working around the clock to explain that this loss is not life threatening. He makes the point that the loss represents only part of J.P. Morgan's earnings and that capital is not impaired. What he does not explain is that J.P. Morgan's "earnings" are actually not earnings but are a form of theft from savers, retirees, and others pursuant to the Federal Reserve's zero interest rate policy. The Fed has engineered a massive wealth transfer from everyday Americans to large banks. They do this by holding interest rates near zero. Savers get nothing for their hard earned savings. However, banks get free money because they pay almost no interest. Banks then invest the money in Treasury notes and earn the difference. The Fed permits this to rebuild the capital of the banks. The Fed doesn't mind hurting everyday Americans if they can prop up bank capital. Even if you favor Fed policy, it is unconscionable that the bank earnings derived from small savers should be squandered on a leveraged bet that a rookie trader could see was flawed. If the bet had worked out, the whale would probably already be shopping for a Lamborghini to buy with his bonus. Apart from the risk in the trade, a more fundamental question is why it was allowed in the first place? What purpose was served? No new loans were created. No new jobs were created. Absolutely nothing of value to society was derived from this trade. At best, it was a form of gambling for the whale and his colleagues. Next time they should go to Las Vegas and skip the drama. And please spare me the Kudlowesque lectures about "free market capitalism." Banks don't operate in the free market because their liabilities are guaranteed by the taxpayers. Banks are public utilities designed to make commercial loans and should have no more freedom to make derivatives bets than the Post Office. Banks are propped up by taxpayer guarantees and fatten their earnings at the expense of everyday American savers. Then they risk those earnings on bets that serve no purpose but to enrich the greedy executives who make them. When things go wrong those executives cry that markets are too complicated to manage. In fact, the bet is no more complicated than putting money on red at roulette. As a last resort, the executives hide behind the flag of free market capitalism when in fact they are the new welfare queens with government subsidies galore. The whole thing is a disgrace. If Jamie Dimon had an ounce of decency, he would resign now. Not because his acts were criminal, but because he presides over a corrupt institution that extracts wealth from the many and directs it to the few with no value added and not even a nod in the direction of the hard-working American victims of this scam.
Jamie Dimon will fall on his sword when his role is fulfilled, with the kind of golden handshake that will ensure they never need to work another day in their life and can retire anywhere in the world, anonymous and rich. Mind you, the assumption that these front men really ever 'worked' at all is kind of debatable - but that's another issue. It's the same in political circles when you get down to the kickback process. You always need a front man to hide the shady operations of the real scammers in the system and once the light has been shone on operations enough you can no longer hide it, there has to be a scapegoat who will be willing to take the collective blame and be held 'accountable' for the actions of others. Offer them a golden handshake in return for their efforts and a back door escape at the last moment and the unaware and ignorant collective are placated, whilst the scammers drive off with their trucks of loot. This has been the scam of the modern age that just gets repeated over and over and over again and doesn't just apply to the likes of JP Morgan. It happens in all major cartels and syndicates today, both financial and political and continues to run unabated because quite frankly, they OWN the system in any case. They can fleece the public as they please (there's no such thing as 'justice' and real 'accountability' in the modern system, so don't bother looking for it!), as long as they can keep the eyes diverted long enough to do what they need to do before they move on. For the mob, the world just continues to roll on with the usual 'unexplainable' peaks and troughs, as long as you can keep the peasants from revolting, then we have a 'stable' society, right? Then when there's no where to run and no where to hide, you shift the blame and let the rabble kill each other (war) before you start the whole process over again. Jamie Dimon is really just the front man for yet another syndicate who is simply paid to present a face to the masses, nothing more. If he 'resigned' today, they'll just have another squeaky clean shonk in a suit to take his place, offering the same raft of BS to assure the mob that everything is under control and things will get better. Rise and repeat. That's it. That's the system. That's what we've got. Until the masses wake up to the broadscale scam going on and collectively make the paradigm shift and demand real change, then quite frankly nothing will change and that's the bottom line.
Agree. He'll join the ranks of deposed dictators, sipping cocktails with the bankers who store the gold they've pillaged from their subjects.
Apparently the FBI is now investigating http://www.aljazeera.com/news/americas/2012/05/2012515171332104472.html
