We
get weary of carping on this but the banking system is a powerful
tool that relies on private counter parties in order to function.
When the banks forget this they are driven to trading with each other
in order to see income and it quickly deteriorates into a Ponzi
scheme. Real bankers never forget this, while brokers never knew
this. Thus the allowing of brokers and bankers to play together has
always been a disaster.
Now
they are trying to wiggle out of another jackpot which is just as
likely to destroy the capital base of Morgan Stanley. This is very
sober Jamie Dimon here who may finally have his come to Jesus moment
and willingly accept a more sober regulatory environment.
The
biggest bank in the world will be one day the bank that figures out
how to lend $1000 to 6,000,000,000 people and then repeat the process
every year, while continuously responding to the natural growth in
customer demand. Any bank that thinks it is in any other business is
ultimately playing with fire as we have seen over and over again.
Everyone can point to a perfect giant loan. The problem is that they
cannot point to a perfect second loan or enough thereof to sustain
the expectations created by that perfect deal.
In
the meantime, the USA money supply languishes well below 2008 levels
which was boosted at the end with stimulus funds and 10,000,000
clients are no longer clients.
Web of Debt
Global Research, June
20, 2012
Ellen Brown
URL of this article:
When Jamie Dimon, CEO
of JPMorgan Chase Bank, appeared before the Senate Banking Committee
on June 13, he was wearing cufflinks bearing the presidential seal.
“Was Dimon trying to send any particular message by wearing the
presidential cufflinks?” asked CNBC editor John Carney.
“Was he . . . subtly hinting that he’s really the guy in charge?”
The groveling of the
Senators was so obvious that Jon Stewart did a spoof news clip on it,
featured in a Huffington Post piece titled “Jon Stewart Blasts
Senate’s Coddling Of JP Morgan Chase CEO Jamie Dimon,” and Matt
Taibbi wrote an op-ed called “Senators Grovel, Embarrass Themselves
at Dimon Hearing.” He said the whole thing was painful to
watch.
“What is going on with this panel of senators?” asked
Stewart. “They’re sucking up to Jamie Dimon like they’re
on JPMorgan’s payroll.” The explanation in a news clip that
followed was that JPMorgan Chase is the biggest campaign donor to
many of the members of the Banking Committee.
That is one obvious
answer, but financial analysts Jim Willie and Rob Kirby think it may
be something far larger, deeper, and more ominous. They contend
that the $3 billion-plus losses in London hedging transactions that
were the subject of the hearing can be traced, not to European
sovereign debt (as alleged), but to the record-low interest rates
maintained on U.S. government bonds.
The national debt is
growing at $1.5 trillion per year. Ultra-low interest rates
MUST be maintained to prevent the debt from overwhelming the
government budget. Near-zero rates also need to be maintained
because even a moderate rise would cause multi-trillion dollar
derivative losses for the banks, and would remove the banks’ chief
income stream, the arbitrage afforded by borrowing at 0% and
investing at higher rates.
The low rates are maintained by interest rate swaps, called by
Willie a “derivative tool which controls the bond market in a
devious artificial manner.” How they control it is
complicated, and is explored in detail in the Willie piece
here and Kirby piece here.
Kirby contends that
the only organization large enough to act as counterparty to some of
these trades is the U.S. Treasury itself. He suspects the
Treasury’s Exchange Stabilization Fund, a covert entity without
oversight and accountable to no one. Kirby also notes that if
publicly-traded companies (including JPMorgan, Goldman Sachs, and
Morgan Stanley) are deemed to be integral to U.S. national security
(meaning protecting the integrity of the dollar), they can legally be
excused from reporting their true financial condition. They are
allowed to keep two sets of books.
Interest rate
swaps are now over 80 percent of the massive derivatives market,
and JPMorgan holds about $57.5 trillion of them. Without the
protective JPMorgan swaps, interest rates on U.S. debt could follow
those of Greece and climb to 30%. CEO Dimon could, then, indeed
be “the guy in charge”: he could be controlling the lever
propping up the whole U.S. financial system.
Hero or Felon?
So should Dimon be
regarded as a national hero? Not if past conduct is any gauge.
Besides the recent $3 billion in JPMorgan losses, which look
more like illegal speculation than legal hedging, there is
JPM’s use of its conflicting positions as clearing house
and creditor of MF Global to siphon off funds that should have gone
into customer accounts, and its responsibility in dooming Lehman
Brothers by withholding $7 billion in cash and collateral.
There is also the fact that Dimon sat on the board of the New York
Federal Reserve when it lent $55 billion to JPMorgan in
2008 to buy Bear Stearns for pennies on the dollar. Dimon
then owned nearly three million shares of JPM stock and
options, in clear violation of 18 U.S.C. Section 208, which makes
that sort of conflict of interest a felony.
Financial analyst John Olagues, a former stock options market
maker, points out that the loan was guaranteed by $55
billion of Bear Stearns assets. If Bear had that much in
assets, the Fed could have given it the loan directly, saving it from
being swallowed up by JPMorgan. But Bear did not have a
director on the board of the NY Fed.
Olagues also notes
that JPMorgan received an additional $25 billion in TARP payments
from the Treasury, which were evidently paid off by borrowing from
the NY Fed at a very low 0.5%; and that JPM executives received some
very large and highly suspicious bonuses called Stock Appreciation
Rights and Restricted Stock Units (complicated variants of employee
stock options and restricted stock). In 2009, these bonuses
were granted on the day JPMorgan stock reached its lowest value in
five years. The stock quickly rebounded thereafter,
substantially increasing the value of the bonuses. This pattern
recurred in 2008 and 2012.
Olagues has evidence
of systematic computer-generated selling of JPMorgan stock
immediately prior to and on the dates of the granted equity
compensation. Collusion to manipulate the stock to
accommodate the grant of options is called “spring-loading” and
is a violation of SEC Rule 10 b-5 and tax laws, with criminal and
civil penalties.
All of which suggests
we could actually have a felon at the helm of our ship of state.
There is a movement
afoot to get Dimon replaced on the Board, on the ground that his
directorship represents a clear conflict of interest. In May,
Massachusetts Senate candidate Elizabeth Warren called for Dimon’s
resignation from the NY Fed board, and Vermont Senator Bernie Sanders
has used the uproar over the speculative JPM losses to promote an
overhaul of the Federal Reserve. In a release to
reporters, Warren said:
“Four years after
the financial crisis, Wall Street has still not been held
accountable, and that lack of accountability has history repeating
itself—huge, risky financial bets leading to billions in losses.
It is time for some accountability. . . . Dimon stepping down from
the NY Fed would be at least one small sign that Wall Street will be
held accountable for their failures.”
But what chance does
even this small step have against the gun-to-the-head persuasion of a
nightmare collapse of the entire U.S. debt scheme?
Propping Up a Pyramid
Scheme
Is there no
alternative but to succumb to the Mafia-like Wall Street protection
racket of a covert derivatives trade in interest rate swaps? As
Willie and Kirby observe, that scheme itself must ultimately fail,
and may have failed already. They point to evidence that the JPM
losses are not just $3 billion but $30 billion or more, and that JPM
is actually bankrupt.
The derivatives casino
itself is just a last-ditch attempt to prop up a private pyramid
scheme in fractional-reserve money creation, one that has
progressed over several centuries through a series of
“reserves”—from gold, to Fed-created “base money,” to
mortgage-backed securities, to sovereign debt ostensibly protected
with derivatives. We’ve seen that the only real guarantor in
all this is the government itself, first with FDIC insurance and then
with government bailouts of too-big-to-fail banks. If we the
people are funding the banks, we should own them; and our national
currency should be issued, not through banks at interest, but through
our own sovereign government.
Unlike Greece, which
is dependent on an uncooperative European Central Bank for funding,
the U.S. still has the legal power to issue its own dollars or borrow
them interest-free from its own central bank. The government
could buy back its bonds and refinance them at 0% interest through
the Federal Reserve—which now buys them on the open market at
interest like everyone else—or it could simply rip them up.
The chief obstacle to
that alternative is the bugaboo of inflation, but many countries have
proven that this approach need not be inflationary. Canada
borrowed from its own central bank effectively interest free
from 1939 to 1974, stimulating productivity without creating
inflation; Australia did it from 1912 to 1923; and China
has done it for decades.[please
note that both Canada and Australia financed a wartime economy in
which 100% mobilization of the population and the industrial base was
accomplished]
The private creation
of money at interest is the granddaddy of all pyramid schemes; and
like all such
schemes, it must
eventually collapse, despite aquadrillion dollar derivatives
edifice propping it up. Willie and Kirby think that time
is upon us. We need to have alternative, public and cooperative
systems ready to replace the old system when it comes crashing down.
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