While attention is focused on Syria, the gambling addiction of Wall Street’s biggest banks is more dangerous than ever. On the fifth anniversary of the bankruptcy of Lehman Brothers, which led to the worst financial crisis in eighty years, the biggest Wall Street banks are far larger than they were, and the Dodd-Frank rules designed to rein in their wild derivative bets with the insured deposits of ordinary savers are still on the drawing boards, courtesy of the banks’ lobbying prowess. The so-called Volcker Rule has yet to see the light of day. To be sure, the banks’ balance sheets are better; they’ve raised lots of capital and written off many bad loans (their risk-weighed capital ratio is now about 60 percent higher than before the crisis). But they’re back to too many of their old habits.
JP Morgan Chase, the largest, lost $6.2 billion last year by betting on credit default swaps tied to corporate debt, and then lied about it. The bank appears to have paid bribes to get certain countries to buy the swaps. In addition, it allegedly lied to public power authorities about the prices it’s selling electricity, and committed fraud in collecting credit card debt, selling mortgages and then foreclosing on them. And so on. The bank’s most recent quarterly report lists all its current legal imbroglios in nine pages of small print, and estimates resolving them all may cost as much as $6.8 billion. That’s not much more than a pittance for a company with total assets of $2.4 trillion and shareholder equity of $209 billion. Which is precisely the point.
Five years ago this month Wall Street almost slid over the cliff. We bailed it out. Millions of Americans are still suffering the consequences of the Street’s excesses. But the Street has barely learned a thing. Its top guns and fat cats are still treating the economy as their own private casino, and raking in more than before. We’re the ones who should have learned: The giant Wall Street banks are ungovernable — too big to fail, too big to jail, too big to curtail. They should be split up, their size capped, and Glass-Steagall resurrected to fully separate their commercial and investment functions.
Robert Reich’s Blog
Monday, 9 September 2013