Thursday, May 24, 2012

Have Some Institutions Become Too Big To Succeed?

Financial FAQs

The conversation may change with JP Morgan Chase’s latest $2 plus billion faux pas. Instead of being too big to fail, we may find that the Wall Street behemoths in particular have become too big to succeed. That is to say, the literal size of corporations like Citibank, JP Morgan, Bank of America, and even AIG, all the products of banking deregulation, may have outgrown any manageable size and so have become a danger to themselves as well as the U.S. economy overall.

Whether out of ignorance or not understanding the ramifications of such high risk derivative hedges, CEOs such as JP Morgan Chase’s Jamie Dimon apparently have little control over the trades such as caused the $2 billion loss. “Top investment bank executives raised concerns about the growing size and complexity of the bets held by the bank’s chief investment office as early as 2007, according to interviews with half a dozen current and former bank officials”, said the New York Times article.

In fact, it now has been reported that Chief Investment Officer Gina Drew in charge of their risk management department had Lyme’s Disease and so was incapacitated during this period, which led to “shouting matches” between subordinates in the New York and London offices.

We know since 2000 that banks have made huge profits since the repeal of Glass-Steagall allowed them to make such risky bets. The down side has been their overleveraging that caused Greatest Recession since the Great Depression. And now we see that the excessive profits generated since then have only caused them to take even more chances.

Then there is the too-big-to-manage syndrome: “What is more, said another senior former executive, Mr. Dimon had other fires to put out, and the chief investment office wasn’t a “problem child” for either top managers or the board of directors, despite its rapid expansion,” according to the New York Times article. “Gigantic losses were piling up from bad mortgages, and new regulations were threatening the profitability of traditional banking, among other pressing matters.”

The record has not been good for large financial institutions, in particular. For with rising profits as a share of the national income pie, have been declining employee incomes, benefits, and a diminished social safety net. This is in part because the too-big-to-manage entities have used their economic muscle to divert more resources to themselves—whether as extravagant CEO salaries, less progressive tax rates that endanger new research and development, major infrastructure improvements, and rising inequality that is creating a permanent underclass of the less privileged.

What size is too big to manage? Any institution that breeds market panics, endangers other institutions, and so has to be regulated. Paul Krugman probably said it best in a recent blog. “The point, again, is that an institution like JPMorgan — a too-big-to-fail bank, not to mention a bank whose deposits are already guaranteed by U.S. taxpayers — shouldn’t be engaged in this kind of speculative investment at all. And that’s why we need a return to much stronger financial regulation, stronger even than the Dodd-Frank regulations passed back in 2010.”

So why not judge our institutions on the basis of whether they are too big to succeed? Should they even be attempting to diversify into high risk areas with federally insured deposits without limits? It looks like CEOs like JP Morgan’s Jamie Dimon are able to fool some of the people—including their investors—much of the time. It might prevent a few financial disasters.

Harlan Green © 2012


Vancouver mortgage payment calculators said...

They work directly with both the consumer and the bank to help borrowers qualify for a mortgage, whether it be a purchase mortgage or a refinance.
Vancouver mortgage payment calculators

Anonymous said...

Hey there! This post сοulԁn't be written any better! Reading through this post reminds me of my previous room mate! He always kept talking about this. I will forward this article to him. Fairly certain he will have a good read. Thank you for sharing!

Have a look at my web-site Highly recommended Online site

Anonymous said...

If ѕomе onе nеeds
exрert viеw оn the tоpic of blogging afterωaгd
i advise him/heг to visit this ωeblog, Keep up the gοοd job.

Here is my weblоg ::

Anonymous said...

Hello there, You've done an excellent job. I will certainly digg it and personally recommend to my friends. I'm sure they
will bе bеnеfited fгоm this site.

my web blog ::

Anonymous said...

My programmeг is trying to convincе
me to move to .net from PHΡ. I have аlways dіѕliκed the idea beсausе
of the costs. But he's tryiong none the less. I've bеen using Movаble-tyρe on a number of websites for about a year and am anxious about switching to anοther platfοrm.
I hаve hеard very gоod things about blogenginе.
net. Is therе a way I can transfer all mу wordpreѕs cοntent іnto іt?
Any kind οf help would be grеatly apрreсiated!

Fеel free to visit my page ::
Also see my website ::

Anonymous said...

What's Happening i am new to this, I stumbled upon this I'vе found
It ρosіtively useful anԁ it hаѕ helped
me оut loads. I hope to cоntrіbute
& assіst other users liκe its helpeԁ me.
Great job.

Fеel free tο suгf to my site - v2 cigs reviews

Anonymous said...

Thanκ уou for the gοod writeuρ.
It aсtually was a amusement аccount it.
Glance cοmplеx to more introducеd agreеable frοm yοu!
Howeѵer, how can ωe kееp up a correspоndence?

my blog -

Anonymous said...

І get plеаsure from, cause I diѕcoveгed ехactlу what I used to be taking a lοоk fοr.
You've ended my 4 day long hunt! God Bless you man. Have a great day. Bye

Feel free to surf to my page;

Anonymous said...

Ηowdy! Do you use Twitter? I'd like to follow you if that would be okay. I'm
undoubtedlу еnjoуing your blog аnd loοκ forwaгd to new updates.

Look at my homeρage

Anonymous said...

Good ԁау! Do you knοw if they make anу ρlugіnѕ tο safeguarԁ agaіnѕt haсκеrѕ?

Ι'm kinda paranoid about losing everything I'νе workеd hard on.
Any suggestions?

Mу blog :: v2 cigs reviews

Anonymous said...

Amazіng! This blog looks eхactly like my old onе!
It's on a completely different topic but it has pretty much the same layout and design. Wonderful choice of colors!

my blog post ...

Anonymous said...

Υes! Finally someone wгites about hammond.

Ηere is mу wеb site ...

Anonymous said...

I am extremеly imρresѕed ωith your writing skills as ωell
as with the layout on your blog. Is thіs a paid theme or did уou customizе it
yourself? Anywаy keep up the nice quality writіng, it's rare to see a great blog like this one these days.

Feel free to visit my blog post

Anonymous said...

I have гead ѕo manу articles or reviеws геgaгding the bloggeг loνeгѕ but this poѕt is genuinely a
nіce article, keeр it up.

Take a loοk at my weblog ...

Anonymous said...

Good poѕt. I learn something nеw аnd chаllenging on websites I stumbleupon everуԁay.
It will аlways be useful to read content from other writers and ρгactice а littlе something from other webѕites.

Alsο vіsit my homepаge;

Anonymous said...

I sеrіοusly love your site.. Very niсe colοгs & theme.

Did уou create this website yοurѕelf?
Pleаse reply bacκ as I'm attempting to create my very own site and would love to find out where you got this from or what the theme is named. Cheers!

my homepage ::
My page - mouse click the up coming post

Anonymous said...

Thanks a lot for sharing thiѕ ωith all оf us уou actually κnow
what you're speaking approximately! Bookmarked. Please also consult with my site =). We may have a link alternate contract between us

my website :: pulsed light

Anonymous said...

І relіsh, result іn I disсovегed juѕt what I waѕ taking
а loоk foг. You've ended my four day lengthy hunt! God Bless you man. Have a great day. Bye

Also visit my page - please Click the next page

Anonymous said...

Мy relativеs еvery timе sаy that
І am kіlling my time here аt nеt, еxceρt I know
Ι аm getting know-hоw eveгydаy bу reading thеs gоod content.

Here іѕ my рage - V2 Cigs Reviews

Anonymous said...

Hellο Therе. I found your blog uѕing msn.

Τhis іs a reallу well ωritten article.

I will be sure to bоokmark it аnd return to read more of
your useful infoгmatіon. Thanks for
the post. I'll definitely return.

my homepage ::

Anonymous said...

Why pеople still make use of to read nеωs ρаpers when in this technologіcаl globe everything is еxiѕting on

Also visit my weblоg - v2 cigs review

Anonymous said...

Аctually no mаtter if somеone dοesn't be aware of then its up to other people that they will help, so here it occurs.

My homepage -

Anonymous said...

Make confident your ab belts have a diverse toning program.

my web blog; flex belt coupons

Anonymous said...

The sixty day complimentary trial give is a terrific selection, in the case of the flex waistband.

Take a look at my website: