Friday, May 11, 2012

Who Needs J P Morgan Anyway?

Another big loss in corporate America as Jamie Dimon announces a $ 2 billion loss at J P Morgan involving a trade that was designed to reduce risk not enhance it.  Interestingly, a loss like this becomes more of a political matter than a shareholder issue.  Even after a $ 2 billion hit, J P Morgan is still expected to earn more than $ 4 billion after tax this quarter.

The way the world should work is that JP Morgan announces the loss, it's stock falls briefly, changes are made at JPMorgan and life moves on.  But, in the modern world, don't expect such a simple and rational outcome.

Instead, we wait with baited breath for the Obama Administration to opine once more on how terrible capitalism is.  Surely, a mistake like this would never have been made by the ever frugal, watchdog folks in the Obama Administration.  So, expect more rules, more demonizing of Wall Street, more attacks by the Obama Adminstration on business.  That's their thing.

Meanwhile Americans are looking for jobs, not that anyone in the White House could notice.  By implementing the Volcker Rule and the Consumer Protection Act and Dodd-Frank, the White House will effectively be putting the financial system in a complete straight-jacket, preventing the system from providing the necessary financing for a traditional economic recovery.

Who needs J P Morgan anyway?  After all, consumers can learn to do without credit cards, home mortgages and business loans.  That's the message from the White House and Pelosi-Reid Democrats.  The frequent and vocal attacks from the White House and senior Democrats on Goldman Sachs and on the entire financial services industry have taken their toll.  Businesses and consumers cannot get loans in this bright new Obama world unless they are truly wealthy and don't need them.

From Obama's point of view, a financial services industry is merely a distraction.  As in the student loan arena, why not simply let the government make the loans.  Who needs a private financial services industry?  After all, a private industry seeks to make profit.  As China tries to extricate itself from a state run banking system, the US is busily adopting the same model that China is rapidly trying to discard.  As in other things, East and West are trading places.

So, who needs J P Morgan anyway?  Unemployed Americans -- that's who.

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