Paul Krugman, "Dimon’s Déjà Vu Debacle": Banks Are Not Casinos!

What's going on here? Yesterday, I was forced to acknowledge that I agreed with a Thomas Friedman op-ed (see: http://jgcaesarea.blogspot.com/2012/05/thomas-friedman-do-you-want-good-news.html), and today, it appears that Paul Krugman and I see startingly eye-to-eye on bank regulation. Moreover, Krugman also today alludes to "It's a Wonderful Life," which featured prominently in my rebuttal to Maureen Dowd's May 15 New York Times op-ed, "Dancing With Derivatives" (see: http://jgcaesarea.blogspot.com/2012/05/maureen-dowd-dancing-with-derivatives.html). In my response to Dowd, I wrote:

"Although the salaries paid to JPMorgan Chase's Dimon and other heads of financial institutions are, in my opinion, obscene, their remuneration does not jeopardize America's banking system; speculative trading by commercial banks, on the other hand, has the potential to bring down the system.

. . . .

Well, I'm also a movie fan, but my thoughts are directed to 'It's a Wonderful Life' with James Stewart. Remember the plot? When cash from 'Building and Loan,' which provides home loans for the working poor, is waylaid by Henry F. Potter (Lionel Barrymore), a slumlord and majority shareholder, George Bailey (Stewart), who manages this financial institution, contemplates suicide. The townspeople, however, rush to rescue 'Building and Loan' with donations, and Bailey is made to realize by an Angel Second Class how much of a difference he has made in their lives.

Regrettably, we live in an era in which there are no George Baileys, and there are certainly no angels, second class or otherwise. Worse still, banking has lost its halo, and the focus of the industry is no longer on providing loans to worthy customers and providing a secure place where individual and corporate clients can deposit their funds, but rather on ratcheting up profits and growing the balance sheet.

. . . .

Reinstate Glass-Steagall (the Volcker Rule is not enough) and demand the reenactment of the Uptick Rule? Absolutely, but I doubt whether Obama or Romney, who have both received significant campaign funding from the employees of large financial institutions, have the gumption to turn on their benefactors."

This morning, in Krugman's latest New York Times op-ed, "Dimon’s Déjà Vu Debacle" (http://www.nytimes.com/2012/05/21/opinion/dimons-deja-vu-debacle.html), Paul also alludes to "It's a Wonderful Life" (Does he read this blog?), when critiquing JPMorgan's recent multi-billion dollar trading loss:

"Well, suppose that someone — say, Jimmy Stewart in the movie 'It’s a Wonderful Life' — runs a bank that takes in deposits and invests the money in various ways. And suppose that one of those investments is a risky bet on some complex financial instrument, with Mr. Potter, the evil plutocrat, on the other side.

If Jimmy Stewart’s bet pays off, we’re in Romneyworld: he’s made money, Mr. Potter has lost money, and that’s that. But suppose Jimmy Stewart loses his bet. If the bet was big enough, he no longer has enough assets to pay off his depositors. His bank collapses, probably in a chaotic bank run that takes down the whole town’s economy as collateral damage. Mr. Potter makes money on the deal, but so what?

The point is that it’s not O.K. for banks to take the kinds of risks that are acceptable for individuals, because when banks take on too much risk they put the whole economy in jeopardy — unless they can count on being bailed out."

Do we sound similar? Wait, there's more. Krugman concludes:

"And that’s why we need a return to much stronger financial regulation, stronger even than the Dodd-Frank regulations passed back in 2010.

Will we get that kind of regulation? Not if Mr. Romney wins, obviously; he wants to repeal Dodd-Frank, and in general has made it clear that he would do everything in his power to set us up for another financial crisis. Even if President Obama is re-elected, getting the kind of regulation we need will be an uphill struggle. But as Mr. Dimon’s debacle has just demonstrated, that struggle remains as necessary as ever."

Holy kaboly, Paul and I see alike! Banks are not casinos!

However, there is a small difference of opinion: If President Obama is re-elected, getting the kind of regulation we need" will only be "an uphill struggle"? No mention by Krugman of today's Washington Post article, "White House visitor logs provide window into lobbying industry" by T.W. Farnam(http://www.washingtonpost.com/politics/white-house-visitor-logs-show-lobbying-going-strong/2012/05/20/gIQA2ok4dU_story.html?hpid=z2), which observes that there is a steady stream of lobbyists entering the White House, notwithstanding Obama's pledge to curtail this abuse.

If re-elected, will Obama continue to cater to special interests, including the banks and financial industry? You bet!