Maureen Dowd, "Dancing With Derivatives": Again Out of Her Depth

In her latest New York Times op-ed entitled "Dancing With Derivatives" (http://www.nytimes.com/2012/05/16/opinion/dowd-dancing-with-derivatives.html), Maureen Dowd demonstrates that she is out of her depth: Instead of focusing on dangerous trading activity undertaken by commercial banks, as suggested by the catchy title of her opinion piece, she focuses on grossly inflated wages paid to banking executives. 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.

Expressing outrage at bloated executive pay deals and bonuses, Dowd writes:

"It is redolent of the classic movie 'The Solid Gold Cadillac,' with Judy Holliday as a scrappy small stockholder, challenging the board of directors about fat salaries and dubious policies."

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.

If only banks were to be ranked each year by leading financial journals by security and service, rather than by profits and total assets.

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 (re contributions to Obama's 2008 campaign from Goldman Sachs, JPMorgan Chase, Citigroup, UBS and Morgan Stanley employees, see: http://www.opensecrets.org/pres08/contrib.php?cid=N00009638).

Paul Krugman, "Why We Regulate": More to the Point, Why Didn't Obama Regulate?

Those who read this blog know that I often ask what is absent from the opinion piece of a well-known pundit writing for a leading newspaper. Today is no exception. Read Paul Krugman's latest New York Times op-ed, "Why We Regulate" (http://www.nytimes.com/2012/05/14/opinion/krugman-why-we-regulate.html), in which he chastizes JPMorgan Chase for their most recent $2 billion trading loss, and tell me what is missing.

Answer: Not a single mention of Obama.

More than three years into his presidency, the messiah who, promising change, was swept into office following a financial crisis that almost sent the West into an economic stone age, apparently has no responsibility for JPMorgan Chase's most recent devastating loss.

Of course, Krugman is quick to blame Romney:

"It’s clear, then, that we need to restore the sorts of safeguards that gave us a couple of generations without major banking panics. It’s clear, that is, to everyone except bankers and the politicians they bankroll — for now that they have been bailed out, the bankers would of course like to go back to business as usual. Did I mention that Wall Street is giving vast sums to Mitt Romney, who has promised to repeal recent financial reforms?"

Krugman does not mention that among the top contributors to Obama's 2008 campaign were employees from Goldman Sachs, JPMorgan Chase, Citigroup, UBS and Morgan Stanley (see: http://www.opensecrets.org/pres08/contrib.php?cid=N00009638).

Krugman also pointedly refuses to acknowledge that the so-called banking "reforms" enacted since Obama was inaugurated have not prevented yet another financial disaster.

Will salvation come from the Volcker Rule? I doubt it. Both Bank of America and JPMorgan Chase have indicated that the Volcker Rule will not affect their trading revenues (see: http://www.thestreet.com/story/10860335/1/bofa-ceo-says-volcker-rule-wont-be-too-tough.html?cm_ven=GOOGLEFI).

Instead of the Volcker Rule, why not reenact the Glass–Steagall Act of 1933 and take trading activity away from the banks altogether? Yeah, I know, the banks claim that this would make them "uncompetitive" with foreign banks, but I believe JPMorgan Chase's most recent loss evidences the need for strong medicine.

Moreover, reenactment of the Uptick Rule, which went into effect in 1938, would provide an immediate boost to the American economy, while admittedly harming the bottom line of predatory hedge funds engaged in sowing panic among shareholders of innovative small-cap companies (see: http://jgcaesarea.blogspot.com/2011/08/paul-krugman-hijacked-crisis-paul-heres.html).

Those of us who have worked in the financial industry are familiar with persistent concerns among bankers regarding where their institutions stand relative to other organizations in terms of balance sheet and profitability.

Wouldn't it be a pleasure if, instead, banks were to vie to be the safest financial institution for their customers, and the financial journals were to list organizations in terms of safety?

Dream on, Jeffrey.