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(If you are a Democrat, do not jump to conclusions)
May 13, 2012 By Steven Greer, MD
JP Morgan reported at least a $2 Billion loss in trading of exotic synthetic derivatives: instruments very similar to the CDO’s that caused the worst global financial collapse in history just four years ago. Making for an extremely ironic situation, JP Morgan’s CEO, Jamie Dimon, was the most vocal opponent of Wall Street reforms and the Volcker rule that would limit proprietary trading.
The $2 Billion in losses is likely just the tip of the iceberg as the entire trade involved $100 Billion worth of derivatives. Those instruments are very illiquid in good times, and virtually completely unsellable now that the world knows JP Morgan’s hand. Other weaker banks, like Citigroup and Bank of America, could be brought down as well, triggering a domino effect.
Since 2008, the banks have gotten bigger, not smaller, and the “Too big too fail” problem has morphed into a “Too big to manage” problem. Compounding matters is that European nations are on the brink of defaulting on sovereign debt.
If the Republicans were smart, they could take advantage of this crisis, gain the moral high ground, and blame President Obama for the impending second financial collapse. President Obama has been silent as the Dodd-Frank and Volcker rule have been watered down and stalled. He threw Elizabeth Warren under the bus and did not press for her confirmation to lead the Consumer Protection Financial Bureau that she created, and not a single executive responsible for the 2008 financial collapse has been sent to prison or even arrested. He has allowed Treasury Secretary Tim Geithner and SEC Chairman Mary Schapiro to protect Wall Street banks, and watched as Federal Reserve Chairman Bernanke has pumped free money into Wall Street with “Quantitative Easing”. That free money was then used to purchase U.S. Treasuries, which the Fed perversely repurchased at a profit to the banks (i.e. a risk free arbitrage handout to the banks).
There are plenty of legitimate criticism of President Obama that the GOP could throw at him in the presidential election if they were simply willing to forgo the lobbying money from Wall Street. No single topic infuriates moderate independent voters more than the perceived income disparities between the one-percenters of Wall Street and the millions of unemployed. If Mitt Romney were to simply flip flop again and claim that helping the banks is crony capitalism and not real capitalism, and that quantitative easing hurts Main Street at the expense of Wall Street, he would have a winning election strategy.
However, don’t hold your breath. Maybe Ron Paul would be willing to seize this opportunity created by a crisis and win the White House.