These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
President Barack Obama is shameless to cite J.P. Morgan Chase & Co.’s (JPM) $3 billion trading loss as evidence banks need more regulation. More accurately, both may need more of a conscience, and the debacle raises serious questions about incompetence and corruption at the Federal Reserve, Treasury’s Comptroller of the Currency and the Obama White House.
Those two agencies already have 110 regulators imbedded in J.P. Morgan–not just visiting occasionally to check the books but domiciled inside. Yet, the Chief Investment Office, which is responsible for the London Whale’s ill-fated trades and manages nearly $400 billion, had not a single regulator inside its unit.
Senior J.P. Morgan executives convinced federal officials the CIO was merely hedging, managing cash and taking no significant risks, and naively, federal regulators believed them or were bullied into turning a blind eye.
It turns out, the unit was also taking equity positions in distressed firms, including the publisher of Ebony, which is headed by former Obama White House official Desiree Rogers.
Investing in distressed firms is work for private equity and hedge funds, not banks insured by the Federal Deposit Insurance Corp. It’s analogous to Grandma cashing in her CDs to play the slot in Las Vegas.
More importantly, those bets raise questions about whether senior bank officials lied to the regulators, and political influence in Morgan investments and the self interest of Obama White House Officials.
Senior Morgan officials can and do go over the heads of resident regulators to their bosses at the New York Fed and in Washington to deny on-site regulator’s requests for information and often succeed. In addition to revelations about Desiree Rogers, Barack and Michelle Obama have between $500 and $1 million invested in a J.P. Morgan “private client” account. Continue reading…