A surprising development on Wall Street Thursday could
magnify a little-discussed but key difference between President Obama
and Mitt Romney — one with enormous consequences for public policy.
On a conference call with analysts, JP Morgan CEO Jamie Dimon
announced that his firm had lost $2 billion investing in the same
species of derivative that exacerbated the 2008 financial crisis.
Dimon claims the company is prepared to absorb the loss, but it puts
the reputation of one of the only big firms to weather the 2008
financial crisis directly on the line.
This is exactly the type of major loss of depositor money that
the Obama administration sought to ban with one of the major planks of
its 2010 Dodd-Frank Wall Street reform law — the Volcker Rule, named
after former Fed chairman Paul Volcker. And that’s bad news for Romney,
who wants to repeal the whole law, Volcker Rule and all.
Neither the Obama administration nor the Obama campaign would comment
on the record about the JPM loss, or its policy implications, but an
administration official did allow that it underscores the importance of
fully implementing Dodd-Frank.
The Volcker Rule is still being developed by regulators, won’t be
implemented until late July at the earliest. It’s intended to ban banks
from gambling with depositor funds in what are known as proprietary
trades. Dimon claims that the investment in question wouldn’t have
violated the rule had it been in effect — he says the bets JPM made were
meant to hedge against potential losses in other investments. But
finance experts have cast doubt on that claim, and Dimon himself
admitted that the incident will provide ammunition for the Volcker Rule
supporters.
If he’s right, it’s a concern for Romney and could cement Romney’s
reputation for coziness with Wall Street. His campaign isn’t backing
away from Romney’s previous positions, but the needle it’s trying to
thread is pretty clear.
“JP Morgan’s reported $2 billion trading loss demonstrates the
importance of oversight and transparency in the derivatives market,
something Gov. Romney has called for in the past,” says Romney
spokesperson Andrea Saul. “JP Morgan’s investors, not taxpayers, will
incur any losses from this hedging trade gone bad. As President, Gov.
Romney will push for common-sense regulation that gives regulators tools
to do their jobs, and that gives investors more clarity.”
Brian Beutler
Brian Beutler is TPM's senior congressional reporter. Since 2009,
he's led coverage of health care reform, Wall Street reform, taxes, the
GOP budget, the government shutdown fight, and the debt limit fight. He
can be reached at brian@talkingpointsmemo.com.
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