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The Future Of The Volcker Rule

Two billion dollars lost in a flash by JP Morgan. Is this an argument for the Volcker rule – cracking down on speculative bets by the banks?

People arrive at JPMorgan Chase headquarters in New York Monday, May 14, 2012. JPMorgan, the largest bank in the United States, is seeking to minimize the damage caused by a $2 billion trading loss, disclosed Thursday by CEO Jamie Dimon. (AP)

People arrive at JPMorgan Chase headquarters in New York Monday, May 14, 2012. JPMorgan, the largest bank in the United States, is seeking to minimize the damage caused by a $2 billion trading loss, disclosed Thursday by CEO Jamie Dimon. (AP)

Wall Street blew up in 2008, and it was clear to just about everybody that we needed a change.  Some boundaries.  A lot more transparency.  No more taxpayer bailouts for zillionaire bankers.  And what happened?  A whole lot of nothing.  A big bill, Dodd-Frank, was passed. 

And an army of Wall Street lobbyists went to work to strangle it in its cradle.  Last week, news that – whaddaya know! – JP Morgan Chase has lost billions with “egregious” bad bets.  The system’s still at risk. 

This hour, On Point:  Voldemort, the “London Whale”, JP Morgan Chase, and when will the U.S. fix its banking?

-Tom Ashbrook

Guests

Matt Taibbi, a contributing editor at Rolling Stone. His latest book is Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History. His article on the JP Morgan loss is here.

Gregory Zuckerman, financial columnist and reporter at the Wall Street Journal. He’s the author of The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History. His take on the JP Morgan case is here.

C-Segment: Obama at Barnard

Check out President Obama at Barnard College. And the transcript here.

From Tom’s Reading List

Click here for an explanation of the Volcker Rule..

Rolling Stone “Activity like this is exactly what the Volcker rule, which effectively banned risky proprietary trading by federally insured institutions, was designed to prevent. It will be argued that this trade was a technically a hedge, and therefore exempt from the Volcker rule.”

Reuters “This time around, the basis-trade disaster has happened at JP Morgan, where the famous London Whale seems to have contrived to lose $2 billion on what was meant to be a hedging operation. And once again, although the details are still very murky, the culprit seems to be the CDS-cash basis.”

Wall Street Journal “Even though the blunder won’t come close to breaking J.P. Morgan, Mr. Dimon deserves thanks for unwittingly reminding regulators of the need for clear playbooks to wind down failing financial behemoths without bringing the system down.”

New York Times “So there’s a large heap of poetic justice — and a major policy lesson — in JPMorgan’s shock announcement that it somehow managed to lose $2 billion in a failed bit of financial wheeling-dealing. “

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