JPMorgan, the largest bank in the United States, in under investigation by the federal government for manipulating energy markets in California and the Midwest.
JPMorgan Chase was the darling of the U.S. financial system after everything fell apart in 2008. The bank, now the country's largest, picked up a lot of respect for avoiding the high-risk game that took down Bear Stearns and Lehman Brothers and threatened many of the country's biggest banks, including Bank of America and Citigroup (in fact, it stepped up to buy Bear Stearns in an early effort by the government to stem the crisis).
Californians have gotten used to seeing the "Chase" logo because atfer JPMorgan took over bankrupty Washington Mutual in 2008, it changed hundreds of West Coast WaMu branches to Chase branches.
But things haven't been so rosy for JPMorgan of late. It's been dealing with a trading scandal that could wind up costing it $9 billion, in a worst case scenario. It's CEO, Jamie Dimon, has had to testify before Congress. And just last week, we learned that JPMorgan is being investigated by the Federal Energy Regulatory Commission (FERC), for "[manipulating] power markets in California and the Midwest, according to the New York Times.
Chris Hondros/Getty Images
The JP Morgan Chase building in New York City. This is one of the big banks that's filing a "living will" with federal regulators — and dealing with a potentially $9-billion trading loss.
The biggest U.S. banks are delivering their so-called "living wills" to the Federal Reserve and the FDIC today. This is all part of the implementation of the Dodd-Frank financial reform legislation, and it follows the stress tests that the big banks were all subjected to several months back — and that they all passed, some more auspiciously than others.
Today's plans are part one of the living-will process: banks will explain how they intend to enter bankruptcy, if they get in trouble. Obviously, a big bank could enter restructuring and emerge as a new bank, with reduced debts. Part two is more menacing: big banks are being asked to detail how they would work with the FDIC to be taken down, their assets merged with more stable institutions. That's the nightmare scenario.
It's critical that the big banks deal with both possibilities because even though we had a bunch of too-big-to-fail banks before the financial crisis, we have what I call too-bigger-to-fail banks now. The crisis forced the consolidation of failing banks into stronger ones. Additionally, big banks have been buying up weaker smaller banks. So we have a less diverse financial ecosystem now than we did before the Great Recession. This is why a big trading loss at JP Morgan, initially reported at around $2 billion but now climbing to $9 billion according to some reports, is cause for alarm.
Shipyard workers demand their unpaid wages in central Athens. Greece is now as close as it's ever been to leaving the eurozone.
I went on "The Patt Morrison Show" on Tuesday to join NPR "Planet Money" correspondent Zoe Chace and travel expert Terry McCabe to discuss the ongoing, seemingly neverending eurozone crisis. As you probably know, there are now serious conversations happening in Europe about Greece exiting the euro. Spain and Italy could be in trouble. Ireland and Portugal already are. Governments have fallen; most recently French President Nicholas Sakozy lost his re-election bid to socialist François Hollande.
Despite all this, it's easy to talk yourself into a false sense of calm. After all, the eurozone crisis feels as if it's been going in for years — because it has been going on for years!
At the Financial Times, Martin Wolf doesn't think we should be calm. He thinks we should acknowledge reality: that post-financial crisis, the world is in a "contained depression." And we're unprepared for the consequences of a eurozone meltdown:
Goldman Sachs has been much in the news the past few days, what with Greg Smith's Muppets op-ed and the passing of the Fed's stress tests. Now Hank Greenberg, the former head of AIG who saw the firm he built completely destroyed during the financial crisis, comes pretty close to accusing Goldman of fraud, in the above clip from Bloomberg TV. He also says Goldman got a back-door bailout during the financial crisis — at the terminal expense of AIG.
Worth watching, just to see what an old Wall Street hand — one no stranger to controversy himself — thinks of the new Wall Street.
Vladimir Rys/Getty Images
He might not be worried about Greece's recent default and payout of credit default swaps. But some other people are.
I just discovered Tony Alfidi's blog and have been enjoying his uncensored views on a variety of tech and finance subjects. I agreed with him on Apple's mastery of planned obsolescence and now I'm tempted to agree with his verdict on credit default swaps (CDS) — a number of which just kicked in as Greece "defaulted" on some of its privately held sovereign dealt.
Some people think that CDS, despite their role in the financial crisis (they brought down AIG), remain useful, as a means of hedging risk and as a relatively recent example of financial innovation that was sadly misused.
Alfidi says un-uh:
I've always believed that credit default swaps are meaningless and even dangerous. [There's your Quote of the Week!] Banks and hedge funds use them to place directional bets with no regard for a counterparty's solvency. The European versions of AIG, whoever they are, can now breathe easier for a few weeks knowing they can get away with more uncapitalized CDS writing.