News & Analysis
Time Magazine: Fed is Responsible for the JPMorgan Blow Up ...
Is the Fed to Blame for JPMorgan's $2 Billion Blowup? ... The JPMorgan $2 billion-trading-loss story is nearly a week old, and the news has predictably gone through the various spin cycles of the political right and left. Initially, progressives pounced on the loss as reason to strengthen the yet-to-be-fully-implemented Dodd-Frank financial reform law. Conservatives then pushed back on that conclusion arguing that the loss was not a disaster for shareholders given the size and profitability of the bank overall, and that therefore policymakers shouldn't overreact with more stringent regulation. However, there is another, smaller chorus of voices that is blaming neither government inaction nor banker recklessness, but the policies of the Federal Reserve. These critics are arguing that excessive intervention by the central bank has distorted financial markets and forced big banks to resort to risky moves in order to maintain profits. – Time Magazine
Dominant Social Theme: Maybe the Federal Reserve ought to be better mannered.
Free-Market Analysis: Another limited hangout from a mainstream publication. In this case, Time magazine. This is how the game works. One never calls for the end of central banking – only for central bankers to DO BETTER.
And here we go again. Time magazine (business) is out with an article blaming JPMorgan's losses on Federal Reserve monetary policy.
The putative, near-term reason for launching this explanation is to ensure that JPMorgan is given some sort of rhetorical cover. That's the way it seems to us.
The elites who want to run the world depend on Wall Street and other major banking centers for their control over money. These dynastic families control central banking but they have to control the distribution arms as well.
Implosions at top firms like JPMorgan are bothersome. The "help," like James Dimon, are given a helping hand when possible. The mechanism is to use controlled mouthpieces of the mainstream press. Here's some more from the article:
David Schawel, a money manager and financial blogger, argues that quantitative easing policies, in which the Fed has bought up "risk-free" assets like U.S. Treasury bonds, have caused there to be fewer safe assets to go around. In addition, the Fed's decision to keep interest rates near zero since the height of the financial crisis in 2008 has reduced the profitability of banks' usual business lines. Writes Schawel:
"Bernanke is not responsible for risk failures at JP Morgan or any other TBTF bank. BUT, he certainly has fostered an environment that has encouraged investors (which includes banks) to take on risk due to their meager alternatives. Risk has crept into an area that is typically conservative on many levels.
It is said that the job of a central bank is to pull away the punch bowl before it gets out of hand. While the Fed pays close attention to inflation, it has left the punch bowl out in the chase for risk assets and is contemplating spiking it even further (QE3) ...
R. Christopher Whalen, an investment banker and frequent critic of the Fed and the big banks, concurred with Schawel on the blog Zero Hedge yesterday. He turns the screws on the Fed even tighter though, arguing that the Fed's easy money policies stretch back decades, and that the surfeit of dollars in the marketplace have nowhere productive to go. Whalen writes: "The fact is that the vast expansion of the US money supply over the past three decades makes such financial alchemy necessary for the TBTF banks to generate even nominal profits."
And in Fortune, Cyrus Sanati writes favorably of Dodd-Frank proscriptions against big banks making speculative bets with federally-insured deposits, but says that current monetary policy actually works against the intent of those regulations.
Now, anyone who reads this modest news site on a regular basis knows that we have made these same points in the past. We've pointed out that it is the printing of monopoly fiat money that has fueled the growth of Wall Street.
No monopoly fiat, no modern Wall Street. Monopoly fiat is like a steroid, and Wall Street has grown bloated on it. Without it ...
• no huge derivatives market
• no casino stock market
• no massive proprietary trading
Wall Street, the City of London, etc. are virtual creations of central banking fiat. More to the point, they are the result of authoritarian centralization. Modern Wall Street got its start after the North's victory over the South allowed Northern banks – and the elites that controlled them – to begin to build Leviathan.
It was only AFTER the Civil War that New York Stock Exchange honchos began buying up New York's other exchanges. The consolidation had begun.
After central banking was established, Wall Street trading exploded and the consolidations were further triggered. People think this sort of consolidation is normal but it is not. Businesses do have a spectrum of participants, large and small. But Wall Street is abnormal.
Central banks created the modern financial industry. Getting rid of them will reduce the industry's excesses considerably. Glad Time magazine has given a nod toward this argument – albeit for other reasons.
If one reads the full article, the additional agendas emerge. There is the usual blather about the Volcker Rule and splitting up proprietary trading from customer banking.
But as we've pointed out, the elite's stake in the Volcker Rule is simple: They want to establish once more that "prudent" regulation is necessary.
It's not. Get rid of the crack cocaine of monopoly fiat money and the addict shall collapse. The money business would become unrecognizable.
Conclusion: We are not supposed to understand this, of course. We are supposed to approve of such "prudent" regulation and recognize that the US government is a good gatekeeper after all. We have trouble with that paradigm. Time does not ...