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Too Big to Fail?

JPMorgan CEO, Jamie Dimon, on Meet the Press

Over the weekend a big blow hit Wall Street, the largest bank in America, JPMorgan Chase, squandered two billion dollars in trading losses.  Does this reflect the same risky business that lead to the spiraling downturn in the economy?  Maybe, but by no means is JPMorgan in trouble.  The business will continue to thrive, but this situation must be taken as an example of the lack of regulation on Wall Street.  If such a respected company can do this, what is to say that another will not.  Sunday on Meet the Press Jamie Dimon, the CEO of JPMorgan,was interviewed by David Gregory to discuss the mistake.  The executive once praised as one of the best risk managers, successfully leading a company through a recession, acknowledged that they “took far too much risk,” “badly monitored” investments, and suffered a major blow to their credibility.

Hedge fund investments are meant to, as noted on JPMorgan’s website itself, “minimize risk and guarantee seamless execution”.  Sen. Carl Leven, D-Mich. on Meet the Press said, “This was not a risk-reducing activity that they engaged in.  This increased their risk.”  It is important to note that while JPMorgan lost two billion dollars, that is only two percent of the entire 100 billion dollar bet they made.  This is an astronomically large bet, given the stock market itself can go up or down two percent within week.  As a result Sen. Leven said, “they loose the battle to weaken the rule,” the rule being less regulation on Wall Street.

The major issue is not the loss to JPMorgan, but the potential of other companies to follow the same pattern, creating greater destruction.  The difference is many other CEOs might not have the courage to come out, and be so upfront about their problem, especially since bank scandals are not that uncommon.  Ultimately, it is tax payers who take the hit for poor

judgement on Wall Street by flipping the bill for billions of dollars in bailouts.  Tens of millions went to JPMorgan itself, with a total 23.7 TRILLION dollars in tax payers’ money going to bailouts during the heat of the financial crisis in 2008. Americans deserve the respect and confidence that there are no loopholes, and that Wall Street can not walk away with their money.  The institutions of America, including Washington and Wall Street, have let Americans down, and it is time for solutions.

Banks are large companies that are too big to manage, and their complexity is overwhelming.  Andrew Sorkin, author of Too Big to Fail, characterized bets like these as the “casino element.”  This is reminiscent of the risky business that lead to the financial crisis, of which government has worked to restrict in the years since.  The Dodd-Frank law was put in place, as  Lis Smith, an Obama campaign spokeswoman said, “[to] promote transparency, limit the types of risky investments that can be made with deposits insured by federal taxpayers, and prevent investment losses at one bank from threatening the whole financial system.” The JPMorgan trading loss shows the lack of effectiveness of this law.

Wall Street investors recklessly gamble with tax payers money thinking they are too big to fail

In my recent studies of government, above all else, I have learned nothing is as easy as it seems.   From the division of power between the president and congress, to the complexity and strategy behind political ads, the institutions running America have many parts, and they do not always work properly, or efficiently.  In many ways, business and government go hand in hand, for the government sets the laws, but without businesses America would be at a dysfunctional standstill.  It is a delicate balance between business and government that requires collaboration with a shared vision.

As the presidential campaign heats up, the United States is slowly coming out of its worst recession in decades, and the economy continues to be one of the most talked about issues.  However, I think focus will shift from how to come out of the current recession, to how to avoid such an economic disaster in the future.  Maybe its not merely regulation, but more accountability.


“Individual Commitment to a Group Effort”

April 20, 2012 2 comments

The three branches of government were cleverly crafted by America’s founding fathers as a cooperative system that limits the power of the others to ensure the survival of democracy.  However, while the foundation of each branch remains, the interactions and power between them have somewhat changed, resulting in a gridlocked government.  In Article II, the Constitution specifically lists the the authority of Congress stating, “All legislative powers herein granted shall be vested in a Congress,” but the powers of the president are less clear.  Early presidents treaded lightly in their powerful positions, taking care not to be overbearing or institute fear within the American people of a potential monarchy threat.  America had just been freed from such a controlling government that the president, along with the other branches, were weary of being too controlling.

“Scarred by memories of war with King George III, most of the 56 Founding Fathers wanted to create a weak central leader,” so when the Constitution was written, it was purposefully vague in its description of presidential powers.  Article II states that “the executive power shall be vested in a President.”  Over the years, the looming threat of a monarchy has been outgrown, and the range of presidential powers has expanded.  The ambiguity of presidential powers has evolved into an unequal distribution of power between the branches of government.  Presidents have more consistently followed the stewardship model of leadership, “A theory of robust, broad presidential powers; the idea that the president is only limited by explicit restrictions in the Constitution” (Choices 215).  This unequal power has caused a war between the legislative branches and the president, creating a dysfunctional government.

There is a lack of communication and willingness to work together between the President and Congress.  It is as if they are playing on two opposing teams, not together as the engine running the greatest nation in the world.  The solution will come from a balance of powers.  When the President is more involved and works with Congress, the decision doesn’t become a war where when one side wins, and the other loses, but a mutual decision that compromises both opinions for the best of the nation.  That is not to say that

The ideology or framework of our government organized power, but when power tries to runaway from the system no one wins.

the members of both don’t currently reach out to compromise, but a change must to be made, not to the process, but to how the process is carried out.  The constitution originally established the three branches of government to limit the powers of each, and create a cooperative system in which no branch would gain more power than the other, but this intention has beenlost in the struggle for power and control.  The President, the most powerful individual in the nation, is only as powerful as the bond between him and Congress.  The president and congress should not be fighting each other, for they represent the same team that is America.  As Vince Lombardi said, “Individual commitment to a group effort – that is what makes a team work, a company work, a society work, a civilization work.”  Individual commitment is great, but if it’s not directed toward a group effort, it creates a stagnant government.

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