‘The American public feels like there was no Old Testament justice. What they saw, banks bailed out and all these people make all that money, and including the banks that failed, people made a lot of money, and there’s some truth to that. There is some truth to that. I can’t make up for what other boards did and didn’t do, but there’s truth to that. There were people who destroyed their companies, virtually brought the United States down to its knees and walked away with $50 million. It pisses me off too.’– Jamie Dimon, CEO JPMorgan Chase & Co.
Mr Dimon was talking to the US Council on Foreign Relations. He says that he too is annoyed at the banking bailouts…that bankers have done a lot of rotten things and gotten away with it.
It seems he’s abandoned the 1%ers and joined the 99%ers.
Well, not really. While it’s true that JPMorgan didn’t directly get a big banking bailout, JPMorgan has benefited just as much as any other big Wall Street bank from the US Federal Reserve’s low interest rates and money printing.
Without both of those, JPMorgan would have gone bust.
But before you praise Mr Dimon for speaking out against the banking industry, and by extension the Federal Reserve and US government, first read this news report from Bloomberg News in June 2011:
‘JPMorgan agreed to pay $153.6 million to end a Securities and Exchange Commission suit. The SEC alleged that the New York-based bank failed to tell investors in 2007 that a hedge fund helped pick, and bet against, underlying securities in the collateralized debt obligation they purchased. In July, Goldman Sachs paid a record $550 million for failing to inform clients in 2007 that it allowed a hedge fund that also bet against housing to help formulate the CDOs.’
Let’s get something straight; in the world of fractional reserve banking, they’ve all got their noses in the trough. There are no good banks and bad banks, there are only banks…and they’re all bad…
You see, the way things work in the US is the SEC effectively acts as a legalised extortionist. It judges the size of a firm’s balance sheet, and if the SEC believes it can extort a huge fine from the business without the business going bust, it will push for an out-of-court settlement rather than prosecute.
That’s why Jamie Dimon can say he’s ‘pissed off’, because he knows JPMorgan doesn’t have a recorded conviction. However, Mr Dimon and JPMorgan didn’t appear too pissed off when they flogged rotten securities to clients just as the market hit the skids in 2007.
But that’s how the banking system works.
It’s no coincidence that when the banks have done something wrong, they get a bailout or they get a slap-on-the-wrist fine.
But if you’ve done wrong and you don’t have a big balance sheet then it’s off to jail: Bernie Madoff, Allen Stanford, and Raj Rajaratnam.
Not that we’re shedding any tears for those crooks; the dual standard just amuses us. Big firm does wrong = big fine. Small firm does wrong = big jail sentence.
Bottom line, the SEC works just like the Mob. The Mob will always extort the protection money first. Only when you can’t pay up will they relieve you of your knee-caps (or worse).
But of course, dodgy banking is an overseas thing. It doesn’t happen here…
Aussie Banking Joke
Oh, that’s right, it does. Our old pal Nick Hubble has worked feverishly away to expose some of the Australian banks‘ dodgy lending practices.
We spent a lot of time from 2008 to 2011 bringing this to your attention. Well, Nick has taken it one step further. He wrote to you about it last week:
‘Do you have a mortgage? There is a 1 in 10 chance you have been tricked. We’re not sure if we can use the word ‘defrauded’ instead of ‘tricked’, although that was our first thought. The trick is the very same one played on borrowers in the US, Spain, and Greece.’
Yes, in the world of fractional reserve banking, all banks are the same. There aren’t good and bad banks, only banks…and they’re all bad.
Even so, the cheerleaders in the mainstream press continue to have a rose-tinted view of the Aussie banking sector. Take this from News Ltd’s Alan Kohler last week:
‘In fact it’s probably not going too far to say that the industry in which Australia is truly the world leader is not resources, it’s banking — not the sort that caused the GFC, but old-fashioned deposit-taking and lending, the business that Wall Street banks are trying to get back to.
‘What’s more, it’s this business on which the future of our economy really rests, not on mining and energy, where our only competitive advantage lies in the providence of having the stuff.’
Really? The future of the economy rests in banking? What a joke. It just goes to prove that excessive credit still bloats the world economy if people think the banks are still important.
As we’ve explained many times before, banking and finance is just the middleman in the transaction. Yes, they play a role, but they aren’t the key to the economy.
The key to the economy are the entrepreneurs and businessmen and women on one side of the ledger, and savers and investors on the other side of the ledger.
The bankers and financiers simply help the two meet (although if you read the only part of the Australian Financial Review (AFR) worth reading, the Alex cartoon strip, you’ll see that most of the time the bankers aren’t really that much help anyway).
The Hurdle to Economic Recovery
It’s no good having a supposedly strong banking sector if the economy can’t encourage businesses to do business, and investors to invest.
You only have to look at two recent headlines to see the harm of government intervention. First, this from yesterday’s AFR:
‘The Labor government has decided against making any significant changes to superannuation tax arrangements in the mid-year review of the budget.
‘While the government may announce some minor policy, sources say it has put off a more substantial overhaul of super tax concessions worth at least $30 billion a year to government coffers until next year’s budget.’
We always find it funny that the dopey mainstream press says that by not increasing a tax, it’s a cost to the government.
What they should say is that it means individuals get to keep $30 billion of their own money…and that it introduces the tax (as it will be, that’s what governments do), it will rob individuals of $30 billion a year of their own money.
That’s money individuals would otherwise save in their superannuation. And that they could use to invest in businesses, so those businesses can use it to create new products and services, and employ more people.
The other story comes from the Aussie Daily Telegraph:
‘Bosses will have to roster jobs around workers’ social lives and check that staff who yawn or daydream aren’t too tired to work safely.
‘Those proposals are contained under national laws being drawn up to fight workplace fatigue.
‘The government agency’s checklist for employers to spot worker fatigue includes headaches, daydreaming, constant yawning, low motivation and moodiness.
‘It has proposed that bosses “eliminate or reduce the need to work extended hours or overtime” so staff don’t get too tired.’
Seriously. This is what the Australian economy has come to. But don’t worry, if you believe Alan Kohler and the mainstream press, it doesn’t matter, as long as Australia has a strong banking industry.
The Recovery Charade
But what does that matter if people can’t save because the government has taken their savings? And what does it matter if businesses don’t invest in their business because they have to work with stupid laws?
As long as bankers, banks and the banking system stay on a pedestal, where people and governments assume they’re the core of the economy rather than plain-old middlemen, there’s no hope of a genuine economic recovery.
In yesterday’s Money Morning, Murray warned that the economic recovery was a charade. And that it would only be a matter of time before stock prices reflected this.
Two days of falling prices doesn’t make for a crash, but it should certainly cause you to check that you’ve tightened your seatbelt.
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Written by Kris Sayce
Kris Sayce is Editor in Chief of Australia’s biggest circulation daily financial email — Money Morning. (You can subscribe to Money Morning for free here).
Kris is also editor of Australian Small-Cap Investigator, his small-cap stock research service, where he provides detailed analysis on some the brightest, smallest listed companies on the ASX.
If you’re already a subscriber to these publications, or want to follow his financial world view more closely, then we recommend you join Kris on Google+. It’s where he shares investment insight, commentary and ideas that he can’t always fit into his regular Money Morning essays.