When Jamie Dimon, chief executive of
JPMorgan Chase Bank, appeared before the US Senate
Banking Committee on June 13, he was wearing
cufflinks bearing the presidential seal. "Was
Dimon trying to send any particular message by
wearing the presidential cufflinks?" asked CNBC
editor John Carney. "Was he ... subtly hinting
that he's really the guy in charge?"
The
groveling of the senators was so obvious that Jon
Stewart did a spoof news clip on it, featured in a
Huffington Post piece titled "Jon Stewart Blasts
Senate's Coddling Of JPMorgan Chase CEO Jamie
Dimon"; Matt Taibbi wrote an op-ed called
"Senators Grovel, Embarrass Themselves at Dimon
Hearing". He said the whole thing was painful to
watch.
"What is going on with this panel
of senators?" asked Stewart. "They're sucking up
to Jamie Dimon like they're on JPMorgan's
payroll." The explanation in a news clip that
followed was that
JPMorgan Chase is the
biggest campaign donor to many of the members of
the banking committee.
That is one obvious
answer, but financial analysts Jim Willie and Rob
Kirby think it may be something far larger,
deeper, and more ominous. They contend that the
US$3 billion-plus losses in London hedging
transactions that were the subject of the hearing
can be traced, not to European sovereign debt (as
alleged), but to the record-low interest rates
maintained on US government bonds. The
national debt is growing at $1.5 trillion per
year. Ultra-low interest rates MUST be maintained
to prevent the debt from overwhelming the
government budget. Near-zero rates also need to be
maintained because even a moderate rise would
cause multi-trillion dollar derivative losses for
the banks, and would remove the banks' chief
income stream, the arbitrage afforded by borrowing
at 0% and investing at higher rates.
The
low rates are maintained by interest rate swaps,
called by Willie a "derivative tool which controls
the bond market in a devious artificial manner".
How they control it is complicated, and is
explored in detail in the Willie piece here
and Kirby piece here.
Kirby contends that the only organization
large enough to act as counterparty to some of
these trades is the US Treasury itself. He
suspects the Treasury's Exchange Stabilization
Fund, a covert entity without oversight and
accountable to no one. Kirby also notes that if
publicly traded companies (including JPMorgan,
Goldman Sachs, and Morgan Stanley) are deemed to
be integral to US national security (meaning
protecting the integrity of the dollar), they can
legally be excused from reporting their true
financial condition. They are allowed to keep two
sets of books.
Interest rate swaps are now
over 80% of the massive derivatives market, and
JPMorgan holds about $57.5 trillion of them.
Without the protective JPMorgan swaps, interest
rates on US debt could follow those of Greece and
climb to 30%. CEO Dimon could, then, indeed be
"the guy in charge": he could be controlling the
lever propping up the whole US financial system.
Hero or felon? So should Dimon
be regarded as a national hero? Not if past
conduct is any gauge. Besides the recent $3
billion in JPMorgan losses, which look more like
illegal speculation than legal hedging, [1] there
is JPM's use of its conflicting positions as
clearing house [2] and creditor of MF Global to
siphon off funds that should have gone into
customer accounts, and its responsibility in
dooming Lehman Brothers by withholding $7 billion
in cash and collateral.
There is also the
fact that Dimon sat on the board of the New York
Federal Reserve when it lent $55 billion to
JPMorgan in 2008 to buy Bear Stearns for pennies
on the dollar. [3] Dimon then owned nearly three
million shares of JPM stock and options, in clear
violation of 18 USC Section 208, which makes that
sort of conflict of interest a felony.
Financial analyst John Olagues, a former
stock options market maker, points out that the
loan was guaranteed by $55 billion of Bear Stearns
assets. [4] If Bear had that much in assets, the
Fed could have given it the loan directly, saving
it from being swallowed up by JPMorgan. But Bear
did not have a director on the board of the NY
Fed.
Olagues also notes that JPMorgan
received an additional $25 billion in TARP
payments from the Treasury, which were evidently
paid off by borrowing from the NY Fed at a very
low 0.5%; and that JPM executives received some
very large and highly suspicious bonuses called
Stock Appreciation Rights and Restricted Stock
Units (complicated variants of employee stock
options and restricted stock). In 2009, these
bonuses were granted on the day JPMorgan stock
reached its lowest value in five years. The stock
quickly rebounded thereafter, substantially
increasing the value of the bonuses. This pattern
recurred in 2008 and 2012.
Olagues has
evidence of systematic computer-generated selling
of JPMorgan stock immediately prior to and on the
dates of the granted equity compensation.
Collusion to manipulate the stock to accommodate
the grant of options is called "spring-loading"
and is a violation of SEC Rule 10 b-5 and tax
laws, with criminal and civil penalties.
All of which suggests we could actually
have a felon at the helm of our ship of state.
There is a movement afoot to get Dimon
replaced on the NY Fed board, on the ground that
his directorship represents a clear conflict of
interest. [5] In May, Massachusetts Senate
candidate Elizabeth Warren called for Dimon's
resignation from the board, and Vermont Senator
Bernie Sanders has used the uproar over the
speculative JPM losses to promote an overhaul of
the Federal Reserve. In a release to reporters,
Warren said:
Four years after the financial
crisis, Wall Street has still not been held
accountable, and that lack of accountability has
history repeating itself-huge, risky financial
bets leading to billions in losses. It is time
for some accountability. ... Dimon stepping down
from the NY Fed would be at least one small sign
that Wall Street will be held accountable for
their failures.
But what chance does
even this small step have against the
gun-to-the-head persuasion of a nightmare collapse
of the entire US debt scheme?
Propping
up a pyramid scheme Is there no alternative
but to succumb to the Mafia-like Wall Street
protection racket of a covert derivatives trade in
interest rate swaps? As Willie and Kirby observe,
that scheme itself must ultimately fail, and may
have failed already. They point to evidence that
the JPM losses are not just $3 billion but $30
billion or more, and that JPM is actually
bankrupt.
The derivatives casino itself is
just a last-ditch attempt to prop up a private
pyramid scheme in fractional-reserve money
creation, one that has progressed over several
centuries through a series of "reserves" - from
gold, to Fed-created "base money" to
mortgage-backed securities, to sovereign debt
ostensibly protected with derivatives.
We've seen that the only real guarantor in
all this is the government itself, first with the
Federal Deposit Insurance Corporation and then
with government bailouts of too-big-to-fail banks.
If we the people are funding the banks, we should
own them; and our national currency should be
issued, not through banks at interest, but through
our own sovereign government.
Unlike
Greece, which is dependent on an uncooperative
European Central Bank for funding, the US still
has the legal power to issue its own dollars or
borrow them interest-free from its own central
bank. The government could buy back its bonds and
refinance them at 0% interest through the Federal
Reserve - which now buys them on the open market
at interest like everyone else - or it could
simply rip them up.
The chief obstacle to
that alternative is the bugaboo of inflation, but
many countries have proven that this approach need
not be inflationary. Canada borrowed from its own
central bank effectively interest free from 1939
to 1974, stimulating productivity without creating
inflation; Australia did it from 1912 to 1923; and
China has done it for decades.
The private
creation of money at interest is the granddaddy of
all pyramid schemes; and like all such schemes, it
must eventually collapse, despite a quadrillion
dollar derivatives edifice propping it up. Willie
and Kirby think that time is upon us. We need to
have alternative, public and cooperative systems
ready to replace the old system when it comes
crashing down.
Ellen Brown is an attorney and
president of the Public Banking Institute, PublicBankingInstitute.org.
In Web of Debt, her latest of 12 books, she
shows how a private cartel has usurped the power
to create money from the people themselves, and
how we the people can get it back. Her websites
are webofdebt.com and
ellenbrown.com.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
