During the Great Recession, Ohio has cut its budget to ribbons, reducing funds for health services, higher education, and K-12 education. The budget cuts are so severe that some towns might officially cease to exist (due to disincorporation).

However, it seems that Gov. John Kasich (R-OH) and the Republican legislature feel that the state has money to burn on tax cuts for the financial industry:

An Ohio Legislative Service Commission analysis said the bill “may decrease GRF (general revenue fund) revenue by an uncertain amount, though the revenue loss may be up to $30 million per year, when compared to the introduced version of the bill.”

The potential of a $23 million to $30 million tax cut for financial institutions drew fire from Democrats at a time when schools and local governments are suffering from significant budget cuts.

Kasich’s original plan was meant to be revenue neutral, but the legislature cut it up until it turned into a gift to the banks worth millions of dollars. As Policy Matters Ohio noted, the justification for cutting banks’ taxes — that they will use the money to increase lending — is fundamentally flawed:

The idea that cutting bank tax rates will fuel more lending and a stronger economy is misplaced. Since many Ohio banks already are “flush with cash,” as a representative of the industry puts it, cutting their taxes is unlikely to lead to new lending. Ohio banks are doing well, as a Feb. 28 press release from the Ohio Bankers League entitled “Bumper Quarter for Ohio Banks” attests, and are in no need of a tax cut.

“We’re basically giving the banks … a $25 million gift every year,” said state Rep. Mike Foley (D). “But we’re also doing that in the context of an economy and state budget in Ohio that has been wracked and harmed and hurt and mangled by the financial industry that we’re giving benefits to today.”

The 15 freshmen Republican representatives in the House Tea Party Caucus each ran in 2010 on a populist anti-Wall Street message, highlighting their opposition to bank bailouts like the 2008 Troubled Asset Relief Program (TARP) and criticizing Washington for enabling the banking sector as it became “Too Big to Fail.” After winning, all fifteen received significant PAC contributions from the banking industry — and have become a reliable vote and mouthpiece for the financial industry, a ThinkProgress analysis of campaign contributions, voting records and public statements reveals.

Rather than campaigning on a typical pro-business platform, the Tea Party freshmen tapped into public resentment of big banks and bailouts. For example, then-candidate Sandy Adams (R-FL) said on her campaign website that she “opposes government bailouts” and “would have voted against TARP and the auto bailout.” Jeff Landry (R-LA) said bailouts of private businesses had “corrupted our free market system by rewarding the irresponsible and penalizing the responsible,” blasting “bank bailouts, which led to taxpayer money directly or indirectly going into multi-million dollar bonuses.”

But in Congress, the Tea Party has toed the line for big banks. Eleven of the 15 have become co-sponsors of H.R. 3461, a top priority for the ABA. According to Americans for Financial Reform, the legislation would “tilt the playing field further in the direction of excessive deference to industry interests and tie the hands of regulators attempting to protect the public interest.” The bill would make it harder for bank examiners to do their job, giving regulatory responsibilities to an industry that’s already shown it can’t police itself.

Here is what happened:

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2012 presumptive Republican presidential nominee Mitt Romney this week defended JP Morgan Chase’s $3 billion trading debacle as just “the way America works.” He denied that the episode makes the case for stronger regulations to rein in banks’ risky trading.

Overall, of course, Romney has shown little interest in diagnosing or addressing the causes of the 2008 financial crisis, and the role of the nation’s biggest banks in nearly sinking the global economy. And the banks surely appreciate it, considering that employees of the biggest financial firms are his top donors, as the Boston Globe noted today:

When the head of JPMorgan Chase met with shareholders to answer for a trading loss of more than $2 billion Tuesday, it was against an evolving political backdrop: Donors from big banks are betting on Mitt Romney to defeat President Obama and repeal new restraints on risky, large-scale investments. [...]

The top five donor groups in Romney’s campaign are individuals and political action committees associated with large financial institutions, led by Wall Street giants Goldman Sachs and JPMorgan Chase, according to information compiled by the Center for Responsive Politics, a nonpartisan research group that tracks campaign donations.

The Globe actually got it a bit wrong: the top six donors to Romney come from the biggest banks — Goldman Sachs, JP Morgan Chase, Bank of America, Morgan Stanley, Credit Suisse, and Citigroup. And the finance/insurance/real estate industry is far and away the largest donor to Romney’s campaign, giving him $18 million. Of course, banks also throw money at the Democrats, but in this cycle, they’ve clearly favored the GOP.

Romney is surely not the only Republican lawmaker getting JP Morgan’s back, as House Financial Services Committee Spencer Bachus (R-Al) also defended the bank. Bachus, though, is also bankrolled by the financial industry.

City councils in the nation’s two largest cities have approved laws aimed at forcing banks to invest more in their local communities. The Los Angeles city council unanimously passed its “responsible banking” ordinance yesterday afternoon; the New York’s city council passed its own shortly after by a vote of 44-4.

The laws were supported and pushed by activists from the 99 Percent Movement and religious groups who have led campaigns to move money from the nation’s largest banks. The ordinances give preference for city contracts to banks that make the most substantial investments in the local community through small business loans, home loans, foreclosure prevention, and other programs, according to the PICO National Network, a coalition of religious organizations that pushed for the Los Angeles ordinance:

The New York City ordinance would require banks to provide information on reinvestment activities, including foreclosure and loan modification information, that would be used to evaluate the banks that want to hold city deposits. The Los Angeles ordinance will gather data on banks’ participation in foreclosure prevention and home loan principal reduction programs, as well as other community reinvestment information.

New York Mayor Michael Bloomberg is likely to veto his city’s ordinance, another poke at 99 Percent Movement activists who have butted heads with him over the last eight months. Los Angeles Mayor Antonio Villaraigosa is expected to sign his city’s version into law.

Cleveland became the first major city to adopt a responsible banking ordinance in 1991, and they have spread quickly since the 99 Percent Movement ignited last fall. Pittsburgh and San Diego recently passed similar ordinances, and city councils in Seattle, Boston, and San Francisco are all considering laws now.

Massachusetts Democratic senate candidate Elizabeth Warren reacted to the news of JP Morgan’s $2 billion trading debacle by calling for the bank’s CEO, Jamie Dimon, to step down from his position as a director of the Federal Reserve Bank of New York’s board. Today, Warren also said that the episode makes the case for a return to “boring banking” — separating investment banking from traditional commercial banking — which was the status quo before the deregulatory zeal of the late 1990s:

Q: You think had it [the Volcker rule] been in place, we wouldn’t be talking about this?

WARREN: Well, I’m going to put it this way. The Volcker Rule would help. We don’t know exactly the nature of these trades. But if the question is is the Volcker rule enough, or do we need more, look, I’m somebody who believes we really should have boring banking. That banking should be — the part that’s about savings accounts and checking accounts and our money system — should be separated from the kind of risk-taking that Wall Street traders want to take. That was originally what the Glass-Steagall Act was about, it was repealed in 1999. There was an effort to get it into Dodd-Frank in the 2010 bill. That effort failed. I think we really do need that kind of separation. We need to go back to boring banking. The people who want to take risks need to take risks with their own money and do it somewhere else.

Watch it:

This echoes the call made by economist Paul Krugman, who noted that the era of boring banking “was also an era of spectacular economic progress for most Americans.”

The fallout from JP Morgan’s $2 billion trading loss is continuing today with the news that three of the bank’s executives will exit the firm. CEO Jamie Dimon is in full disaster management mode, appearing on NBC’s Meet the Press yesterday to push back on claims that JP Morgan’s mess shows that there is still too much risk in the banking system.

Just last month, JP Morgan economist Blythe Masters insisted that the bank was not engaged in trading for its own benefit. Dimon meanwhile, was deriding the proponents of regulations to rein in risky trading as “infantile,” as the New York Times’ Gretchen Morgenson reported:

The loss, and the embarrassment it held for Jamie Dimon, the bank’s imperious chief executive, came just one month after a private dinner party in Dallas at which he assailed two respected public figures who have pushed for policies that would make banks like JPMorgan smaller and less risky.

One was Paul Volcker, the former Federal Reserve chairman, whose remedy for risky trading by too-big-to-fail banks is known as the Volcker Rule. The other was Richard W. Fisher, president of the Federal Reserve Bank of Dallas, who has also argued that large institutions should be slimmed down or limited in their risky trading practices. [...]

During the party, Mr. Dimon took questions from the crowd, according to an attendee who spoke on condition of anonymity for fear of alienating the bank. One guest asked about the problem of too-big-to-fail banks and the arguments made by Mr. Volcker and Mr. Fisher.

Mr. Dimon responded that he had just two words to describe them: “infantile” and “nonfactual.”

Not only has JP Morgan belittled those trying to ensure that the nation’s biggest banks can’t threaten the economy with their risky trading, but it has actively lobbied to water down new rules governing these trades. And Dimon is still claiming that the Volcker Rule, meant to prevent banks from trading for their own account with taxpayer-backed dollars, is unnecessary. But as Businessweek’s economic editor, Peter Coy, wrote:

The need for a risk-reducing rule something like the Volcker Rule is obvious. Banks have a special obligation to avoid risk because their failure can drag down the entire economy. JPMorgan is able to borrow cheaply because lenders understand that the federal government will not let it default. In fact, it has been officially declared “too big to fail.” In return for the trampoline of taxpayer dollars—once implicit, now explicit—JPMorgan and other too-big-to-fail banks have no choice but to accept some constraints on their freedom of action.

But it sure doesn’t seem like Dimon will be swayed by that argument anytime soon.

JP Morgan Chase CEO Jamie Dimon this week announced that the bank he heads lost $2 billion making risky trade under the guise of “hedging” (which is meant to reduce risk). Dimon has been one of the biggest critics of the Volcker Rule, which is meant to prevent banks from making massive bets with federally insured dollars.

Dimon appeared today on NBC’s Meet the Press, where he was asked by host David Gregory if JP Morgan’s massive loss shows that the banking system — just a few years after a financial crisis that nearly brought the global economy to its knees — is still too risky. Dimon replied, “I don’t think so”:

GREGORY: Have you given regulators new ammunition against the banks?

DIMON: Absolutely, this is a very unfortunate and inopportune time to have had this.

GREGORY: But if the best of the best can’t manage a risk like this, does it not tell you that the banking system is still several years after the financial collapse, too risky?

DIMON: I don’t think so. It’s a question of size. This is not a risk that is life threatening to JP Morgan.

Watch it:

Of course, the point isn’t whether JP Morgan, the biggest bank in the U.S., can survive a trade like this. It’s whether the financial system can sustain this sort of trading by all of the big banks, many of which are not in the same financial shape as JP Morgan.

As the New York Times detailed yesterday, JP Morgan and the rest of the nation’s biggest banks have been fighting to widen exemptions to the Volcker Rule that would allow banks to continue making risky trades of this sort. ”I hope that the final [Volcker] rule will prevent this,” said Rep. Barney Frank (D-MA), whose name graces the Dodd-Frank financial reform bill, on ABC today. “The Volcker Rule is still being formulated.”

The same week that JP Morgan Chase announced it lost $2 billion on a risky trade, Democrats in both the House and Senate have introduced measures that would force the nation’s four biggest banks — JP Morgan among them — to shrink. The bill, proposed by Sen. Sherrod Brown (D-OH) and Reps. Brad Miller (D-NC) and Keith Ellison (D-MN), would cap the percentage of the nation’s deposits that any one bank can hold:

Under the proposals, a single bank could not hold more than 10 percent of the nation’s banking deposits, nor take on more than 10 percent of the banking system’s liabilities. Banks could take on no more than $1.3 trillion, or 2 percent of the nation’s gross domestic product, in non-deposit liabilities. Non-banks could not take on more than three percent of GDP in liabilities, and could not grow larger than $436 billion.

Four existing banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — are currently above the size cap, and would need to be shrunk down if the bill became law, according to Miller’s office.

“The gigantic size of megabanks, and the perception in the marketplace that they are too big for the government ever to permit to fail, gives them an unfair competitive advantage over smaller financial institutions that distorts the market and discourages competition.” said Miller. “As our nation’s economy begins to recover, we must ensure that megabanks cannot take the same kind of risks that hurt so many of our nation’s families and small businesses,” Brown added. “That’s why we need to place sensible size limits on our nation’s large financial institutions and ensure that if banks gamble, they have the resources to cover their losses.”

At the moment, the nation’s four biggest banks hold about 40 percent of total deposits. They also issue one out of every two mortgages and nearly two out of every three credit cards in America.

Richard Parsons, the former chairman of mega-bank Citigroup (who stepped down from his post just a few days ago), said yesterday that the repeal of Glass-Steagall — the Depression-era regulation separating investment and commercial banking — helped precipitate the financial crisis of 2008:

Richard Parsons, speaking two days after ending his 16-year tenure on the board of Citigroup Inc. (C) and a predecessor, said the financial crisis was partly caused by a regulatory change that permitted the company’s creation. [...]

“To some extent what we saw in the 2007, 2008 crash was the result of the throwing off of Glass-Steagall,” Parsons, 64, said during a question-and-answer session. “Have we gotten our arms around it yet? I don’t think so because the financial- services sector moves so fast.”

It was Citigroup that was the first big beneficiary of the repeal of Glass-Steagall, which allowed Citibank to merge with Traveler’s Group to form Citigroup. Former Citigroup Chairman Sandy Weill used to have a portrait on his office wall that proclaimed him, “The Shatterer of Glass-Steagall.” Of course, Citigroup needed to bailed out during the financial crisis of 2008.

Parsons is not the only former Citi executive to see the light of day when it comes to deregulation. Former CEO John Reed has said that investment banking and commercial banking should once again be separated, taking banking back to where it was before the deregulatory zeal of the 1990s took hold.

Parsons doesn’t advocate such a step, and of course, his admission is more than a decade too late. “Why didn’t he do something about it when he had a chance to?” asked financial analyst Mike Mayo. Just yesterday, federal regulators gave banks two years to fully comply with new rules meant to prevent them from engaging in risky trading with taxpayer-backed dollars.

House Republicans have already shown that they’re willing to sacrifice health care, food stamps, and education upon the altar of deficit reduction in their latest budget. Now financial regulation can be added to the list, courtesy of a proposal unveiled today by the House Financial Services Committee today.

House Republicans on that committee — which has become the second most lucrative committee for fundraising — today released their plan to come up with the cuts mandated by the budget authored by Budget Committee Chairman Paul Ryan (R-WI). Their proposed cuts include:

– ELIMINATING RESOLUTION AUTHORITY: This is a power included in the Dodd-Frank financial reform law of 2008 that allows the government to dissolve a failed financial firm without resorting to the ad hoc bailouts of 2008. Ryan explicitly called for its repeal in the budget, even though it would leave the government powerless to act should another big bank bring the economy to the brink of disaster, other than handing it a bailout.

– ELIMINATING FORECLOSURE PREVENTION PROGRAM: The Home Affordable Modification Program (HAMP) has undoubtedly fallen woefully short of its goals, reaching far fewer homeowners than it was supposed to. But House Republicans want to eliminate it entirely, even with 3.6 homeowners estimated to go into foreclosure in the next two years.

– CUTTING THE CONSUMER PROTECTION BUREAU’S BUDGET BY TWO-THIRDS: The Consumer Financial Protection Bureau has a budget of just shy of $600 million for fiscal year 2013. House Republicans propose , even as the agency begins reining in abuses in the student loan and home mortgage industries.

House Republicans have been trying to water down Dodd-Frank ever since it passed. This budget proposal from the Financial Services Committee is just the latest round in the effort to ensure that the committee follows its chairman’s order to “serve the banks.”