House Republicans, in the wake of JP Morgan’s now $3 billion trading mess, have temporarily backed off their zeal to repeal the Dodd-Frank financial reform law. However, House Financial Services Committee Chairman Spencer Bachus (R-AL) — who believes Washington’s role is to “serve the banks” — has JP Morgan’s back, excusing its actions and attacking Congressional Democrats for wanting to tighten regulations governing risky bank trading:
“Even with this loss, I believe they’re one of the most profitable financial institutions in the country, and unless the facts are diametrically different from what we’ve heard, there is no risk from this loss to depositors or to taxpayers,” Bachus said during a House hearing. “They remain a very profitable, viable institution.”
Bachus, an Alabama Republican, noted that JPMorgan Chase’s net worth is $189 billion, and its pre-tax profits last year were $25 billion.
“So a $2 billion loss would represent one month of earnings,” he said.Bachus accused some fellow members of Congress — clearly a reference to Democrats — of advocating for laws that would essentially prevent businesses from losing money or taking risks.
“And no law can do that, nor should a law attempt to prohibit a company from taking risks,” he said.
But Bachus, like other Republicans, completely misses the point. The goal of financial regulations like the Volcker Rule — which the White House is attempting to strengthen following JP Morgan’s debacle — is not to prevent companies from taking on risk, but to prevent them from doing it while backed by taxpayers. JP Morgan carries deposits backed by the federal government, has access to the Federal Reserve’s emergency lending window, and is big enough to pull down the whole economy should it fail. It is, for all intents and purposes, entirely backed by taxpayers.
Therefore, it is entirely appropriate to say that JP Morgan either shed its federal backing — which would require it to shrink — or not take on risks that cost it billions of dollars. But many in the GOP have ignored the lesson.