A prominent economist is questioning whether White House-based conflicts of interests are obscuring the administration's handling of the controversy surrounding JPMorgan Chase's recent trading losses.
‘President Obama is shameless to cite JPMorgan's $3 billion trading loss as evidence banks need more regulation,’ says Dr. Peter Morici, former chief economist at the U.S. International Trade Commission and a professor at the University of Maryland's Smith School of Business. ‘More accurately, the debacle raises serious questions about incompetence and corruption among federal regulators and inside the Obama White House.’
Morici questions how federal regulators were incapable of stopping the trading debacle while it was under way.
‘The Federal Reserve and Comptroller of the Currency have 110 regulators imbedded in JPMorgan – not just visiting occasionally to check the books but domiciled inside,’ Morici continues. "Yet, the [JPMorgan chief investment officer (CIO)], which was responsible for the ill-fated trades and manages nearly $400 billion, had not a single official inside its unit.
‘Senior bank executives convinced federal officials the CIO was merely hedging, managing cash and taking no significant risks,’ Morici continues. ‘And naively, regulators believed the bank or were bullied by their political bosses to turn a blind eye. It turns out the unit was also buying stakes in distressed firms, including the publisher of Ebony, which is headed by former Obama White House official and Democratic Party operative Desiree Rogers.’
Morici points to news reports that Rogers, President Obama and First Lady Michelle Obama ‘have between $500,000 and $1 million invested in a JPMorgan 'private client' account’ as a significant conflict of interest in regard to how the administration is handling the matter. Morici also notes that JPMorgan CEO Jamie Dimon is a Democrat whose employees have ‘ploughed huge sums into Democratic campaigns.’
Morici further questions whether having the Dodd-Frank Act's Volcker Rule in place would have been able to stop JPMorgan's losses from occurring.
‘I doubt reasonable implementation of the Volcker Rule prohibiting trading with banks' funds would keep big financial houses from taking such positions,’ he says. ‘Investing in distressed firms is work for private equity and hedge funds, not Federal Deposit Insurance Corp.-insured banks. It is analog to Grandma cashing in CDs to play slots in Las Vegas, and has nothing to do with the Volcker Rule.’