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Calls for tougher regulation follow JPMorgan $2 billion derivatives loss

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JPMorgan Chase’s stunning $2 billion derivatives trading loss brought new calls Friday for tougher regulation of banks, with lawmakers blasting JPMorgan’s chief executive Jamie Dimon for fighting tighter rules.

A day after the top US bank revealed the losses on trading its own financial portfolio, powerful Senate veteran Carl Levin linked it to the behavior that sparked the US financial collapse in 2008, sending the country deeper into recession.

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“JPMorgan’s loss is a stark warning about the dangers of having major banks take risky bets,” he said.

“We were forced not too long ago to bail out banks which had made these kind of risky bets. We never want to do that again.”

Levin blamed poor implementation of the post-crash reforms meant to reduce the risks of one bank sparking a major meltdown — the Dodd-Frank Wall Street reforms.

A key part of Dodd-Frank is the Volcker rule, which aims at banning banks from trading their financial assets as a part of their usual business — the so-called proprietary trade.

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But US banks, led by Dimon himself, have strongly fought the rules. The result, according to Levin, is that the regulators have left a “massive loophole” that permits just the kind of activity that caused JPMorgan’s loss.

That loophole allows banks to engage in “portfolio hedging” — taking out broad bets in all kinds of areas aimed at mitigating possible losses elsewhere.

Levin says the law limits banks to only hedging specific assets.

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“Hedging is allowed, but this kind of portfolio hedging, or hedging on the direction of the economy, is not allowed,” he told journalists Friday.

“When those kinds of bets are lost, we all pay the price. We pay the price when banks need to be bailed out because they are too big to fail.”

The banks argue the rules are unnecessary, that they can police themselves and that implementing them will cost them a lot.

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But another legislator, Barney Frank, rebuffed that Friday.

“JPMorgan Chase, entirely without any help from the government, has lost in this one set of transactions, five times the amount they claim financial regulation is costing them.”

Economist John Makin of the conservative American Enterprise Institute — no friend to government regulation — said tighter rules for banks were necessary.

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“Depository institutions that enjoy protection afforded by deposit insurance and their absolute large size — too big to fail — should not be allowed to engage in proprietary trading. Time to implement the Volcker rule.”

But the Federal Reserve, the main regulator, is also caught between making the banks safer at this point — forcing higher capital reserves and reining in often highly profitable proprietary trade — and keeping controls looser so as not to already sluggish economic growth.

“The Fed faces a difficult choice,” said Makin.

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“Over the longer term, the Fed will want to put bankers on a shorter tether, that limits proprietary trading.”

But some analysts said that the JPMorgan case shows that banks are so large now no one can manage the risks.

“When you have the supposedly best-managed bank of the country making a mistake of this magnitude raises the question if anybody is able to manage a bank of this size,” said Rochdale Securities banking analyst Dick Bove.

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“The regulatory pressure to break up the banks will increase”

“The lessons from JP Morgan’s losses are simple. Such banks have become too large and complex for management to control what is going on,” said Simon Johnson, professor at MIT and a former IMF chief economist.

AFP Photo/Alex Wong

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Enjoy this piece?

… then let us make a small request. Like you, we here at Raw Story believe in the power of progressive journalism — and we’re investing in investigative reporting as other publications give it the ax. Raw Story readers power David Cay Johnston’s DCReport, which we've expanded to keep watch in Washington. We’ve exposed billionaire tax evasion and uncovered White House efforts to poison our water. We’ve revealed financial scams that prey on veterans, and efforts to harm workers exploited by abusive bosses. We’ve launched a weekly podcast, “We’ve Got Issues,” focused on issues, not tweets. Unlike other news sites, we’ve decided to make our original content free. But we need your support to do what we do.

Raw Story is independent. You won’t find mainstream media bias here. We’re not part of a conglomerate, or a project of venture capital bros. From unflinching coverage of racism, to revealing efforts to erode our rights, Raw Story will continue to expose hypocrisy and harm. Unhinged from corporate overlords, we fight to ensure no one is forgotten.

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2020 Election

Trump campaign mocked after unveiling new red hats: ‘Do you have arm bands as well?’

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President Donald Trump's 2016 "Make America Great Again" hats have been replaced with new "Keep America Great" hats.

Trump re-election campaign manager Brad Parscale modeled one of the hats on Twitter.

Here is some of what people were saying:

https://twitter.com/LazarusLeBaron/status/1165430924093165568

Here I made an arm band design for you pic.twitter.com/inTyqVi2wo

— Christopher Goodwin (@LazarusLeBaron) August 25, 2019

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‘This will not end well’: Far-right extremism expert warns of Trump’s intensifying authoritarianism

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An expert on the far-right in America warned of President Donald Trump's "genuinely dangerous levels" of authoritarianism on Saturday.

Author David Neiwert posted a long Twitter thread on the commander-in-chief's "Social Dominance Orientation" -- and warned it will not end well.

Neiwert is the author of the 2017 book Alt-America: The Rise of the Radical Right in the Age of Trump.

Here is the thread he posted:

https://twitter.com/DavidNeiwert/status/1165428067138846720

https://twitter.com/DavidNeiwert/status/1165428524808724480

https://twitter.com/DavidNeiwert/status/1165429018486702081

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2020 Election

‘The Mooch’ attended Biden fundraiser in the Hamptons — because Trump ‘has lost his mind’

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Former White House press secretary Anthony Scaramucci attended a fundraiser for former Vice President Joe Biden on Saturday.

CBS News reporter Ben Mitchell posted a photo of Scaramucci at the event, and subsequently interviewed "The Mooch."

Scaramucci said he was still a registered Republican, but added that Trump "has lost his mind."

Spotted at a Biden event in the Hamptons: Fmr. Trump WH Comms Director Anthony @Scaramucci pic.twitter.com/PWVTZ8Qm15

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