Bill Black: We Need Glass-Steagall and Bankster Prosecutions

On Thursday, Bill Black, Associate Professor of Law at the University of Missouri at Kansas City, gave his analysis of the arrest of two JPMorgan Chase traders on his regular weekly Internet program, “The Black Report.”

Asked for “the story behind the ‘London Whale’,” Black replied, “This is actually a story of Glass-Steagall, which was the legislation adopted after the Great Depression to prevent conflicts of interest from owning the same investment banking company and a commercial banking company. And we got rid of Glass-Steagall, which had been a brilliant success, in the next to last year of the Clinton administration. And then, of course, we had a disaster, and we passed legislation that’s called the Volcker bill that unfortunately doesn’t simply repeal the repeal of Glass-Steagall, but it’s designed to prevent this kind of speculation in derivatives by commercial banks.”

The big banks get around the Volcker rule by not admitting they are massively speculating, Black says; they call it hedging. But in reality, this [hedging] “was supposed to be a huge source of revenue for JPMorgan — until, of course, it blew up and it turned out they were … taking enormous risk. They lost the risk, they doubled down, and they actually ended up tripling or even quadrupling their losses, and then they decided to cover it up.”

Black makes the point that these are not Wall Street traders: “These are City of London traders. And that’s happening for a reason, because the City of London won the competition in laxity. And so, much of the sleaziest activity in the largest commercial banks in the world moved to the City of London, including the so-called ‘London Whale,’ the huge trader for JPMorgan. But that’s also where the LIBOR scandal has been, the HSBC money laundering scandals, etc., etc., etc. So there’s something very rotten in the heart of the financial industry in the City of London.”

Black then debunks the idea that the Justice Department is going to prosecute Wall Street: “[The DOJ is] not going to try the corporation, not going to bring a criminal case against the top leadership… not even against the guy whose trades, the so-called ‘London Whale’, actually caused the disaster… [it’s] just going to apparently bring a prosecution against the guys that covered it up… So the Justice Department record of refusing to prosecute anybody elite who actually caused the financial crisis is going to remain intact.”

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