Why the White House Is Sweating JP Morgan
The Wall Street Journal has an intriguing story today about the anxiety in the White House over $2 billion-and-counting loss that JP Morgan announced last week. At first blush, the reason for the angst isn’t entirely clear. After all, the loss would seem to strengthen the case for financial reform, which, as it happens, the president signed into law two years ago, and which Mitt Romney opposes. To the extent that JP Morgan revives the debate over financial reform, it would seem to benefit Barack Obama.
But, alas, the issue is more complicated than that. In particular, the transaction appears to have been a type of proprietary trade—which is to say, a trade that a bank undertakes to make money for itself, not its clients. And these trades were supposed to have been outlawed by the “Volcker Rule” provision of Obama’s financial reform law, at least at federally-backed banks like JP Morgan. The administration is naturally worried that, having touted the law as an end to the financial shenanigans that brought us the 2008 crisis, it will look feckless instead. As the Journal reports:
In this year’s election, the president’s advisers want to champion tougher Wall Street regulations passed in 2010, and worry the argument could be diminished if elements of the law—including the “Volcker rule” restricting speculative investments by banks—end up looking weak.