On Friday – we wrote about the huge debacle at JP Morgan losing what is now reported to be up to a a $4 billion loss for risky trades – source HERE. Regulators are going to give the final decision in July as to whether or not banks should be able to conduct proprietary trades thanks to the Dodd-Frank Act that Mitt Romney wants to completely eliminate.
Paul Krugman writes in his column:
Banks are special, because the risks they take are borne, in large part, by taxpayers and the economy as a whole. And what JPMorgan has just demonstrated is that even supposedly smart bankers must be sharply limited in the kinds of risk they’re allowed to take on. Why, exactly, are banks special? Because history tells us that banking is and always has been subject to occasional destructive ‘panics,’ which can wreak havoc with the economy as a whole…So what can be done? In the 1930s, after the mother of all banking panics, we arrived at a workable solution, involving both guarantees and oversight. On one side, the scope for panic was limited via government-backed deposit insurance; on the other, banks were subject to regulations intended to keep them from abusing the privileged status they derived from deposit insurance, which is in effect a government guarantee of their debts.
