Tuesday, May 22, 2012

The Growing Police State: JPMC Edition

Recently, JP Morgan Chase disclosed that it had lost around $2bn in trades designed to increase it's security.  Notwithstanding the monumental screw-up that must be, the Left has leaped at the chance for more regulation.  We're told that JPMC losing $2bn in completely legal trades means those trades should not be legal.  We're told that US Commissions (specifically the SEC and the CFTC) should have the authority to oversee transactions in foreign markets.

Today, the Chairmen of those two committees testified to just those ideas- and their steps to implement them- before the Senate Committee on Banking, Housing, and Urban Affairs.  There testimonies are here and here.

Now, I am not going to defend JPMC for making bad bets.  That was a stupid thing to do: when you're securing against risk, you do that by accepting a lesser return in exchange for greater security.  This is Finance 101, and certainly something of which they were aware.  However, $2bn is roughly 2% of their Revenue for all of 2011.  Think about that.  For a family making 60,000/yr, that would be like losing $1200.00 at a casino. That's significant, yes, but hardly earth-shattering.  Yet we're now supposed to believe that it shows some major fault in "the system."

The major fault in the system is this: our crazy regulatory environment that creates loopholes like the one JPMC used to make the trades in the first place.  It's the regulatory environment that makes companies look to foreign investment and securities as more cost effective (and therefore more secure) than domestic investment and security.  It's the regulatory environment in which unelected, executive-branch committees can, with little or no repercussion, write their own "rules."  That is: they can create Laws- backed by the Justice System of the United States, without those rules ever being voted on by a single elected representative.  Instead, the Congress cedes its legislative authority to these "Commissions" and avoids having to take a stand on these rules.  Instead, they can issue vague guidelines.

And that is just what is going on here.  In 2009, the Dodd-Frank Financial Reform act was passed.  It created exactly the environment in which JPMC made what seemed like a rational decision to invest holdings- to increase security- offshore in London instead of here- under the ever pressent eye of the SEC.  Rather than consider the possibility that a simpler, more rational approach might actually serve the purposes better, we're told that we need more regulation and more rules.  All the while, the noose around American Corporations' necks draws tighter.

Eventually, it will simply not be cost effective to do business as an American Company anymore.  Don't expect JPMC to close up shop, then.  No, expect them to move all their corporate holdings to some other, less regulated, environment.  Unless, of course, the Congress sees to it that there's no escape.

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