Why the Senate Won’t Touch Jamie Dimon: JPM Derivatives Prop Up U.S. Debt

When Jamie Dimon, CEO of JPMorgan Chase Bank, appeared before the Senate Banking Committee on June 13, he was wearing cufflinks bearing the presidential seal.  “Was Dimon trying to send any particular message by wearing the presidential cufflinks?” asked CNBC editor John Carney.  “Was he . . . subtly hinting that he’s really the guy in charge?”

The groveling of the Senators was so obvious that Jon Stewart did a spoof news clip on it, featured in a Huffington Post piece titled “Jon Stewart Blasts Senate’s Coddling Of JP Morgan Chase CEO Jamie Dimon,” and Matt Taibbi wrote an op-ed called “Senators Grovel, Embarrass Themselves at Dimon Hearing.”  He said the whole thing was painful to watch.

“What is going on with this panel of senators?” asked Stewart.  “They’re sucking up to Jamie Dimon like they’re on JPMorgan’s payroll.”  The explanation in a news clip that followed was that JPMorgan Chase is the biggest campaign donor to many of the members of the Banking Committee.

That is one obvious answer, but financial analysts Jim Willie and Rob Kirby think it may be something far larger, deeper, and more ominous.  They contend that the $3 billion-plus losses in London hedging transactions that were the subject of the hearing can be traced, not to European sovereign debt (as alleged), but to the record-low interest rates maintained on U.S. government bonds.

The national debt is growing at $1.5 trillion per year.  Ultra-low interest rates MUST be maintained to prevent the debt from overwhelming the government budget.  Near-zero rates also need to be maintained because even a moderate rise would cause multi-trillion dollar derivative losses for the banks, and would remove the banks’ chief income stream, the arbitrage afforded by borrowing at 0% and investing at higher rates.

The low rates are maintained by interest rate swaps, called by Willie a “derivative tool which controls the bond market in a devious artificial manner.”  How they control it is complicated, and is explored in detail in the Willie piece here and Kirby piece here.

Kirby contends that the only organization large enough to act as counterparty to some of these trades is the U.S. Treasury itself.  He suspects the Treasury’s Exchange Stabilization Fund, a covert entity without oversight and accountable to no one. Kirby also notes that if publicly-traded companies (including JPMorgan, Goldman Sachs, and Morgan Stanley) are deemed to be integral to U.S. national security (meaning protecting the integrity of the dollar), they can legally be excused from reporting their true financial condition.  They are allowed to keep two sets of books.

Interest rate swaps are now over 80 percent of the massive derivatives market, and JPMorgan holds about $57.5 trillion of them.  Without the protective JPMorgan swaps, interest rates on U.S. debt could follow those of Greece and climb to 30%.  CEO Dimon could, then, indeed be “the guy in charge”: he could be controlling the lever propping up the whole U.S. financial system.

Hero or Felon?

So should Dimon be regarded as a national hero?  Not if past conduct is any gauge.  Besides the recent $3 billion in JPMorgan losses, which look more like illegal speculation than legal hedging, there is JPM’s use of its conflicting positions as clearing house and creditor of MF Global to siphon off funds that should have gone into customer accounts, and its responsibility in dooming Lehman Brothers by withholding $7 billion in cash and collateral.  There is also the fact that Dimon sat on the board of the New York Federal Reserve when it lent $55 billion to JPMorgan in 2008 to buy Bear Stearns for pennies on the dollar.  Dimon then owned nearly three million shares of JPM stock and options, in clear violation of 18 U.S.C. Section 208, which makes that sort of conflict of interest a felony.

Financial analyst John Olagues, a former stock options market maker, points out that the loan was guaranteed by $55 billion of Bear Stearns assets.  If Bear had that much in assets, the Fed could have given it the loan directly, saving it from being swallowed up by JPMorgan.  But Bear did not have a director on the board of the NY Fed.

Olagues also notes that JPMorgan received an additional $25 billion in TARP payments from the Treasury, which were evidently paid off by borrowing from the NY Fed at a very low 0.5%; and that JPM executives received some very large and highly suspicious bonuses called Stock Appreciation Rights and Restricted Stock Units (complicated variants of employee stock options and restricted stock).  In 2009, these bonuses were granted on the day JPMorgan stock reached its lowest value in five years.  The stock quickly rebounded thereafter, substantially increasing the value of the bonuses.  This pattern recurred in 2008 and 2012.

Olagues has evidence of systematic computer-generated selling of JPMorgan stock immediately prior to and on the dates of the granted equity compensation.  Collusion to manipulate the stock to accommodate the grant of options is called “spring-loading” and is a violation of SEC Rule 10 b-5 and tax laws, with criminal and civil penalties.

All of which suggests we could actually have a felon at the helm of our ship of state.

There is a movement afoot to get Dimon replaced on the Board, on the ground that his directorship represents a clear conflict of interest.  In May, Massachusetts Senate candidate Elizabeth Warren called for Dimon’s resignation from the NY Fed board, and Vermont Senator Bernie Sanders has used the uproar over the speculative JPM losses to promote an overhaul of the Federal Reserve.  In a release to reporters, Warren said:

“Four years after the financial crisis, Wall Street has still not been held accountable, and that lack of accountability has history repeating itself—huge, risky financial bets leading to billions in losses. It is time for some accountability. . . . Dimon stepping down from the NY Fed would be at least one small sign that Wall Street will be held accountable for their failures.”

But what chance does even this small step have against the gun-to-the-head persuasion of a nightmare collapse of the entire U.S. debt scheme?

Propping Up a Pyramid Scheme

Is there no alternative but to succumb to the Mafia-like Wall Street protection racket of a covert derivatives trade in interest rate swaps?  As Willie and Kirby observe, that scheme itself must ultimately fail, and may have failed already.  They point to evidence that the JPM losses are not just $3 billion but $30 billion or more, and that JPM is actually bankrupt.

The derivatives casino itself is just a last-ditch attempt to prop up a private pyramid scheme in fractional-reserve money creation, one that has progressed over several centuries through a series of “reserves”—from gold, to Fed-created “base money,” to mortgage-backed securities, to sovereign debt ostensibly protected with derivatives.  We’ve seen that the only real guarantor in all this is the government itself, first with FDIC insurance and then with government bailouts of too-big-to-fail banks.  If we the people are funding the banks, we should own them; and our national currency should be issued, not through banks at interest, but through our own sovereign government.

Unlike Greece, which is dependent on an uncooperative European Central Bank for funding, the U.S. still has the legal power to issue its own dollars or borrow them interest-free from its own central bank.  The government could buy back its bonds and refinance them at 0% interest through the Federal Reserve—which now buys them on the open market at interest like everyone else—or it could simply rip them up.

The chief obstacle to that alternative is the bugaboo of inflation, but many countries have proven that this approach need not be inflationary.  Canada borrowed from its own central bank effectively interest free from 1939 to 1974, stimulating productivity without creating inflation; Australia did it from 1912 to 1923; and China has done it for decades.

The private creation of money at interest is the granddaddy of all pyramid schemes; and like all such schemes, it must eventually collapse, despite a quadrillion dollar derivatives edifice propping it up.  Willie and Kirby think that time is upon us.  We need to have alternative, public and cooperative systems ready to replace the old system when it comes crashing down.

35 Responses

  1. It continues to amaze me how long has gone on for … literally centuries, as you point out, though formerly there were off-sets to it being entirely a Ponzi scheme and/or casino, e.g. regular and regulated banking, conventional investing and a productive, real, growing economy.

    Mind you growth had to cease eventually, e.g. because of resource depletion. Perhaps knowledge of this was a main factor in the shift from capitalism to financialism.

    • gerry, nothing is going to change because these ‘financial facists’ own the US government. Only when the ‘revolving door’ between The FED, The Treasury, The White House, and the Mega Banks, is finally bolted shut, will there be a chance to clean up this stinking pile of ‘ordure’

  2. Groveling now. Demanding answers later. Dimon is starting to sound like Murdoch, and we all know what happened to him. The cheekiness of the idle rich is amazing. They often get into trouble by believing their own hype. Dimon’s days may be numbered. At least his term on the Fed is up this year.

  3. Replacing Dimon won’t accomplish anything. Even prosecuting him won’t have much of a impact on banking unless this also leads to changes in how our money is created. Nationalized the Fed or bust.

    • Fed profits are RETURNED TO THE TREASURY. The govt in effect controls the FED

      Be careful of change. As Euro countries are now finding out.

      • RJ, do you believe there’s a “Fed” or do you believe that Federal Reserve Banks are separate institutions from the Federal Reserve Board of Governors? Do the taxpayers own the assets of the Federal Reserve Bank of NY? If not, who does?

  4. [...] http://webofdebt.wordpress.com/2012/06/19/why-the-senate-wont-touch-jamie-dimon-jpm-derivatives-prop… [...]

  5. [...] and cooperative systems ready to replace the old system when it comes crashing down.Ellen Brown Web of DebtPosted: We3dnesday, 20 June [...]

  6. [...] Why the Senate Won’t Touch Jamie Dimon: JPM Derivatives Prop Up U.S. Debt – WordPress [...]

  7. [...] http://webofdebt.wordpress.com/2012/06/19/why-the-senate-wont-touch-jamie-dimon-jpm-derivatives-prop… [...]

  8. Of course that’s what is going on. Why are you the first and only one to come out and say it? The rest of the pundents need to step upto the plate and tell it like it is, so the people in this country take their heads out of the sand and get ready for what is coming.

  9. [...] chair and stroke him with the Invisible Hand of the Free Market.” But as journalist Ellen Brown explains, the answer is deeper than the mere fact that JP Morgan is the biggest campaign donor to many [...]

  10. [...] CONTINUED HERE Share this:PrintMoreRedditDiggTwitterFacebookStumbleUponEmailLike this:LikeBe the first to like this. [...]

  11. [...] Ellen Brown writes, “When Jamie Dimon, CEO of JPMorgan Chase Bank, appeared before the Senate Banking Committee on June 13, he was wearing cufflinks bearing the presidential seal.” ‘Was Dimon trying to send any particular message by wearing the presidential cufflinks?’ asked CNBC editor John Carney. “Was he…subtly hinting that he’s really the guy in charge?” [...]

  12. Something that needed to be said. Thank you!

  13. Interesting, but not clear. I checked the two references on how CDSs are used to keep the interest on US debt low. But I did not find a clear explanation. All securities, bonds, derivatives must be held by someone, if newly issued they must be bought by someone. Unless it is explained who is holding these securities, who is buying them and why and how the price gets to be determined, there is no real explanation.

    Apart from this, I am a great admiere of Web of Debt!

    Claude

    • Well Claude, there is NO clear explanation of derivatives. No one knows “the size of the market” (except it’s at least trillions of dollars and FAR larger than the global real economy).

      Your mistake, like mine was, to believe that actual contracts were written; but they are not. None of it is ever actually owned by anyone.

      The TBTFs do algorithic trading in nano-seconds.

      It is all rigged.

      The simplest example is toxic mortgages that got bundled with prime and sold with no actual exchange of documents.

      I suggest that you subscribe to ZeroHedge, which is where I got my head somewhat around what is essentially chaos.

      And/or you could watch Max Keiser on RT though, in my view, he is too frenetic and too much of a believer in PMs.

      And/or watch RTs “Capital Account” with Lauren Lister on YouTube.

      If you want to at least partially understand the chaos/insanity that prevails, then you will have to do what I did from about three years ago, i.e. start looking around for those who have tried to make some kind of sense of where we are at … I’ve given you some starters.

    • After mailing the above comment I went for a walk. The movement of the legs stimulates the brain and the mechanism became clear to me. It is actually quite simple: By flooding the market with cdss on US debt, the banks make it cheap to insure against default. This makes the debt safe and interest rates low. Under present arrangements this cannot go on forever. <Investors will realize that neither can the US go on forevewr refinancing its growing debt, nor would the banks be able to make good on the CDSS that they issued.

      The US does have an easy way out though. As Ellen Browen argues in her book, the government could create at essentially no cost all the money needed to buy up the debt. This would create an inflation, but it would be finite and end after an end to the money creation. In the meantime the economy would be stimulated which it direly needs.

      • Govt debt has two sides

        -The Govt debt liability and

        -The bond asset held by the non Govt sector. These are held in part by pension funds.

        Lower bond interest rates will just smash pension funds and savers.

        US Govt debt is created by a journal entry (it is not borrowed from banks first like our debt). We need a lot more not less to fund our pension savings. The higher the interest the better off the non Govt sector is.

        I know it seems back the front but this is the reality for MONETARY SOVEREIGN GOVTS. As the US has been since around 1971.

  14. [...] Ellen Brown writes, “When Jamie Dimon, CEO of JPMorgan Chase Bank, appeared before the Senate Banking Committee on June 13, he was wearing cufflinks bearing the presidential seal.” ‘Was Dimon trying to send any particular message by wearing the presidential cufflinks?’ asked CNBC editor John Carney. “Was he…subtly hinting that he’s really the guy in charge?” [...]

  15. [...] Ellen Brown asks the key question ~ Is there no alternative but to succumb to the Mafia-like Wall Street protection racket of a covert derivatives trade in interest rate swaps?“ As Willie and Kirby observe, that scheme itself must ultimately fail, and may have failed already.  They point to evidence that the JPM losses are not just $3 billion but $30 billion or more, and that JPM is actually bankrupt ; The derivatives casino itself is just a last-ditch attempt to prop up a private pyramid scheme in fractional-reserve money creation, one that has progressed over several centuries through a series of “reserves” ~ from gold, to Fed-created “base money,” to mortgage-backed securities, to sovereign debt ostensibly protected with derivatives.  We’ve seen that the only real guarantor in all this is the government itself, first with FDIC insurance and then with government bailouts of too-big-to-fail banks.  If we the people are funding the banks, we should own them; and our national currency should be issued, not through banks at interest, but through our own sovereign government.” See full article: http://webofdebt.wordpress.com/2012/06/19/why-the-senate-wont-touch-jamie-dimon-jpm-derivatives-prop… [...]

  16. How is it that anyone can think that publicly traded companies (including JPM, Goldman Sachs and Morgan Stanley) are integral to US national security, can legally be excused from reporting their true financial condition, and can be allowed to keep two sets of books? .
    The TBTF banks are not protecting the integrity of the dollar, they should not be legally excused from reporting their true financial condition, and should not be allowed to keep two sets of books. This is insane, and extremely dangerous to our national security.
    When John Stewart observed the senate sucking up to Jaime Dimon, and asked what was going on with this panel of senators, he was right in concluding that they are on JPMorgan’s payroll. The presidential cufflinks are a symbol, intentional or not, of who Jaime Dimon really is. The absolute absurdity of the senator asking advice from Jamie Dimon, the fox who guards the henhouse, as Bernie Sanders has said, is another example of how the banktrocracy, the imperial oligarchs are pulling our stings. And as Matt Taibi has said in his article, the groveling of the senators to Jaime Daimon is extremely painful to watch.
    Jaime Dimon is no hero, except to those who are in his pocket and the 1%.
    I agree with Ellen Brown that if we, the 99%, are funding the banks, we should own them; we should have public state, city, and local banks like BND, and our national currency should be issued, not through banks at interest, but through our own sovereign government.
    The private creation of money at interest is the pyramid scheme we now have thanks to the TBTF banks, and as has already happened, these schemes will sooner or later collapse, in spite of the gazillion dollar derivatives phony structure propping it up now.

  17. [...] See full article: [...]

  18. The United States must cycle into a new, less controversial, and more reliable system that does not give too much power to public companies such as JP Morgan. JPM owns 57.5 trillion of interest rate swaps that are used to maintain low interest rates. Public companies have too much influence on the financial system and as the title of the article implies, they are indeed propping up the U.S. debt. Perhaps there is some way that a low federal funds rate may be maintained without giving all the power to companies such as JPM that own such a large portion of these swaps. JP Morgan’s exemption from reporting their true financial condition is misleading to investors. In reality, JP Morgan is actually tens of billions of dollars in debt, but they do not have to report that, why? Because we let them have authority and influence our financial system, so they may receive special treatment in return?

    I think we need to get publically traded companies off of the pedestal and let them sink or swim by themselves. Major CEOs should not be allowed to do whatever they want and in turn have punishment by law not be an option. The United States of America is in need of a new system that gives focus to our reliable central bank that we can borrow from interest free rather than through open market purchases. The U.S. must roll over trillions of dollars in debt in the years to come. This does not seem possible without the Fed getting more involved. As Canada, Australia, and China have done successfully, the U.S. government should buy back bonds at 0% interest through the Federal Reserve. This buying back of existing bonds will help to promote growth by making money more available to businesses, home buyers, and consumers which will hopefully lead to a full recovery in just a couple of years.

    However, there is a catch with these near 0 rates that encourage borrowing. Those that qualify for loans for cars, houses, etc. may not be the most credit worthy. Isn’t this how the subprime financial crisis was created in the first place? Low rates attract everybody to get loans while the rates are low, but not everybody will stay true to these loans.

    Either way, us Americans can only suggest policy fixes and hope that The Fed encourages growth in an effective manner to lead our country into better times once again.

  19. JPM is integral to manipulating markets, stocks (PPT), and commodities, to the government’s advantage. Since the bankers own the government, Dimon is a top asset. The senate isn’t going to touch him, as he could probably send any one of them packing with the wave of his hand. Thanks, Ellen, and be well, Rob

  20. It’s July 4th, 2012 – Do YOU KNOW what time it is?
    (It’s time to pass H.R. 459, and AUDIT THE ‘FED’!)

    http://chooseliberty.org/auditrphf3.aspx?pid=0703

  21. Ellen:

    Please make your case for, or against, HR 2990, which will create United States Money, incorporate the Fed into the Treasury, create the United States Monetary Authority as an organ of the Treasury, outlaw fractional reserve banking, issue United States Money to retire debt as it becomes due, and create United States Money for the development and maintenance of infrastructure that includes rail, roads, bridges, schools, and teachers.

    • Couldn’t agree more. The USA had a chance to take back the power from the FED, and in the process let these thieving criminals go down the toilet. But they missed their chance (Iceland let their Banks go down and now their economy is recovering strongly) The US Govt should prepare for the next crash and wipe out the Cartel when it happens.

      • Thanks, Mate.

        Ellen, back to you…

  22. Hi Ellen, everyone, not least my compatriot Brian in Australia.

    Ellen and I had some correspondence a few years back, when she cited the original Commonwealth Bank of Australia as being a model for state-owned banks, as was the Rural & Industries Bank of Western Australia. But all that got swept away during heady-eighties of privatizing everything in sight.

    The ‘Labour’ Treasurer Keating described himself as “the Greatest Treasurer on Earth”. Famous?

    How about INFAMOUS? He out-did Reagan, Thatcher, Milton Freidman and even Ayn Rand.

    He and the Murdoch-installed Hawke put an end to anything resembling the (tenuous) myths of “fair go” and “mateship”.

    Usans think, with reason, that their value-added manufacturing base has been hollowed out and that their sundry consumer bubbles are popping – well those who actually think – but it’s probably as nothing compared with what’s due in Australia, e.g. our housing bubble.

    We are an almost literal hole in the ground.

    Gina Rinehardt is reputedly the richest woman in the world, totally and solely from mining raw materials to China.

    BHP? Same. There is NO Australian economy … just frantic exports of raw materials to mask the fact that Australia is bankrupt.

    Perhaps we are the proverbial “canary in the coal mine” (yes coal is a major export too) because when we collapse, we might serve as an object lesson … and maybe there are some left who remember what public banking can do.

    T’would be nice is we “did an Iceland” and told the international financiers/banksters to take a hike to gaol.

    Rant over.

  23. I forgot to mention.

    My intuition is that nothing can be done until crisis really hits.

    ‘Til then Tom Cruise rules (or any other circus or bread).

    All anyone can do is stay informed and hope that, come the day, there will be readiness.

  24. So sad but true about what has been said about Australia. She has fallen and is the banking mafia’s wet dream.

    Interesting of note was how Australia faired in the 30’s depression as well as the role the public banks and Government had in all of it. With the 80’s privatise everything she is a shell by comparison and a hell hole to live in.

    We need to bring Politicians and corporate criminals resposible for destruction of Commonwealth to trial and then asset strip them whilst imposing public service for the rest of their lives as punishment. Make them poor and inservitude to the societies they have destroyed.

  25. [...] Why the Senate Won’t Touch Jamie Dimon: JPM Derivatives Prop Up U.S. Debt http://webofdebt.wordpress.com/2012/…p-up-u-s-debt/ [...]

  26. [...] http://sgtreport.com/2012/06/why-the-senate-wont-touch-jamie-dimon-jpm-derivatives-prop-up-u-s-debt/ Read More [...]

  27. You could definitely see your expertise within the paintings you write. The world hopes for even more passionate writers like you who are not afraid to say how they believe. All the time go after your heart.

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