/node/55439Citing a silver lining in J.P. Morgan Chase & Co.’s $2 billion trading loss,Treasury Secretary Timothy Geithner said on Tuesday that the banking debacle will greatly strengthen the Obama administration’s hand in fending off efforts by Wall Street to dilute the Dodd-Frank financial overhaul legislation enacted in the wake of the worst financial crisis of modern times.
Since the law was signed by President Obama in July 2010, Wall Street executives including Jamie Dimon, CEO of J.P. Morgan Chase, have criticized it as excessive government regulation, including capital, liquidity and transparency requirements and the so-called Volcker rule that strongly limits the amount of capital that banks may invest in private equity and hedge funds.
Now, with Dimon reeling from the uproar over J.P. Morgan Chase’s reckless and costly hedging which even Dimon acknowledged was “egregious’ and “stupid,” Geithner and the administration apparently feel they are back in the catbird seat in demanding tough rules to limit risk by mega banks.
“We are very confident that we will be able to make sure those come out as tough and effective as they need to be and I think this episode helps to make that case,” Geithner said during a conference on fiscal and budgetary issues sponsored by the Peter G. Peterson Foundation.*
Geithner said he hasn’t spoken with Dimon, -- who is known by some as “the King of Wall Street ” -- since news of the huge loss rocked the financial world last week. Federal regulators have launched an investigation into the financial debacle, which so far has led to the resignation of Ina Drew, the chief investment officer. Lawmakers including Sen. Carl Levin, D-Mich., and Rep. Barney Frank, D-Mass., a chief author of the financial overhaul legislation, said that the banking industry would lose the battle to defang the new law because of the J.P. Morgan Chase debacle.
“This failure in management is a very powerful case for reform, for financial reform” he said. “The reforms we still have ahead and the reforms that have already been put in place. The test of reform is not whether you can prevent banks from making mistakes. That’s going to happen. It’s inevitable. The test of reforms should be, do those mistakes put at risk the broader economy . . . and the best way to prevent that from happening to make sure you force banks to hold more capital, which we’ve done, to fund themselves more conservatively to bring down leverage, and to make sure the rest of the financial system has better cushions against these kinds of mistakes.”
The Peterson Foundation’s third annual fiscal summit in Washington comes amid growing concerns about a potential year-end explosion of tax increases and federal spending cuts that many experts warn could jar the economy and set back the recovery unless modulated by Congress. At the close of 2012 and the dawning of 2013, many major fiscal events are set to occur simultaneously. It’s what Federal Reserve Board Chairman Ben Bernanke has called “a fiscal cliff” of spending and tax changes of a high magnitude. These include expiration of the Bush era tax cuts, the payroll tax cut and other important tax provisions. They also include the activation of the first installment of the $1.2 trillion across the board cuts or ‘sequester” of domestic and defense spending.