In the aftermath of JPMorgan's $2 billion loss, which could bloat to as much as $4 billion in the coming weeks, critics of Wall Street have pressed the government to strengthen its oversight of the financial industry. But would that be enough to prevent a repetition of the financial crisis? Some say the very existence of JPMorgan and other too-big-to-fail banks represents a constant threat to the global economy — as well as the taxpayers who will have to rescue them if they collapse. Is the best solution to cut big banks down to size?
Yes. Regulation alone can't save the banks from themselves: JPMorgan's debacle shows that "there is no foolproof way to regulate banks," says Arnold King at The National Review. Government watchdogs would need "God-like powers" to prevent "errors in judgment, overconfidence, misguided innovation, or unforeseen events." At the very least, government regulators would have to know more about banking than the bankers themselves, and such brilliant regulators "might be rather difficult to find." JP Morgan is "about ten times as large as any bank ought to be," and the only way to protect the economy is to make banks smaller.
"Once again, break up the banks"
And the bankers can't be trusted: JPMorgan Chase CEO Jamie Dimon "is the smartest guy in banking today," weathering the financial crisis better than any of his peers, says Charles Gasparino at The New York Post, and even he can lose billions of dollars on a dumb trade. It's clear that neither the government nor Wall Street can regulate the industry, and we shouldn't allow "so much risk to be housed in just a few large institutions like JPMorgan, Citigroup, and Bank of America." The failure of just one of these institutions will cause catastrophic "ripple effects in the global markets," meaning that taxpayers will have to foot the bill.
"Break up the banks"
Banks should return to their roots: Smaller isn't necessarily the only answer. "What banking most needs is to become boring, the way the business was before bankers became addicted to trading profits," says Joe Nocera at The New York Times. JPMorgan should be using its customer deposits to make loans, not investing in credit default swaps and other complex financial products that have the potential to explode. The government needs to take action to ensure that big commercial banks are discouraged from engaging in the casino-like game of investment banking.
"Make banking boring"