NewsNation | May 11, 2012
>>> harsh new reaction this hour. j.p. morgan lost $2 billion through ricky trades with its own money. congressman barney frank who co-authored the reform law issued a statement in part saying the financial institutions do not need the new rules to help them avoid the irresponsible actions that led them to the crisis of 2008 is at least $2 billion harder to make today. joining me now, columnist and contributor, zachary carabel. he couldn't wait to get out that statement.
>> i don't buy it. he has an agenda. it is clear. that these regulations have really not gone into effect. we are two years after the passage of this legislation. it is too complicated and people are arguing about it. what is really striking about what happened to j.p. morgan is not that this was the relentless pursuit of greed. it was the loss aversion .
>> explain to us exactly whammed. it was called an egregious error. what happened here?
>> the bank has this internal fund. they were trying to hedge against the risks of their mortgage loans , their housing loans, their european sovereign loans. they had a unit set up to prevent losses. the whole mantra of banks for the past four years is we went through an originally of derivatives of speculation for the housing bubble . now we have to hoard our capital and prevent ourselves from losing money. there is no such thing as risk- free banking . they've gone from one extreme to the other. banks are not putting capital in motion. they are not lending. they are not fulfilling that role in society that is necessary and this fund was an example of why that has happened. not what barney frank has said. this is not an example of relentless greed.
>> his point is that it shows that there needs to be new rules and regulations .
>> the only thing that would prevent this from happening is if you broke these banks up. there is nothing in the dodd frank regulations that will prevent banks using their own capital. what it prevents is using your and my deposits to trade derivatives. this is their money. the bank has a holding company.
>>> the consumers, you and me who saw what happened in 2008 , what is the larger problem?
>> the only way to solve these systemic issues would be to separate these functions in totally separate institutions. right now the incentive for these banks based on regulations on the one hand and shareholders on the other. that is not good for our economy.
>> and not good for anybody trying to get a loan. any of these things. small businesses.
>> and i applaud the attempt to regulate these things. i think these were really infective regulations and i think frank is wrong in saying, this just proves that we need those regulations. the regulations we have don't prevent this.
>> the dow opened lower as a result but it turned up. i don't see the number.
>> flat for the day. which is kind of surprising. you would think this would be a cascade effect . the fact is the dow sold off a lot this week based on europe, based on all these things. in that respect people know there is some trouble in that. of course, the reality is even losing $2 billion, j.p. morgan chase is going to make $4 billion. they are a very large institution with big number.
>> thank you for coming on. have a great weekend. now to the week that was