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Morgan Chase, Bank of America
Flunk Glass-Steagall Test

April 19, 2010 (EIRNS)—J.P. Morgan Chase and Bank of America, at or near the top of bank holding companies in the United States, both reported multi-billion dollar profits for the first quarter of 2010 last week. The two banks were also bailed out by the U.S. government. At the time of its bailout in 2008, Morgan Chase had the largest hedge fund unit in the United States.

After the announcement, EIR investigated these so-called profits from the standpoint of the Glass-Steagall regulations which had been the law of the land from the time they were implemented by President Franklin Roosevelt, until the standard was overturned in 1999.

Not surprisingly, it appears that both banks lost money on those aspects of their business that would be legal under the Glass-Steagall standard, and made all of what they termed "profits" from the sorts of speculation, manipulation, and gambling which would have been outlawed by the Glass-Steagall regulations.

J.P. Morgan Chase reported a profit of $3.3 billion for the quarter, but all of that profit came from the speculative side-investment banking, asset management, Treasury and securities services, and corporate/private equity. All told, these activities generated $3.3 billion in claimed income. The banking side—that is, that part which would be permitted under Glass-Steagall—actually lost money, reporting a loss of $44 million.

Bank of America reported similar results. The bank reported $3.7 billion in income from its investment banking and money- management activities, and lost $406 million on its traditional banking activities.

These are rough calculations, based upon general business categories, and while EIR suspects that the truth is even worse than these figures suggest, they are sufficient to make the point: These banks have, in the absence of honest and effective regulation, destroyed themselves.

  • Morgan Chase has a whopping $78.5 trillion in derivatives—99.9% of its total holdings—inside its commercial bank.

  • Bank of America has $44 trillion of derivatives inside its commercial bank, and another $28 trillion in its Merrill Lynch subsidiary, for a total of $72.5 trillion.

These are not banks; they are casinos, and their continued existence comes at the expense of the United States, its people, and what remains of the U.S. economy. The Obama Administration has continued the policy of bailing out the parasites, which continue to feed off the public. Glass-Steagall-type regulations must be re-instituted—quickly—as part of an overall bankruptcy reorganization of the global economy, if the United States and the rest of the world are to survive.