Obama should attack what Bain and JPMorgan have in common
Rather than lobbing generalized attacks at Mitt Romney and American business, Obama should attack a particular kind of capitalism that Romney and JPMorgan both practice: using other peoples鈥� money to make big bets which, if they go wrong, can wreak havoc on the economy.
President Barack Obama waves as he board Air Force One before his departure from Andrews Air Force Base, Md., Wednesday, May, 23, 2012. Reich argues that Obama should draw the link between the risky financial practices of Bain Capital and JPMorgan.
Pablo Martinez Monsivais/AP
I wish President Obama would draw the obvious connection between Bain Capital and JPMorgan Chase.
That way his so-called 鈥渁ttack鈥� on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.
It鈥檚 an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples鈥� money to make big bets which, if they go wrong, can wreak havoc on the economy.
It鈥檚 the substitution of casino capitalism for real capitalism, the dominance of the betting parlor over the real business of America, financial innovation rather than product innovation.
It鈥檚 been terrible for the American economy and for our democracy.
It鈥檚 also why Obama has to come out swinging about JPMorgan. The JPMorgan Chase debacle would have been prevented if the Volcker Rule were sufficiently strict, prohibiting banks from using commercial deposits to make bets except very specific offsetting bets (hedges) on narrow classes of trades.
But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they鈥檙e still at it, as evidenced by Dimon鈥檚 current claim that the rule that eventually emerges would allow those bets.
As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite 鈥� a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance 鈥� any exception 鈥� will be stretched beyond recognition by the big banks.
So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open.
There鈥檚 no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.
At the same time, there鈥檚 no point to the 鈥渃arried interest鈥� loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they鈥檝e risked no money of their own.
If private equity were good for America it wouldn鈥檛 need this or the other tax preference it depends on, elevating debt over equity. But the private equity industry has huge political clout, which is why these tax preferences remain.
Get it? Bain Capital and JPMorgan are parts of the same problem. The President should be leading the charge against both.