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? money to make big bets which, if they go wrong, can wreak havoc on the economy.

By Robert Reich,?Guest blogger / May 24, 2012

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

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I wish President Obama would draw the obvious connection between Bain Capital and JPMorgan Chase.

Skip to next paragraph Robert Reich

Robert is chancellor?s professor of public policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Clinton. Time Magazine?named him one of the 10 most effective cabinet secretaries of the last century. He has written 13 books, including ?The Work of Nations,? his latest best-seller ?Aftershock: The Next Economy and America?s Future," and a new?e-book, ?Beyond Outrage.??He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

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That way his so-called ?attack? on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.

It?s an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples? money to make big bets which, if they go wrong, can wreak havoc on the economy.

It?s 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?s been terrible for the American economy and for our democracy.

It?s 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?re still at it, as evidenced by Dimon?s 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 ? a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance ? any exception ? 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?s 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?s no point to the ?carried interest? loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they?ve risked no money of their own.

If private equity were good for America it wouldn?t 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.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.robertreich.org.

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