Bove to Moneynews: In Suing JPMorgan, Government Is Really Going After US Public

Monday, 12 Aug 2013 07:03 PM

By Dan Weil and David Nelson

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The multitude of government investigations against JPMorgan Chase, the country's largest bank, actually represent attacks against the bank's shareholders and depositors, and that means the public, says star bank analyst Dick Bove, vice president of research at Rafferty Capital Markets.

The investigations have been triggered by JP Morgan CEO Jamie Dimon's strong criticism of banking regulation in recent years and the bank's $6 billion loss in the London Whale trading scandal, Bove tells Newsmax TV in an exclusive interview.

The government, by going after the bank itself rather than its executives, is really taking on the shareholders and depositors, Bove says. "They're not really suing a company, they're suing the shareholders and depositors in that company, and that is the American people," he says.



"So from the standpoint of someone like myself, the end game is that they're attacking the American people. . . . It just doesn't seem right."

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Bove's not saying the government should turn a blind eye to banks' wrongdoings. But, "it should go after the people that did the things that they consider to be inappropriate," he says.

"In other words, if these two traders at JP Morgan [who are being investigated over the London Whale affair] did misrepresent the [positions] that they were accruing, they should be attacked for it."

People who broke the law in writing mortgage-backed securities inappropriately "should pay for it," Bove says. "If there were people who in fact looked in the other direction in terms of underwriting new securities, they should pay for it."

But shareholders shouldn't suffer as a result, he says. "The shareholders trusted management to act appropriately, and when management doesn't act appropriately, management should be punished, not the shareholders."

It's ironic in that during the financial crisis, JPMorgan took over Bear Stearns and Washington Mutual at the behest of the government, Bove says.

"So, in two clear instances, the government asked JPMorgan to do something, JPMorgan did it, and now attorneys general . . . are suing JPMorgan for doing what the government asked it to do."

As for banks in general, more stringent government regulations are keeping them from making loans, Bove says.

Instead, banks have deposited $2 trillion in excess reserves at the Federal Reserve, Bove says. That's about 20 percent of banks' total deposits.

So banks are being pushed to take money "out of the stream of potential lending in the economy, and they're putting it into the Fed so the Fed can buy government bonds with it," Bove says.

That amounts to "outrageously tight monetary policy," he says.

"Unless the government is willing to back off on some of these regulations, and there's no indication whatsoever that they are, . . . the banks are going to have to keep a very high amount of liquidity available. And that means they're going to have to keep that money at the Fed," Bove says.

"If, however, interest rates start to rise meaningfully, the banks are going to have to start pulling that money out of the Federal Reserve. It's going to flood into the economy, and it's going to create massive inflationary problems."

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