Mere days before National Small Business Week kicked off it was revealed that JP Morgan Chase and CEO wonder boy Jamie Dimon lost $2B (now $3B by some estimates) on derivative trades meant to mitigate risk. This was a stark reminder for small businesses that nearly 4 years after the economic collapse wreaked havoc on local economies and small business, there are still significant gaps in the regulatory fabric.
Two pieces of legislation originally raised during the initial campaign to re-regulate Wall Street — both still the subject of debate — are at the top of the small business wish list for 2012: the SAFE Banking Act and the Volcker Rule. The Volcker Rule is particularly relevant in this case. Championed and named after former Federal Reserve Chairman Paul Volcker, it would eliminate proprietary trading and investing in hedge funds by banks. It is widely thought this type of trading played an integral role in the economic collapse in late 2008.
The SAFE Banking Act will essentially break up the four largest, “too big to fail” banks. Backed by guaranteed bailout, these megabanks enjoy a competitive advantage over smaller community banks. This advantage has led to the four largest banks comprising 65% of the U.S. financial sector, up from 40% at the time of the bailouts.
With continuing stiff head winds for small business growth, and with local economies still struggling to get back on solid footing, it is critical that we enact policies to minimize the harm that will come from the next Wall Street bust. These laws will allow greater competition between banks, increase small business lending which will have a direct impact on employment thus helping to get the economic motor pumping again.
Jamie Dimon’s blunder is just the latest reminder that Main Street still isn’t protected from malaise and greed on Wall Street. We need to be able to isolate the fallout from the next risky bet and ensure that it won’t devastate local communities the way the last one did.