Wednesday, June 13, 2012

Big Government: The Boss Of Banking CEO's

Does anyone else find it ridiculous that Jamie Dimon has to testify on Capitol Hill about a trading loss?  This incident is a perfect example of why you cannot own stock in U.S. banks at this time.  Because of the mortgage crisis, which led to the markets downfall in 2008 and the first quarter of 2009, the large cap banking sector will never be able to achieve the levels of profit that were once known as common. 

Our government, quite frankly, is right up these banks butts.  I am not about to start feeling sorry for these banks, and if you do not believe me then please go back and read my post from earlier this year; The banks shot themselves in the foot and brought this “Big Brother” atmosphere onto themselves.  In the case of JPMorgan (JPM) however, they did not want to take TARP money.  They were forced to take the money so that no single bank would appear weaker than another.  Not exactly a stellar picture of the free market.

I simply would caution those considering buying into the banking sector for potential growth.  After this display what CEO is going to be brave enough to begin assuming enough risk to provide a high enough return on capital to satisfy shareholders?  If our government wants to be this involved in the operations of JPMorgan or any other banking institution, then they should take control of the banks.  Though our governments track record in running financial firms, ie. Fannie Mae and Freddie Mac, suggests to me that they could not do it any better than Dimon.

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”