Protection Racket Jobs

Chidem Kurdas

Among the first quarter data JP Morgan Chase released was a net shrinkage of its work force from a year earlier by almost 9,000. But at the same time, the bank hired 7,000 regulatory compliance personnel and expects to hire another 3,000 this year.

On the face of it, the new hires are supposed to reassure government bureaucrats that the bank complies with numerous regulations. The hires are regulation experts—such as former regulators who had a hand in creating arcane rules and then went through the revolving door to high-paying private sector jobs to protect the regulated from former colleagues in the government.

It is fair to say that had JP Morgan not come under aggressive attacks by government bureaucracies, it would not have created so many lucrative positions for regulatory protection, especially at a time when the total head count is being substantially reduced.

Various accusations squeezed large sums of money from the bank—-a policy approach that follows the same basic logic as Willie Sutton the bank robber and has been criticized by a judge. The attacks also had the effect of pushing the bank to hire regulatory insiders.

Peter Schweizer has argued that politicians from both parties run a protection racket, proposing bills and using various legislative tricks to shake down opponents or advocates of a policy—often both sides at once. They receive campaign money but notably also favors, in particular lobbying jobs for their friends and family. Schweizer describes politicians’ shenanigans in his book, Extortion.

Government bureaucrats work in different ways. But they have at least as much opportunity as politicians to get goodies for themselves – like Wall Street jobs – by going after businesses. Politicians have given them wide discretion in making, applying and enforcing rules.

This immense bureaucratic power works terribly for investors but is great for the bureaucrats themselves, as I’ve described in Ponzi Regulation.

Many people in non-bank financial businesses are not worried. They will tell you that the regulatory straitjacketing of banks opens up business opportunities for themselves. Maybe it does.

But once the regulatory state has squeezed the banks dry, politicians and regulators will look elsewhere. They’re already talking about adding layers of “oversight” to big private equity and hedge fund managers. Why not create yet another 10,000 compliance jobs for themselves & their chums?

Recall that JP Morgan’s profit is down 19%. And today Bank of America announced a loss fueled by $6 billion in legal expenses

Willie Sutton robbed banks because that’s where the money was. When there’s more money elsewhere, that’s where his governmental descendents will go. You may think it is too much of a hassle to challenge the growing political-regulatory racket, that if they come for you, you’ll just give them whatever they want.

To paraphrase a great line from Mr. Schweizer, just because you’re paying them does not mean they’re in your pocket Make no mistake, you are in their pocket.


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2 Responses to “Protection Racket Jobs”

  1. Hidden Cost of Bureaucracy | HedgeFundSmarts Says:

    […] Top News and Analysis about Non-Traditional Investing « Protection Racket Jobs […]

  2. Federal Rulemaking Breaks Another Record | HedgeFundSmarts Says:

    […] then the bureaucrats go through the revolving door to the side of the regulated, who have little choice but to pay for protection against convoluted […]

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