Economy,  Financial Services


The bank JPMorgan Chase has lost $2 billion (which is a lot of money to some of us) in a trade gone bad.

JPMorgan Chase said Thursday that it lost the money in a trading group designed to manage the risks that it takes with its own money. CEO Jamie Dimon said the bank’s strategy was “egregious” and poorly monitored.
The bank’s disclosure, a surprise to stock analysts, quickly revived debate about whether banks can be trusted to handle risk on their own in the age of “too big to fail.”

“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” said Rep. Barney Frank, D-Mass.

Frank, the retiring Democratic leader of the House Financial Services Committee, said in a statement that the revelation runs counter to JPMorgan’s narrative “blaming excessive regulation for the woes of financial institutions.”

Dimon has been among Wall Street’s most outspoken critics of efforts to regulate the financial industry more heavily.

Cliff Rossi, a former top risk executive for Citigroup, Countrywide and other big financial companies, said he drew little hope from the steps Washington has taken.

He said JPMorgan’s loss shows that the market for the complex financial instruments known as derivatives is too opaque. He also said the loss demonstrates that banks like JPMorgan are too big to manage effectively.

“This just tells you that we are a long, long way from getting our arms around this whole ‘too big to fail’ issue,” said Rossi, now executive-in-residence at the University of Maryland’s business school.
Experts and industry officials were skeptical that the trading was designed to protect against JPMorgan’s own losses, as Dimon contended in a surprise conference call with stock analysts and reporters late Thursday.

The bank appeared to have been betting for its own benefit, a practice known as “proprietary trading,” said Rossi and other former bank executives.

I don’t think this particular disaster can be blamed on “overregulation.”

Mitt Romney said the Obama administration’s approach to regulation has “scared the dickens out of banks.”

Perhaps it hasn’t scared enough of the dickens out of them.

If you want to get some idea of what is behind this, try to find four hours to watch this PBS Frontline documentary.