Originally published May 10, 2012
What’s wrong with America? How about the fact that this story was carried on the BBC, but not on Yahoo News American stories.
JP Morgan Chase, the largest bank in America has lost $2 billion on investments made by their own traders. After balancing those against gains, the Chief Investment Office of JP Morgan Chase lost $800 million in the second quarter, but the losses could run higher.
JP Morgan Chase stock fell 6% with other bank stocks also falling. Goldman Sachs, Citigroup and Bank of America also suffered heavy losses in electronic trading which occurs after the regular stock market has closed for the day.
According to JP Morgan Chase’s CEO, Jamie Dimon, the investment office has been making “reisker, more volatile and less effective” investments than the management was aware of. “There were many errors, sloppiness and bad judgement. These were egregious mistakes. They were self-inflicted and this is not how we want to run a business. We will admit it, we will learn from it, we will fix it, and we will move on.”
Would Mr. Dimon like to explain again how the bailed-out banks had to shell out millions in bonuses as incentives to retain all these valuable, irreplaceable employees?
These investments are part of the internal operation of the bank, a fund used to create revenues to reduce the risk of fluctuations in the value of other assets. JP Morgan Chase was considered a very stable bank that did not make risky investments and it had emerged from the 2008 crisis in better shape than its competitors.
Mr. Dimon went on to explain that the type of trading that led to this little booboo is not banned by the Vocker rule, which is supposed to control the type of trading that banks do with their own money. Since Mr. Dimon is publicly very critical of the Volcker rule, it’s sort of strange for him to cite it as allowing this mistake.
Professor Mark Williams of Boston University, a former Federal Reserve regulator, told the BBC that “Taxpayers ultimately have to bail out these ‘too big to fail’ banks, and that’s what JP Morgan is – it is too big to fail. How could a bank that’s supposed to be the premier bank in setting the leadership role allow such risk taking?”
Easy – they’re addicted to it. This is the kind of behavior that caused the collapse of the financial sector, that caused the recession, that caused us to be where we are today. Taking risks with other people’s money is as addictive as crack and always has been. This is why the Great Depression happened, why the Savings and Loan industry crashed during the Reagan administration. After these risks, it has been necessary for our government to impose strict rules on banking and investing. The Securities and Exchange Commission was created in 1934 because of the horrors created by an unfettered stock market. The Reagan and Bush 43 administrations eased off the laws governing the financial markets and we paid for that pandering to the money men.
We have a new law, Dodd-Frank, that has yet to be implemented because the Republican House won’t fund it. Here we have an example of why we need this law before we are stuck bailing these gamblers again.