Monday, May 14, 2012

Another Teachable Moment

The folks at JPMorgan Chase decided to play craps with some of their depositors’ money.  They ran into a bit of bad luck and lost at the tables to the tune of $2 billion dollars.  The market responded quickly. Chase stock plummeted 9% costing shareholders $14 billion.
Nothing to see here!  Chase CEO Jamie Dimon originally referred to the impending dust up as a “tempest in a tea pot.”  After all the $2 billion loss is but a fraction of Chase’s $9 billion quarterly profits and less that one tenth of one percent of the $2.3 trillion in assets.   
But as analysts dug deeper into the details of the trade strategy it became apparent that the loss could be much larger.  The once defensive Dimon admitted to reporters that the loss would likely increase but would not say how much.   On Sunday a contrite Dimon told David Gregory on NBC’s “Meet the Press”: “In hindsight, we took far too much risk.  The strategy we had was barely vetted.  It was barely monitored.  It should never have happened.”   
This is the very type of risky business that Dodd-Frank sought to prevent.  But conservatives on the hill fought tooth and nail to water down the bill in order to appease their Wall Street constituents.  The result was a piece of legislation that came out of the fight having lost its fangs. 
Now Washington is all up in arms.  Stunned that such recklessness could re-occur they are chomping at the bit to bring the hammer down on speculative trading.  “You can feel it” said Andrew Ross Sorkin bestselling author of “Too Big to Fail”.  Jamie Dimon, once one of the staunchest and most respected defenders of limited regulation has been relegated to the sidelines.
There are still a number of banks that are too big to fail.  JPMorgan Chase, Bank America and Citicorp come to mind.  Many of them are even bigger today than they were before the financial crash in 2008.  Their investment strategies remain as unchecked today as they were back then.  Transparency is but a pipe dream.  Washington is now ready act.  One congressional insider referred to recent events as a “teachable moment.” 
We thought the teachable moment occurred in 2008. 


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