Friday, May 11, 2012

The Great and the Mighty

Yesterday's surprising admission from JP Morgan that it incurred a $2 Billion trading loss is stunning, so much so that $5 was lost on every single share.  The media is abuzz about this snafu, not the least of which is that even "safe" banks, in an effort to hedge risk, screw up.  Although $2 Billion, when compared to JPM's total annual revenue of $100 Billion, is a small percentage, to quote the esteemed Senator Everett Dirksen, "a billion here, a billion there, pretty soon you're talking about real money".  And real money it may be, as the losses could increase by another $2 Billion before year-end.

While, granted, JPM was hedging risk on its own capital (rather than on bank deposits), it was doing so using derivatives on complex credit investments, similar to what banks were doing in 2008 that caused the meltdown.  Shareholders still are picking up the tab.  Despite Dodd-Frank and The Volcker Rule, there seems to be an absence of adequate risk monitoring.  We appear not to have learned our lesson, despite the lingering fallout that has resulted in the ongoing Great Recession.  Who's watching the banks?

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