The recent loss of over $2 billion by the largest bank in the United States doesn’t put the financial institution at risk of insolvency. What the case of JP Morgan does do is put in plain view the necessity for more and better financial oversight in order to insure that taxpayers don’t once again have to bailout a bank.
The news couldn’t have come at a worse moment for the financial sector that has been opposing implementation of the Frank-Dodd Bill which imposes new regulations arguing that the worst is over and that the new regulations do more to hinder rather than help. Ironically, the principal spokesperson for this point of view is the chief executive of JP Morgan, James Dimon.
Up until this moment, Dimon was considered a Wall Street role model because of his prudent risk management, which enabled JP Morgan to survive the 2008 crisis. That image is no longer. Dimon has now been added to the long list of bankers whose institutions lost billions through irresponsible financial gambles.
In this particular case, just one person made the investments in financial products that were similar to those that brought down the insurance giant, AIG. The investments were of such a magnitude that the market was actually impacted. Reports indicate that this person earned millions of dolars for his aggressive strategy. Now the bank’s loss sits at more than $2 billion.
The financial sector protests that this case is being exploited to tighten regulations. What would they think should happen when the largest and most prestigious bank in the country shows this type of fragility?
This time there isn’t a mortgage crisis. Irresponsible borrowers can’t be blamed. Nor can the federal government be accused of policies that encouraged home ownership.
There is no question that the regulations are a burden for the financial sector. The fact is they wouldn’t have to be if financial institutions were willing and capable of monitoring themselves so that they wouldn’t be exposed to huge risks. But this is not the case. The regulations are absolutely necessary as long as the temptation of tremendous profits throws good judgment to the wind. As in the case of JP Morgan, just one individual with his investment strategy put the supposedly most solid bank in the entire country at risk.