When it comes to financial regulations, the United States must walk a fine line. Too many regulations could force business overseas. But too few – as we seem to have now – will lead to disasters like the one that recently befell JPMorgan Chase.
On May 10, JPMorgan CEO Jamie Dimon admitted his corporation had lost $2 billion due to extraordinary risk-taking on credit derivatives made by an executive in London known by many traders as “Voldemort.” The job of that office was to “hedge” the credit risk of JPMorgan. Instead, it increased the risk, and at some point, Dimon could no longer hide the losses.
Since Dimon came clean, stock values for JPMorgan have plummeted, which obviously means investors have lost money. The Securities and Exchange Commission has put the bank’s disclosures under a magnifying glass. The Commodity Futures Trading Commission this week said it will probe the poorly-timed “bet” on “complex financial instruments” that prompted the money bleed.
The bank’s chief investment officer resigned after the disclosure. The Senate Banking Committee wants Dimon to explain what happened. And Dimon has apologized to shareholders, adding that JPMorgan is delaying its intended stock buyback, and will even pay a dividend.
But that’s not enough. More action has to be taken to prevent these mega-banks from taking advantage of shareholders, lower-level employees, and ultimately, taxpayers.
Dimon may have said he’s sorry for the foul-up, but he needs to be run off with a pointed stick. Whatever happened in the London trading office, the buck should stop at the top with Dimon, whose compensation package is undoubtedly so high the average American could scarcely comprehend it. And he’s clearly not worth the money.
The bank collapse in 2008 prompted many in Congress and in the public sector to call for stronger regulations. Naturally Dimon was among those leading the charge against it. Many experts say JPMorgan was doing “speculative trading” rather than hedging its bets, which has prompted new calls for the so-called “Volcker Rule.” Part of a financial reform act, it would ban government-insured banks from taking large bets with their own money.
Dimon, of course, opposes the Volcker Rule, but the actions of his company suggest it – or something like it – is desperately needed. As Sen. Carl Levin said in a press release: “The enormous loss JPMorgan announced... is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making.”
What few pundits mention when news likes this breaks is that most of us in the general public are ignorant about the inner workings of Wall Street and the financial markets. We may have investments through our 401Ks or mutual funds, but we aren’t especially savvy about stocks and bonds. This makes it easy for mega-banks and unscrupulous traders to take advantage of us.
With a number of folks in Congress calling for Social Security to be abolished in favor of such investment tools – over which we have no control, and which we scarcely understand – isn’t it incumbent on those same folks to pass law that will protect our money?

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