J.P. Morgan recently announced that they made risky plays in the derivatives market and got taken to the cleaners to the tune of a $2 billion loss.
“The biggest U.S. bank by assets said on Thursday that it had lost $2 billion on bad bets on credit derivatives, made by a London trading desk, run by a man other traders have alternately dubbed “The London Whale” and “Voldemort.” The office is intended to hedge the giant bank’s credit risk, not increase it.”
Well, that’s business – If you decide to gamble with your capital and make risky bets then you can expect losses like this. It happens in businesses every day and it’s called the Free Market and it’s what drives entrepreneurs and other business drivers to invest in risky ventures like cell phones, computers, tablets and hybrid automobiles. The Market rewards those businesses that perform their due diligence before entering into risky investments and punishes those who make cavalier and frequent ventures into risky gambles.
I’m not feeling too bad for JP Morgan since they recently announced they made a net income profit of $5.383 billion for the first quarter of 2012 so it appears they can absorb this loss.
Given the Left’s hatred toward “obscene” bank profits, you’d think they’d be cheering this publicly humiliating loss of J.P. Morgan. But no, logic isn’t usually a part of Leftist arguments and President Obama and his team showed that today.
“President Barack Obama discussed JPMorgan Chase’s $2 billion loss on Monday, saying the bank’s massive failure proves why Wall Street reform is necessary. “
“JPMorgan is one of the best-managed banks there is,” Obama said during an interview on ABC’s “The View”, which will air on Tuesday. “Jamie Dimon, the head of it, is one of the smartest bankers we got, and they still lost $2 billion and counting.”
“We don’t know all the details,” Obama said. “It’s going to be investigated, but this is why we passed Wall Street reform.”
“According to the president, if even a bank as well-managed as JPMorgan could make an error this glaring, other banks are susceptible to similar blunders. “
“You could have a bank that isn’t as strong, isn’t as profitable, managing those same bets and we might have had to step in,” Obama said. “That’s why Wall Street reform is so important.”
“Obama’s comments echoed those made by White House press secretary Jay Carney earlier on Monday. Speaking to reporters on Air Force One, Carney said JPMorgan Chase’s loss proved that the reforms put in place after 2008’s financial crisis were necessary.”
Wait a minute! J.P. Morgan’s $2 billion debacle isn’t going to cost the tax payers any money and as I’ve shown above, the bank isn’t going into bankruptcy any time soon. Why the grandstanding and calls for more regulation when a private business just got publically humiliated for making risky bets that failed? Liberals don’t like it when Banks make huge profits and now they don’t like it when their profits are reduced from risky bets? What exactly do Leftists want from the banking industry?
The Foundry already pointed out that even under an increased regulatory environment from the Volcker Rule, J.P. Morgan could still legally have made this risky gamble.
“Commentators will be tempted to say this could not have happened if regulations intended to guard against risky trading, such as the Volcker Rule, were in place. Not true. The trading strategy JPMorgan Chase used is legal, and it would still be legal under the Volcker Rule. In a free-market system, banks as well as businesses are free to take risks, which result in either successes or failures, profits or losses. The Securities and Exchange Commission has already begun an investigation of the bank’s financial disclosures, but the bottom line is that mistakes like this do and must happen, in banking as well as other industries where risk is part of the business.”
To sum up – We have a private business taking it on the chin because they chose to play in a risky environment and the Leftists want increased government regulation to prevent this from happening in the future. This issue gets to the heart of the Liberal Worldview that believes the government can do a better job of running a business or picking winners and losers than the Free Market. Really? Based on what evidence? Solyndra?
If we want to truly address the inconvenient truth that banks and other US corporations are literally “too big to fail” then we have to let those companies (and their investors) suffer the consequences of making risky bets that don’t pay off. Increased government regulation is not the answer but letting the Free Market work along with individual and corporate accountability is the only answer that history has proven to work.