Ominous Failure at “Too Big to Fail” JPMorgan Chase
Tuesday, May 15, 2012
The self-styled “Masters of the Universe” have done it again. Just three-and-a-half years after Wall Street’s best and brightest lost billions of dollars on bad bets and crashed the global economy, mega-bank JPMorgan Chase lost more than $2 billion (with perhaps more than another billion to come) on the same sort of risky trading. Earlier this spring, the bank bet heavily on derivatives instruments whose prices are tied to the value of corporate bonds. When the value of such bonds tanked in late March, losses began to mount, and the bank pulled the plug and went public with the debacle last week.
As of Monday, it was estimated that at least three executives will lose their jobs, although golden parachutes will doubtless limit their pain to the emotional realm. One of those, Chief Investment Officer Ina Drew, “retired” on Monday. Her total calculated compensation as of FY 2011 was $15.5 million, according to Bloomberg.
Ironically, JPMorgan Chase, through its CEO and mouthpiece Jamie Dimon, has been fighting tooth and nail against a regulatory change that would have prevented this latest disaster. The “Volcker Rule,” named for Paul A. Volcker, the former Federal Reserve chair who proposed it, would restrict banks whose deposits are federally insured from trading for their own profit, thus keeping high-rolling gamblers in banks from risking the federally insured deposits of average banking customers.
Although President Barack Obama proposed the Volcker Rule as part of Wall Street reform in January 2010, JPMorgan and Dimon have successfully lobbied to weaken it. As Dimon wrote in the company’s annual report, he believes the Volcker Rule would have “huge negative unintended consequences for American competitiveness and economic growth.”
As it turns out, it is the lack of the Volcker Rule that threatens the world economy, and JPMorgan Chase is now facing an investigation by the Securities and Exchange Commission into its recent activities.
To Learn More:
The Bet That Blew Up for JPMorgan Chase (by Peter Eavis and Susanne Craig, New York Times)
In JPMorgan Chase Trading Bet, Its Confidence Yields to Loss (by Ben Protess, Andrew Ross Sorkin, Mark Scott and Nathaniel Popper, New York Times)
S.E.C. Opens Investigation Into JPMorgan’s $2 Billion Loss (by Ben Protess and Susanne Craig, New York Times)
JPMorgan Loss Shows Wall Street Needs Limits, Trumka Says (by Kathleen Hunter, Bloomberg)
JPMorgan Sought Loophole on Risky Trading (by Edward Wyatt, New York Times)
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