The folks at Goldman Sachs are breathing just a little easier today. The media sharks have found another sad victim: JP Morgan.
$2 billion in trading losses is a lot. Certainly would be hard for me to swallow. And that’s part of the problem with this kind of story. It’s pretty hard for us common folks to understand the scale and scope of Wall Street Investment activity, and when you have politically motivated “reporters” doing all they can to make these bankers seem evil incarnate, it gets even more confusing.
The LA Times’ Michael Hiltzik tries to make JP Morgan CEO Jamie Dimon into a sneaky, lying, incompetent boob—or banker. The headline of his post on LA Times is “What Jamie Dimon didn’t tell you on ‘Meet the Press.’” I kept looking for the big disclosure. Where is the bombshell that Hiltzik promises in the headline?
Hiltzik’s piece, other than a blatant and snarky attempt to discredit Dimon, is an outright plea for more banking regulations. His primary objection to Dimon and his communication about the trading fiasco is that Dimon is trying to avoid further regulation. Hiltzik says: “Dimon’s theme was essentially as follows: “Hey, everybody makes mistakes — sure, we lost $2 billion, but we’ve still got billions more, and we’ll figure out this one ourselves without the need for any further regulations, thank you.”
$2 billion in trading losses is a lot. And it would be quite right for the guy in London who made $100 million per year for the bank and who made these trades to reimburse the bank some of his huge salary. Also appropriate for the executive, Ina Drew who supervised the badly mistaken trader, to resign. But Dimon’s efforts on the conference call where this was revealed was right to try and put it in perspective. In fact, his effort at doing that is likely what really ignited Hiltzik’s ire.
That trader, called the London Whale because of his outsize portfolio he was playing with, was betting $350 billion of the bank’s money. The puts the $2 bn loss in a little bit of perspective. If I was playing around with $350,000 with the objective of making the highest return possible, I’d probably take some big risks with some of it and probably lose some of it. $2000 in losses out of $350,000 wouldn’t seem so awful to me. But why would one trader have such control over $350 billion? It helps a little to see that the bank’s assets are $2.3 trillion. That’s trillion, with a T. Sorry, my mind stops at about ,000.
I don’t mean to belittle this mistake. But from what I see Dimon handled it quite well from a communication standpoint. He communicated about it quickly. He apologized for not being able to communicate about it faster. He called it “stupid.” Over and over. He made clear (as much as he could given the arcane language of hedging, credit default swap derivatives and all that stuff) the underlying error that was made. The people involved experienced a career ending event, and it may be that his career may yet end over this. What is not so clear to me, in the very brief overview I gave this, is exactly why one trader was given so much to play with, with apparently so little supervision, and what exactly will be done to prevent this kind of error in trading judgment from happening again.
Hiltzik’s answer is more regulations. Someone needs to tell him that the government simply can’t regulate all risk away, as much as folks like him might want it. The stupidity demonstrate by JP Morgan in management that led to this disaster is one problem that I’m confident smart managers and the competitive market can fix. But what can’t be fixed so easily is the easy target that banks have become for the likes of Hiltzik, who like the politicians they seem to want to be, appeal to the fear and outrage of the people hurt in the financial crisis to promote their legislative agenda. And what really needs to be fixed, is the editorial staff of the LA Times to allow this kind of demagoguery to go on parading as reportage.