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Huge Loss at JP Morgan Proves Even The Risk-Management Experts Can't Regulate Themselves

 
 
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 Felix Salmon explains what happened with JP Morgan yesterday and it's frankly kind of scary. Nobody seems to think this has indications for the greater financial system at the moment but then we've heard that before. In any case, he ends with this:

[T]his loss only goes to show how weak the Volcker Rule is: Dimon is adamant, and probably correct, in saying that Iksil’s bets were Volcker-compliant, despite the fact that they clearly violate the spirit of the rule. Now that we’ve entered election season, Congress isn’t going to step in to tighten things up — but maybe the SEC will pay more attention to Occupy’s letter, now. JP Morgan more or less invented risk management. If they can’t do it, no bank can. And no sensible regulator can ever trust the banks to self-regulate.

The Wall Street Journal live-blogged the call today, which featured this little exchange right out of the gate:

Dimon is done speaking, will take a few questions.

2:09 pmby David Benoit 
Dimon: "Obviously we should have acted sooner."

2:10 pm$2 billion trade came in 2Qby Paul Vigna
Question: When did you catch it? When did you update regulators?

Dimon says there were "small" losses in the first quarter, and the $2 billion loss came in second quarter. "Obviously, that got our attention."

2:11 pmby David Benoit
Dimon personally apologizes for meetings he had this week with analysts where he wasn't allowed to say anything.

2:16 pm
Dimon says that CIO has done a great job for a long while, but obviously this was a big mistake.

2:17 pmby David Benoit
Dimon officially apologizes to Guy Moszkowski of BofA. "I feel terrible" about meeting. Apparently the two had a chat this week.

Gosh that sounded familiar. Oh right:

JPMorgan this week finalised a $US153.6 million ($145m) settlement with the SEC over claims it misled investors about collateralised debt obligations created before the global crisis.

Dimon admits banks -- including his -- made mistakes.

Ever the salesman, though, he is confident JPMorgan has righted the wrongs and says it is disappointing that Wall Street's reputation is so tarnished.

"It's so unfair to talk about Wall Street and ethics," he says.

"The people that we deal with a lot on Wall Street are some of the most ethical people I know.

"There are some bad apples on Wall Street. I think the military is the most extraordinary organisation but there are some bad apples in the military.

"I think universities are unbelievable but there are some bad apples in universities. I think reporters for most part are smart and hard-working people, but there are some bad apples as reporters."

Yes, that was so unfair.

I don't know if any of that talk about misleading people this week is going to turn out to be relevant to be honest. But you would think that Dimon, of all people, would have been careful about such things. On the other hand, what's the difference? They apparently didn't violate the Volcker Rule even with 2 billion in losses and the SEC probably won't do much. 

JP Morgan Chase was known for being the best in the business at risk management --- rare entity that didn't get caught up in the speculative fever that characterized the business before the crash. And as a result Dimon took the lead in making lugubrious pleas to leave the poor banks aloone, insisting that regulations like Dodd-Frank were destroying the very foundation of the financial system which was well able to regulate itself. Well, how'd that work out? 

Let's all pray that nobody's bonus is affected by all this. I couldn't take the weeping.

Hullaballoo / By Digby | Sourced from

Posted at May 11, 2012, 5:54am