JP Morgan: How Do You Lose $2 Billion?

By on May 11, 2012

Jamie Dimon and Wife JudithJamie Dimon, banking’s boy genius, who appeared to navigate the financial devastation of 2008 in a superlative manner has just presided over what could eventually be the biggest trading loss in Wall Street history.

Observers such as Jim Rogers have pointed out the risk-taking and large derivatives positions at JP Morgan as “disasters in waiting,” as he was reportedly short the stock over three years ago [link].

Dimon didn’t try to downplay the implications of the boneheaded trading and embarrasing lack of disclosure that led to the stunning loss, stating there were many errors, sloppiness and bad judgment which were responsible. Supposedly it involved a big bet on sovereign debt and attempts to hedge it with Credit Default Swaps (CDS).

Dimon, a/k/a “The King of Wall Street,” has been lobbying for less banking regulation, but this sort of behavior argues strongly for the reinstatement of the Glass–Steagall Act; especially the provision separating commercial banking from investment banking.

Bankers will always be tempted to take outsized risks as long as the bailout culture exists. The only cure appears to be a forced break-up of the massive banks or effective regulation.

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