JPMorgan Chase’s $2 billion trading loss is top news nationwide. But over at the U.S. Postal Service (USPS), such losses are business as usual. USPS reported a typical (for it) $3.2 billion loss for the most recent quarter. Try that comparison on for size.
JPMorgan Chase incurred a “whale” of a loss because, as explained by the bank’s CEO Jamie Dimon to his investors, this is an example of a “flawed, complex, poorly reviewed, poorly executed and poorly monitored” betting strategy. Despite the loss, it by no means spells doom for the bank. The bank has more than enough capital to stomach these losses, as painful as they are. JPMorgan Chase’s actions led to the loss, and JPMorgan Chase’s actions will fix it. You can bet it is already doing just that.
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.