John Colson: Hit and Run
May 23, 2012
It’s old enough news today – JPMorgan Chase lost $2 billion in the exact same kind of risky financial maneuvering that brought on the 2008 financial meltdown. But as the news cycles churn and chew, more is coming to light, and those who study these things now say the losses could be far higher than first reported.
Paul Krugman, the New York Times op-ed columnist and well-known economist, commenting on financial reporting in the same newspaper, says that the ultimate cost of Morgan Chase’s little game may go as high as $5 billion, or even higher.
“Who knows?” he asked in heavily ironic rhetoric.
And that, right there, is the problem.
No one knows.
Certainly not Jamie Dimon, head of Morgan Chase, who has warmed the cockles of the hearts of fools everywhere with his charmingly open manner and his candid admissions that the scams perpetrated by his underlings may have gone a little overboard this time.
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Observers may recall that Morgan Chase came out of the meltdown in better shape than some other institutions.
But that was not because they held themselves aloof from the risky credit-default swaps, derivative speculation and other behaviors that created a perfect storm of financial chaos.
No, it was just that they had the assets to weather the storm without sinking, and a couple of cool heads who prevailed when everyone else on Wall Street was running around like headless chickens and looking for a bailout from the taxpayers.
This time around, though, ol’ Jamie Dimon got caught with his pants down around his ankles.
In the words of the Wall Street Journal, hardly an organ of hysterical leftist criticism of the banking industry, “A rogue trader apparently placed a huge directional bet on improving credit quality among European corporations without first checking to find out that they were badly underwater. A $2 billion paper loss ensued before Jamie Dimon was able to react.”
Translated into English, some goofball in London got carried away by the myth of his own invincibility, took an insane risk with other peoples’ money and lost. The loss, however, was not just his. It will take some time to figure out who the true losers are in this debacle, but you can be quite certain it won’t be the ones at or near the top of the Morgan Chase heap, who were supposed to be keeping an eye on things as they played fast and loose with the bank’s assets.
I was just reading about one of these supposed watchdogs, Ina Drew, who as the outgoing head of Morgan Chase’s Chief Investment Office was credited with being one of the architects of Morgan Chase’s salvation in 2008-09.
But Drew is retiring, and taking with her a cool $30 million that she made in just the last couple of years.
And according to Forbes magazine, she made that pile during a time when she was absent from the office a lot of the time battling Lyme disease. So the management of the office was left up to a bunch of inexperienced, ego-driven subalterns who spent more time trying to kill one another off than actually doing their jobs.
Hence, the “rogue trader” was left to his own rather brainless devices.
All of this, I should point out, is according to reports in the financial press, outfits such as Forbes, the WSJ, the NYT and the like.
Some say stronger regulations would have allowed Morgan Chase to avoid this embarrassment. Some others say it’s more than an embarrassment, it is a clear sign that nothing was learned on Wall Street from the meltdown, and the brokers are doing the same things now that they did in the decade leading up to the financial crisis.
So, this logic goes, we are heading for another big blowout unless something is done, and quickly, to rein in these financial clowns dressed in suits and ties.
Because this time, we’re in a global recession, and there’s nothing left in the taxpayers’ kitty to bail out the scammers or ward off a true global depression.