How JPMorgan’s blunder may impact regulation efforts

Mitchell Hartman May 11, 2012

Stacey Vanek Smith: JP Morgan Chase CEO Jamie Dimon said yesterday the company lost at least $2 billion on some bad bets. The bank was heavily invested in a complicated hedging strategy. The news came as a surprise because JPMorgan has a reputation of caution and weathered the financial crisis relatively well. Marketplace’s Mitchell Hartman joins us live to talk about this. Good morning, Mitchell.

Mitchell Hartman: Hi Stacey.

Vanek Smith: So Mitchell, what does this loss mean for JPMorgan?

Hartman: Well look, it’s not going to sink the bank or anything. It’s been very profitable. Still, Jamie Dimon hinted at perhaps another billion in losses this quarter. And you can be sure regulators got a shock here. They just did bank stress tests and they apparently didn’t see this coming. Bank analyst Nancy Bush, though, thinks this probably starts and stops at JPMorgan.

Nancy Bush: I don’t think that this will turn out to have been an industry-wide issue. I think this will turn out to have been a spectacularly bad bet.

Vanek Smith: Now Mitchell, Jamie Dimon has been known as something of a crusader against tighter financial regulation. Does this loss affect those anti-regulation efforts at all?

Hartman: Well yeah. And in fact, one of the changes the investment banks most hate — it’s called the Volcker Rule. It’s slated to go into effect this summer. It would restrict banks’s risk taking with their own money. Here’s economist Simon Johnson at MIT’s Sloan School of Management.

Simon Johnson: The most powerful people in the country have fought back every single meaningful financial reform, making the claim that they know better, that they are smarter, that they don’t need anyone looking over their should and that has absolutely demonstrated to be false.

Now Johnson says don’t be surprised if in a few weeks banks are already downplaying JPMorgan’s lax money management. Again, insisting that they need less regulation to stay profitable. But he thinks that advocates of stricter rules to try to prevent another financial crisis have the upper hand, at least they do right now.

Vanek Smith: Marketplace’s Mitchell Hartman. Thank you, Mitchell.

Hartman: You’re welcome.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.