JPMorgan’s loss: A sign that Wall Street’s mindset hasn’t changed

Marketplace Contributor May 11, 2012

JPMorgan’s loss: A sign that Wall Street’s mindset hasn’t changed

Marketplace Contributor May 11, 2012

Jeremy Hobson: The JPMorgan mess was apparently caused by a London trader who was selling insurance contracts on corporate debt. For some analysis now, let’s bring in our New York bureau chief Heidi Moore. Good morning.

Heidi Moore: Good morning.

Hobson: Well Heidi, obviously there are some implications for JPMorgan and its shareholders and maybe there is going to be some change in mindset about regulations on Wall Street, but why does this loss matter so much that it’s affecting financial markets all around the world?

Moore: Because it also has implications for the financial system. On Wall Street there’s a saying: There’s never just one cockroach in the kitchen. So if JPMorgan — the alleged smartest guys in the room — could take a bet this big, this stupid, and lose it then what are other banks also up to? It shows us that we’ve learned nothing and that the mindset of Wall Street hasn’t changed, that risk is out there and we’re not measuring it well.

Hobson: Well how big a loss is $2 billion for a big Wall Street firm?

Moore: That’s an enormous amount. There have been bigger losses — Morgan Stanley during the subprime crisis lost $10 billion on a single bet. But you still don’t lose $2 billion overnight. You start out small and what happened is he probably lost money and then covered up his losses by throwing more money after it.

Hobson: It sounds like you’re talking about a gambler in Las Vegas, I have to say.

Moore: And you know what, that’s exactly the mindset at work here and that’s what makes people afraid — that the gambler mindset is not something that you can get around with regulation, management or even notification. This story has been in the press for over a month and JPMorgan still kept betting.

Hobson: Marketplace New York bureau chief Heidi Moore joining us from New York. Thanks a lot, Heidi.

Moore: Thank you.

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