topic: politics
posting number 4
title of article: Obama: JPMorgan Disaster Shows “Why Wall Street Reform Is So Important”
author: Mollie Reilly
publication name: Huffingtonpost
date of publication: 05/14/2012
length of article: 500 words
Recently, JPMorgan Chase suffered a loss of $2 billion in trading. Though this was balanced with a gain of $1 billion, the bank came out with a net loss of $1 billion. Jamie Dimon, JPMorgan Chase CEO, admitted that the loss was an egregious mistake which had nearly no excuse. JPMorgan Chase stock dropped post the disaster 5%. This was, in part, due to the bank’s use of speculative trading instead of hedging. This failure in such a prominent bank shows the risky trades being done and the effects of such trading. In a recent interview Barack Obama used JPMorgan Chase’s disaster to justify the reform and regulations set in 2008 upon Wall Street. Obama claims that the government must protect the citizens money and that speculative trading and such acts by banks should be regulated and watched closely. The president holds that JPMorgan is an extremely well managed bank and that CEO Jamie Dimon runs his bank with great prowess. He also claims, however, that if such a well-managed bank could fail then other banks are also susceptible to similar mistakes.Senator Carl Levin added that "he enormous loss JP Morgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making."
To conclude, Obama recently used the JPMorgan Disaster to justify regulations placed upon Wall Street. Obama and others in his administration hold that such grievance mistakes must be prevented so that the American public does not suffer from them. JPMorgan Chase, due to speculative trading, lost $2 billion recently. This was offset, however, by a gain of $1 billion, resulting in a still staggering net loss of $1 billion. Obama concludes that this policy is one of the things that separates him from GOP candidate Mitt RomneyReilly, Mollie. "Obama: JPMorgan Disaster Shows 'Why Wall Street Reform Is So Important'" The Huffington Post. TheHuffingtonPost.com, 14 May 2012. Web. 14 May 2012. <http://www.huffingtonpost.com/2012/05/14/obama-jpmorgan-chase_n_1516330.html>.
There was about $2 billion loss made by JP Morgan Chase in high-risk speculative trades, and Obama and others have used this as an example to show that more regulation of banks is needed. A week ago, one learns from http://money.cnn.com/2012/05/18/markets/jpmorgan-loss/ that the actual loss is likely much higher, in "a range of $6 billion to $7 billion" And it might even increase more over the next months.
ReplyDeleteThis happened even after presumed reforms and increased regulations after the financial crisis.
This comes from a position of "more than $100bn in asset-backed securities and structured products – the complex, risky bonds at the centre of the financial crisis in 2008." (Financial Times, quoted by Paul Krugman in http://krugman.blogs.nytimes.com/2012/05/19/no-systemic-issues-here/), so these losses might still increase.
The reason for these big losses is that JP Morgan Chase is 'too big to fail.' If it went bankrupt, its failure would cause a big crisis, so the US government would be forced to bail it out. As it is a bank, it also benefits from the Federal Deposit Insurance. So, under current regulation, they can take on high-risk bets, knowing that if they win, Mr. Dimon and his co-workers can pay themselves huge bonuses, and if they lose,someone else pays.