Too Big To Fail

JPMorgan Proves We Don't Need More Regulation

Unlike our friends in Washington, JPMorgan Chase paid a price for its bad choices.


When banks generate huge profits, they are exploiting the American people, engaging in unadulterated greed and, needless to say, in need of more regulation. And when banks lose too much money? Yep, they're being insatiably greedy—but stupid, too—and, naturally, in need of more regulation.

The unscrupulous can't win for losing, apparently.

So when JPMorgan Chase & Co. suffers about $2 billion in losses (probably more) via complex derivative trades that were used by an obscure unit within the bank to hedge against risk, everyone in Washington seems quite excited about the political possibilities. JPMorgan's problems prove that finance works without any meddling from Washington.

Rather than have someone point out the obvious—"hey, that's how it's supposed to work"; "that'll teach 'em"; "neat, someone made 2 billion bucks on JPMorgan's stupid bets"—we have the Justice Department opening an inquiry into the matter, the president calling for tighter regulations, Republican Sen. Bob Corker calling for hearings and a bunch of pundits falsely claiming that if the Wall Street reform bill had been fully implemented, we wouldn't have these kinds of "risky" transactions—as if we should want to stop them in the first place.

The $2 billion hasn't sunk JPMorgan (and with $127 billion in equity, it hasn't come close), but if this kind of thing constitutes a national emergency, we should have better sense than to allow folks who squander $2 billion on their lunch breaks to concoct the solution.

Unlike our friends in Washington, JPMorgan Chase paid a price for its bad choices; in this case, it cost a couple of billion dollars, caused the company's stock to drop, caused some executives to lose their jobs and damaged the reputation of the firm (though not very much)—and if shareholders don't like how their money is being handled, they can take their business elsewhere or vote to make changes. This is how it would occasionally work without politics distorting the process.

New York Times columnist Paul Krugman, who believes trillions of taxpayer dollars should spread haphazardly around the economy as stimulus, believes that a $2 billion loss by a private equity firm is why Washington "must regulate." "Banks are special," you see, "because the risks they take are borne, in large part, by taxpayers and the economy as a whole." (Banks are special. Select car companies are special. The health care sector is special. The energy sector is special. Boeing is special. Etc. You may have noticed many industries getting special attention.)

If banks are too big—and many economists I trust say they are—they've only gotten bigger of late. The nation's five largest banks held assets of about 43 percent of the economy before the bank bailouts. They now control assets of 56 percent of the economy. And big is how Washington likes them. It's this kind of "special" relationship that allows politicians easier control and offers pliable donors in return. In the end, we are institutionalizing Too Big To Fail.

Richard W. Fisher, president of the Federal Reserve Bank of Dallas, and others argue that massive banks are incubators for crony capitalism and bad decisions and should be broken up. Sounds like a good idea.

But the kerfuffle surrounding JPMorgan's losses helps ensure that politics will become an even bigger part of finance. Whereas Washington once created an environment in which big banks could act recklessly knowing full well they would be saved by taxpayers, now CEOs, such as JPMorgan's Jamie Dimon, may find themselves increasingly shying away from taking smart risk (or from hedging risk, which credit default swaps do), because any loss will be scrutinized by regulation-happy politicians looking to score points.

Now, I have no idea whether JPMorgan Chase is a "well-managed" bank as the president claims, but rather than turning banks into "special" cases, Washington should be working to let them sink or swim on their own.

David Harsanyi is a columnist and senior reporter at Human Events. Follow him on Twitter @davidharsanyi.


NEXT: Did Too Big To Fail Help Make JPMorgan's $2 Billion Loss Possible?

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  1. Updated at 10:45 a.m. ET: Political leaders in Athens were due to discuss an emergency government Wednesday to deal with a possible run on banks as it emerged Greeks withdrew almost $900 million in a single day

    Heads up.

    1. Awesome. Maybe the credit collapse will finally force their government to make real cuts and allow the economy to finally restructure.

      More likely they’ll call for a bailout or FDIC-type system after declaring it illegal to make withdrawals.

      1. Nuevo drachma, Baby!

        1. Looks like that vacation in the Greek isles might be getting a lot cheaper soon…

      2. Bank holiday. Worked for us.

    2. Not particularly surprising. What would you do if you thought the government were on the verge of converting your valuable euros to worthless drachmas? Actually, it is surprising that more hasn’t been withdrawn already.

  2. Profit and… shit… what’s it called?

    Profit and… dammit I can’t think of it!

    Profit and… Bailouts? Laws?

    Yeah! That’s it!

    Profit and laws!

  3. Hmm, reinforce an already severely redundant regulatory system whose personnel can go through 2 billion dollars ordering the buffet table spring rolls for a Friday luncheon because of a speed bump worthy fuck up sounds so sensible I don’t see who could possibly disagree with the president on this one.

  4. I don’t understand the big deal about JP Morgan’s loss.

    When other businesses take a big bet on a new product line or new market, and take a beating losing 2B, we don’t get this kind of handwringing.

    “How could Ford have taken this irresponsible direction with their marquee line of sedans? They lost $2B and now investors are mad”. So?

    Also, what the JPM loss have to do with me. Good luck to them. Same when the Yankees overpaid for GIambi. WTF, I didn’t call for congressional hearings. I don’t get it.

    1. you missed the world according the Krugs: banks are special. In his world, that must mean they are immune to the risks and pressures faced by other private enterprises, but they’re special. And this is an election year.

      Politicians want their constituents to see them browbeating someone during a Congressional hearing. Just once, though, I would like to see the target of these inquisitions say, “with all due respect Mr/Madame Congressmen, you have no idea what the hell you are talking about. Not only are you wasting my time with this photo op, you are also wasting the taxpayers’ money, and the latter is something that actually bears investigation.”

  5. The hand wringing and ZOMG! on FB yesterday was rather precious.

    I noted for one friend, “$2B on $200B reserves [I was off a bit there]? Meh…drinks all around!” He and his friends thought I was kidding.

    I wasn’t. Not a big deal, folks. Go back to sleep and let Big Brother take care of you. I’ll keep reloading and stocking up on provisions for the real threat….yeah – zombie warz.

  6. There’s apparently some concern that the $2 billion is just the start of the loss for JPMorgan related to this trade. But regardless, it’s not an excuse for greater regulation.

    Banking/finance is already a highly regulated sector. Adding on another layer of bureaucratic crap will only further enrich the same cronies. Somebody always benefits.

    1. Everything is an excuse for greater regulation! Because academics, politicians and bureaucrats know more about any industry than the people who actually work in the industry and risk their own money! Also, Fuck you, that’s why! Racist!

      1. Their own money, that of their customers, and that of the taxpayers.

  7. Most politicians can barely compose a complete sentence. Why should I believe that they know how to regulate the finance industry?

  8. People. The issue here is that if the big banks are going to continue to be looked at as “too big to fail”, then you’re goddamn right the government is going to take an interest when one loses big. You should care too as long as your tax dollars are on the hook if they lose their scruples.

    1. The easy solution to that is: don’t use taxpayer dollars to bail out large banks. And 2 billion dollars on 183 billion in equity and 26 billion in operating income is hardly “losing big”, even if you’re the kind of asshole who thinks bailouts are a neat idea.

  9. president of the Federal Reserve Bank of Dallas, and others argue that massive banks are incubators for crony capitalism and bad decisions and should be broken up. Sounds like a good idea.

  10. There’s a certain rough justice in the bailouts. If you’re going to be threatened with more controls just because you screwed up, you might as well get the government valuta.

    Trans’n: If you’re going to be restricted like a welfare case, you might as well get the welfare.

    Something to think about…

  11. The article assumes that government won’t bail out the banks again. The losses here were minor. But what if tomorrow another less mighty bank lost P billion on a bad bet. That would impact the wider economy. It’s not just the bank that suffers, but others in the economy as well. If credit dries up, the person on Main Street is impacted. That’s why we had the bailout in the first place in 2008. The reasoning in this article is the same as saying we don’t need speed limits on our streets because reckless drivers will kill themselves. Unfortunately they often hit other cars and pedestrians as well. We don’t live in a vacuum.

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