JPMorgan Loses $2B on Synthetic Credit Securities

That is the case if JP Morgan can't make good on your deposits. If this effects nothing but JP Morgan's profits for shareholders, then it is irrelevant to your deposits or investments. That should be the case. ... but may not necessarily be the case.

We don't know what they lost $2 billion doing yet. The story could get much worse, still. Or it could be relatively contained. If they were long some synthetic index or complicated derivative involving European mortgages, the fallout could be huge. But that would have been insanity (not saying they DIDN'T do that, but it will be shocking if that was the case).

This sucks for Jamie Dimon, and the timing was poor, but not because it really has any affect on anyone on this board. It just gives juice to people like Paul Volcker who want to put restrictions on proprietary trading.

Before anyone rejoices out of glee about it, though, shouldn't we first know what they were doing and if they put their bank at risk? Sandy Weill put a bank into insolvency (without a bailout). Has Dimon done that? I doubt it, but we don't know yet to comment.

JP Morgan was the bank to buy, and he was the king of Wall Street, and this is a reputation hit -- from an investor's standpoint. But he is smart, and generally on top of things, so if I were the type who invested in financial equities, I would use any hit to JP Morgan's stock as a buying opportunity, because I'd bet with Jamie Dimon way more than I would bet against him, and count on the stock rebounding.

 

One other thing about Dimon and the fuel this is going to give people with regard to regulating proprietary trading. ... If you want a poster child for that cause, turn to Sandy Weill or Alan Schwartz. When they were busy making banks insolvent, JP Morgan was on solid footing and was forced by Hank Paulson and Ben Bernanke to take a "bail out" they didn't need or want -- because the government didn't want to signal which banks were about to fail and which weren't. JP Morgan would have benefited form its major competitors going out of business, though, and instead ended up taking one for the team -- in the forced interest of the greater good, as it was put to Dimon.

If that was the case then, then it is a bit unfair to use something like this to try to force more regulation with this as the rallying call. Dimon was one of the few people in a position like his, not to run a bank into the ground. If this is a contained mistake that affects only his business, it should remain that way.

 

Jamie Dimon is the CEO of a company that made a colossal mistake.

I'm not asking you to invest in anything. The point is that as much as you love these threads, JP Morgan's business has nothing to do with you. If he runs his bank into the ground, then let his shareholders pay.

It's not your business, or anyone elses, to decide what is too big for the public good. We don't have nationalized businesses here. It's not the role of our government.

When Citi and Bear Stearns or Merrill Lynch made horrible proprietary trades that ran their businesses into the ground, they should have gone out of business -- the way that you or I do when we make bad decisions and have to pay for them.

If we just allowed that natural course to happen, we wouldn't be having these kinds of conversations. It would be like anything else. Run a business well, and you have nothing to worry about. You can even profit nicely *gasp!* Don't, and you get pushed aside in favor of someone doing it better.