Anyone find it ironic that JP Morgan ($JPM) sustained a big loss in Euro debt, and that Jon Corzine brought down his company chasing yield on Euro debt? To add to the irony, isn’t it interesting that JPM was the counter party to MF in a lot of cases!
They were trying to get greater returns with free money provided by the Federal Reserve window.
Of course, the big government fanatics are out in the media pounding their chests that we need more regulation. I thought we had great new regs with Dodd-Frank, and prior to that we made CEO’s and CFO’s responsible with Sarbanes-Oxley.
Maybe what we need is less regulation and flatter, transparent and more horizontal markets.
So what, JPM made a bad trade. Happens in the trading business. At least they have the money to stay in business, unlike Bear, Lehman, MF, Merrill….. The answer to all of these situations isn’t more regulations. It’s not a crime to lose money. The answer is to ask yourself how did one trader amass a huge position?
This isn’t the first time in history a big institution, or a powerful institution lost money. LCTM lost a bunch in 1998, and destabilized the world market for a short time. Barings went broke when a trader went big. China lost a boatload in London trading copper a couple of years ago. But because of our response to the financial crisis in 2008, we have created institutions that are too big to fail. Because of their size, they have a hard time staying on top of risk. That’s one of the core reasons we should have let them go broke in 2008. Going broke makes traders take responsibility for the risk they take. It’s a necessary outcome. Bandaging it over with Federal Reserve paper takes risk out of the marketplace.
There are many reasons our markets are broken today. A primary one is the regulatory environment hasn’t kept pace with the sweeping changes that have been made to them. Because institutions, and people react the same to economic incentives, when markets changed, the entities with the wherewithal to protect themselves did so. They went to government and created favorable regulations. They bought up competitors and created dark pools where they could dominate. They put up structural and regulatory barriers to entry to keep the game behind closed doors. Instead of inviting lots of people, institutions and entities to the market bazaar, the rules of the game today lock them out or charge them juice to play.