Protecting JP Morgan from Itself

Posted: May 17, 2012 12:01 PM

President Obama recently appeared on The View in order to laud Jamie Dimon as the smartest banker on earth. 

Masterfully, he also convinced the ladies that if the real regulations of Dodd-Frank had been in place, J.P. Morgan’s $2 billion trading loss would have never happened. 

It seemed Obama was saying the government needed to protect poor Jamie from himself.  In light of J.P. Morgan’s total capital, Main Street media looked at the trading loss and said “what’s the big deal?”

 I wonder if J.P. Morgan’s “London Whale” had found one more counterparty to take the martingale trade and the $2 billion loss had instead turned into a small profit, would the reactions have been the same? 

Of course not. 

At issue was the fact the trader lost money, not that the trade was executed.  Most students of history and financial markets know the trading game being played today consists of large bets trying to obtain small profits. 

It requires an unlimited supply of money and a counterparty foolish enough to take the other side of the bet.  Since most of the bankers have an unlimited supply of money, compliments of their friendly central banker (it would appear that won’t change for as far as the eye can see) it is the responsibility of the trader to find a counterparty. 

No amount of regulation can or will stop this type of trading. 

If Obama had any shred of honesty in him, which in my opinion is a far reach, he would have simply announced that he was taking away the bank’s keys to the candy store by shutting off the money. 

This would have immediately stopped the type of trading that puts an entire financial system at risk.  Poet James Whitcomb Riley once wrote “when I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.” 

No amount of slick snake-oil salesmanship in the form of an apology, contrition, and “we’ll do better in the future” by CEO Dimon eliminates the fact that J.P. Morgan’s trades were not hedges. 

Yet, this event will soon blow over as money will continue to be supplied and counterparties will be found.  Maybe the Fed will be the next counterparty; it seems they take everything on their books these days. 

I’m just waiting to see Obama return to The View and apologize to America for the sham of a dot-com IPO being offered to the general public in the form of Facebook.  He’ll probably be asked “wasn’t J.P. Morgan involved in this debacle also, and shouldn’t something be done?” 

I’m sure Obama would respond that if we could just get the regulations going it would have kept Dimon from being in another debacle. 

But that’s down the road, and while we wait we can take solace in the fact that Jamie Dimon is the smartest banker on earth. 

After all, he certainly has the President believing it.