JPMorgan Chase CEO Jamie Dimon announced on a conference call yesterday that the bank suffered $2 billion in losses from a risky trade that turned sour. The trade dents Dimon’s case that Wall Street can responsibly manage itself and yet again proves the need for a strong Volcker Rule, which could largely ban such risky trades at federally-insured institutions.
“There were many errors, sloppiness and bad judgment,” Dimon said as the company’s stock fell in extended trading. “These were egregious mistakes, they were self-inflicted.” Those errors, however, could have been prevented were it not for extensive lobbying efforts from banks like JPMorgan, which has spent nearly $10 million on lobbying since the beginning of 2011 (including nearly $2 million already this year). Dimon, in fact, was in Washington just last week to personally lobby the Federal Reserve to weaken the Volcker Rule.
Those lobbying efforts have worked. Dimon insists that the trade-gone-wrong was a hedge, not a proprietary bet, and as such would not be banned under Volcker. The only reason that’s true, however, is because Dimon is referring to the trade as a “hedge” to exploit a loophole Wall Street banks and their Republican allies helped insert into the watered-down version of the Volcker Rule that was included in the Dodd-Frank Wall Street Reform Act. That’s a loophole Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR) have been trying — unsuccessfully — to close, as Bloomberg notes:
Levin and Merkley, in their February comment letter, pushed regulators to tighten the exemption for hedging, calling some of what may be allowed a “major weakness” in the rule.
Dimon acknowledged that the losses would lead to scrutiny and calls for a tougher Volcker Rule yesterday, saying the blunder “plays right into the hands of a bunch of pundits out there.” What Dimon ignores, though, is that yesterday’s massive loss — big even by JPMorgan’s lofty standards — does in fact exemplify the need for such a rule. For years, banks have made billions in profits from risky bets like this one, but when too many of the deals went bad in 2008, they turned to taxpayers for a bailout.
Thursday’s events prove that Wall Street hasn’t learned its lesson from the last crisis, and that America’s “too big to fail” institutions are too irresponsible to avoid failure. The Volcker Rule, watered down as it may be, is aimed at preventing that. Unfortunately, Dimon and his Wall Street colleagues remain committed to making sure it won’t.