The Wall Street weasels are at it again.
First, they nearly caused another Great Depression with the credit crisis of 2008. Now, they are showing us they haven’t learned their lesson. And, they could be in for another spanking from the government.
JPMorgan Chase just announced they placed a $100 billion (that’s ‘billion’ with a ‘B’) hedge bet and as a result, lost at least $2 billion and maybe as much as $5 billion.
A hedge bet is like a bet against an investment. For example, investment banks have been known to bundle and sell a bunch of mortgages in a portfolio, claiming the mortgages are excellent investments. Secretly, the same investment bank hedged and bet that the mortgages would fail. This is one of the most egregious examples of how hedge bets helped fuel the credit crisis.
During the aftermath of the credit crisis, there was an outcry for better regulation to save banks from themselves and, thus, save us from the banks. Lying to investors while betting against them seems unfair by design.
A couple years ago, Congress passed the Dodd-Frank bill, adding new mandates on Wall Street. The bill failed to address hedge bets and a number of other issues that led to the credit crisis in the first place.
What is wrong with JPMorgan Chase CEO Jamie Dimon and the board? How can they allow this to happen on their watch?
We found out just now that the head person Ina Drew along with two of her lieutenants, the aptly named Achilles Macris and Javier Martin-Artajo, will resign. The traders who actually committed these sins still have their jobs.
Doesn’t resigning mean they get to keep whatever compensation and severance packages they have in their employment contracts?
Shamefully, it does.
Shareholders should be screaming from the rooftops for all parties involved to be summarily dismissed. It is time for shareholder activists to rise up and demand change, to demand reform from within, and to demand the banks behave responsibly to ensure long-term financial stability and success.
It is time for Dimon and the board to think hard about how to prevent this from ever happening again. Or, they and the rest of the industry better brace for more government regulation, such as the Volcker Rule (legislation that separates investment banking, private equity and hedge fund sections of financial institutions from their consumer-lending arms).
Maybe that’s exactly what they need.
Ethan Bearman is the host of Ethan Bearman’s Smoke-Filled World, a weekly radio talk show that focuses on current events and features a variety of guests. He is a successful technology entrepreneur with more than two decades experience.