Can someone please explain this comment of Bill McBride’s about the JPMorgan debacle to me:
JPMorgan CEO Jamie Dimon said the losses were due to “egregious mistakesâ€, “sloppiness” and that the “portfolio still has riskâ€. This doesn’t appear to be a systemic risk, just poor risk management at JPMorgan.
I thought that the reason that the big banks were bailed out was because failure on the part of any one of them posed risk to the entire banking system. Is Mr. McBride saying that JPMorgan’s failure wouldn’t produce a risk to the entire system, that poor risk management at JPMorgan doesn’t present a risk of failure for the bank, or that the level of poor risk management doesn’t pose a risk of failure for the bank?
If it’s the latter, which seems more reasonable, how does he know? It seems to me that where there’s smoke there’s fire. It seems to me that this incident does put more ammunition in the armory of those who pointed out that bailing out the banks would produce moral hazard.
Produce moral hazard? It looks like more of the same behavior they have engaged in for the last 10 years. Break them up.
Steve
To be honest I think McBride isn’t using the term “systemic” properly, at least in relation to the banking system. From my reading it appears he means there’s no danger of JPMorgan collapsing despite the size of the loss (the company is already insolvent and on government life-support, so I suppose he’s technically correct about JPMorgan dying).
But he’s also carrying water for big finance when he argues the hedge (we still don’t know what was in it) was just a dumb mistake, “Could have happened to anyone, we’ll all do better next time!”
“….where smoke there is fire…” is code for “the problem is bigger. ”
But if you look at the headline loss compared to capital its a pimple on the ass……….if thats the loss……
I was thinking less about the headline loss than the risk. Faulty risk assessment doesn’t necessarily produce immediate losses.