Emily Goff writes at The Foundry about the national news coverage garnered by the $2 billion loss revealed by J.P. Morgan this week. Advocates of even more restrictive regulations on banks and investment firms argue that rules should have been in place to prevent this. It’s not necessary; firms like Morgan will learn to correct their mistakes, or face bankruptcy (taxpayer-funded bailouts aside). What of the Postal Service? $3.2 billion losses are becoming commonplace, yet there is no bankruptcy in site for that agency. The American taxpayers continue (and will continue) to pick up the tab for their mismanagement.
JPMorgan Chase’s $2 billion trading loss is top news nationwide. But over at the U.S. Postal Service (USPS), such losses are business as usual. USPS reported a typical (for it) $3.2 billion loss for the most recent quarter. Try that comparison on for size.
JPMorgan Chase incurred a “whale” of a loss because, as explained by the bank’s CEO Jamie Dimon to his investors, this is an example of a “flawed, complex, poorly reviewed, poorly executed and poorly monitored” betting strategy. Despite the loss, it by no means spells doom for the bank. The bank has more than enough capital to stomach these losses, as painful as they are. JPMorgan Chase’s actions led to the loss, and JPMorgan Chase’s actions will fix it. You can bet it is already doing just that.
Commentators will be tempted to say this could not have happened if regulations intended to guard against risky trading, such as the Volcker Rule, were in place. Not true. The trading strategy JPMorgan Chase used is legal, and it would still be legal under the Volcker Rule. In a free-market system, banks as well as businesses are free to take risks, which result in either successes or failures, profits or losses. The Securities and Exchange Commission has already begun an investigation of the bank’s financial disclosures, but the bottom line is that mistakes like this do and must happen, in banking as well as other industries where risk is part of the business.
Meanwhile, over at the Post Office, a $3.2 billion loss has become a frighteningly regular occurrence:
If you’d like to read more about the Postal Service’s ongoing financial and management problems, Downsizing Government is a good source.