Jamie Dimon, CEO of JP Morgan Chase, was in town this week to address the annual shareholders’ meeting. Despite losing 3 billion (and climbing) dollars of their money due to bad investments, he was cheered and praised. He gave a great “My bad” speech instead of blaming the weather, the regulators, or his pencil. Wait and see if that is his response to the FBI inquiry just begun.
Why should we care if we aren’t shareholders or investors? Well, as taxpayers, we have a stake because we are guaranteeing those funds through FDIC, and Morgan has access to low cost capital from the Federal Reserve. For those of us who worry if our checking account is off by a few cents, how can we ignore this misuse of our money?
How they did it is not too complex. Pigs get fat, hogs get slaughtered. Greed brings risk. Hedge funds are risky, and some people are willing to assume those risks. However, this risk was taken with ordinary deposits in their commercial bank, not their investment bank or a hedge fund.
Hedging is not complex. We do it every day. Buying more beans than you need today when they are on sale is a hedge against paying higher prices next time you run out of beans. Grandma said not to put all your eggs in one basket, so we don’t put all our rainy-day money into some speculative investment. We stash some under the mattress.
This debacle is a prime example of why we need more regulation of the financial industry. Next time a politician cries that regulation is killing business, think about a company “losing” 3 billion dollars by gambling away funds that we have insured. Mr. Dimon, incidentally, is on the board of directors of the Federal Reserve Bank, thus responsible for more of our money.
Makes us want to stash a bit more under the mattress, doesn’t it? Now don’t ask me to explain credit default swaps. Nobody understands them.