In light of JP Morgan’s $2 Billion blunder this is a very crucial question we all should be asking ourselves. If a bank can’t even manage its own finances, what makes you think they can manage your finances?
This isn’t the Wild West. This is an institution that takes customer deposits that are explicitly insured by U.S. taxpayers and is suppose to operate conservatively lest it suffers a major “blow up.”
The most important question is what does this enormous trading loss say about JP Morgan’s and other banks’ abilities to manage their own risk? Especially considering the quadrillion dollars worth of derivatives that don’t even show up on their corporate balanced sheets?
This losing trade for all intents and purposes allowed JP Morgan to dramatically increase the size of its lending business without any oversight. It was responsible for eating through a substantial amount of the bank’s capital in a blink of an eye even with JP Morgan’s efforts to try hiding and delaying the losses.
The banks are not going to regulate themselves; this seems incredibly obvious. But investors do have choices. They do not have to be and should not be complacent.