“My View” from the May 16, 2012 edition of “Viewpoint with Eliot Spitzer.”
Eliot Spitzer:
A number of smart friends of mine are asking why we care so much if JPMorgan Chase lost $2 billion. After all, the bank can absorb it — in fact, they’ll still post a profit this quarter.
But just because you survive a heart attack doesn’t mean you don’t care about what caused it. You should try to stop the disease from doing more damage later on. And to continue the metaphor, the doctors at JPMorgan Chase are trying to give us the wrong diagnosis.
In his letter to Morgan Chase shareholders just a couple days ago, CEO Jamie Dimon said a Volcker Rule about high-risk investments will make it harder for U.S. banks to compete.
I disagree.
What really makes it hard to compete is the cost of a dumb, $2 billion bet that would not have been made with proper rules in place.
Clearly, at least some of Dimon’s shareholders aren’t happy about this, because they’ve sued. They say the bank misled them about risk, and that’s correct in at least one way: JPMorgan Chase still says this loss was just a hedge gone bad.
But all the evidence points to something very different.
These look like the same risky bets that caused so much trouble for other banks only a couple of years ago. If these losses came from a cautious investment unit trying to hedge against risk, how did that same unit end up contributing $5 billion to the bank’s profits in one year? That was 25 percent of JPMorgan Chase’s profits in 2010.
This was no hedge.
So instead of letting Jamie Dimon repeat his misdiagnosis, we need a clear Volcker Rule to outline where and how these risky bets can occur. Otherwise, the banks may not survive the next heart attack.
That’s “My View.”
