Even if the final damage tally reaches $5 billion, J.P. Morgan still will be in the black, with profits of $25 billion. The company’s assets are valued at $2.3 trillion, so the firm’s missteps are far from fatal with such a massive diversified portfolio. The only losers from this bad deal are the people who, if it had gone the other way, would have reaped the rewards: the J.P. Morgan employees who set up the deal and the investors. Instead, heads rolled within a week at J.P. Morgan, and the firm lost some of its value and reputation.
That’s exactly how financial markets are supposed to work. It is a risky business. The same people who stand to earn the rewards must bear the risk. The notion of a risk-free, error-free market is fundamentally flawed. Some trades inevitably will go wrong. What is important is to make sure that third parties - such as taxpayers - aren’t stuck with the bill when that happens. The alternative is to do what Congress did in 2008: bail out banks, breaking the link between risk and reward.
Correcting misconceptions about markets, economics, asset prices, derivatives, equities, debt and finance
Thursday, May 24, 2012
JP Morgan Is Proof That Markets Work Without More Regulation
Posted By Milton Recht
From The Washington Times, "J.P. Morgan’s risky business: Loss logic: Market discipline beats government regulation" by Nita Ghei:
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