J.P. Morgan’s huge loss—originally reported to be $2 billion but since estimated at $3 billion and growing—on a risky trade has raised the issue of whether the government should be doing more to regulate banks and prevent such losses. Chairman and CEO Jamie Dimon, a vocal critic of the Volcker Rule and other Wall Street reform measures, insists that the bad bet was the result poor choices on the firm’s part and not evidence of systemic vulnerability, arguing, “Just because we were stupid, doesn’t mean anyone else was.” Even if the blunder costs the firm $4 billion, as some predict, J.P. Morgan is still expected to post a $2 billion second-quarter profit. However, others insist that even if the big loss didn’t compromise J.P. Morgan, which until now had one of the best reputations on Wall Street, it could have taken down a less stable bank. The risky bet, they argue, is just another example of a commercial bank whose deposits are federally insured behaving like a hedge fund; unlike a hedge fund, they argue, this “too big to fail” bank would need a taxpayer bailout similar to those faced by the firms that received TARP funding in the wake of 2008’s financial crisis. Opponents of more bank rules argue that Washington is ill-equipped to understand, let alone regulate, the increasingly complex instruments of modern finance and that it should be left to “the invisible hand” of the market to punish those who make bad bets. Does J.P. Morgan’s big loss prove the need for tougher bank regulations? Here is the Debate Club’s take:
James Barth Co-author of 'Guardians of Finance: Making Regulators Work for Us'
David John Fellow at the Heritage Foundation
Elizabeth Warren Democratic Candidate for U.S. Senate
Alex Pollock Resident Fellow at the American Enterprise Institute.
Douglas Elliott Fellow in Economic Studies at The Brookings Institution