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J.P. Morgan's Losses Say: Banks Need Regulation

A major bank with a household name admits losing more money in a month than any of us [even Mitt Romney] will see in a lifetime, and the news causes bank stocks to tank worldwide and new questions about the health of the entire financial industry.

Sound familiar? Like maybe the fall of 2008? That’s when taxpayers bailed out the Big Banks that had wrecked our economy, throwing millions out of work, millions of whom still search fruitlessly for jobs.

Sure. But this is no history lesson. It's happening now. On a last-minute conference call, the CEO of J.P. Morgan said the bank had gambled away $2 billion on a bad bet.

J.P. Morgan CEO James Dimon called the strategy to gamble the money “flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

Funny. That’s what most people think about Wall Street in general. It’s time for political leaders to complete the process of thoroughly and strictly regulating shadowy derivatives markets, which is where the bank hid its gambles.

The Wall Street reform bill that Congress passed nearly two years ago would do just that. It has a provision—called the Volcker Rule—that directs financial regulators to prohibit banks from engaging in risky bets like this. Federal regulators are in the process of writing new rules, due out this summer, for banks like J.P. Morgan to follow. The big bankers have lobbied against the rule, saying it’s unnecessary.

Clearly, Wall Street has not learned anything from the banking collapse four short years ago. That’s why it’s so important for regulations like the Volcker Rule to be well-written and tough: so too-big-to-fail banks stop making risky bets that pay huge profits to Wall Street traders on the upside, but send the Big Banks begging taxpayers for bailouts when they fail.

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