JP Morgan's Regulatory Arbitrage of turning Financial Loss into Political Profit
Welcome to Capital Account. Bloomberg reports investors are worried JP Morgan is planning to pull back in the European mortgage bond market in the wake of the CIO disaster, causing significant volatility. JP Morgan is the biggest buyer of European home-loan bonds. Is this just one of many examples of how JP Morgan's reckless 2 billion dollar trading loss may be felt most by other people and firms, while JP Morgan could, perversely enough, actually be the firm to benefit most?
The numbers seem to indicate that when there is a crisis in the financial industry, there is a push towards more regulation. Our guest on today's Capital Account, ZeroHedge contributing editor Bob English, argues that the real problem is moral hazard and lack of personal accountability. Combine this with free money lent by the Fed, and you have an environment that is not only hospitable, but ideal for Whales like the one we saw in JP Morgan.
And former Goldman Sachs director Rajat Gupta goes on trial for insider trading today, while entire too big to fail firms arguably engage in this behavior as a matter of normal business by front running their own clients. Meanwhile, it is revealed that the same guy managing risk in JP Morgan's CIO was fired from a firm a few years ago for overseeing trading losses that resulted in a regulatory probe. So, despite billions of dollars more spent on financial regulation over the years, what are we left with? We'll talk about what's missing and why it will continue to fall short of preventing the next systemic crisis.
And the G8 summit came and went with leaders taking in a little soccer and signing onto a communique where a top mandate read: "Our imperative is to promote growth and jobs."...So, as they seemingly sign their names to more screwed up central planning, they do so against the backdrop of this history: in the US, for the first time ever, those who didn't go to college at all may officially be better off. We'll explain.