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May 23, 2012

Could the JP Morgan Chase Situation Get Worse? Should Dimon Resign?

Last week, we learned that JP Morgan Chase made a reckless trade that has cost the firm at least $2 billion. While the trade seems very complex, the situation leaves several questions:

1) According to CNBC, the unit responsible for the $2 billion plus loss has a roughly $100 billion exposure to asset backed securities and other types of complex, illiquid securities.  Why did JPM allow such a large composition of assets to be allocated to this risk?

2)  Would the complexity of financial reform/regulation have helped or hurt in this situation?  I'm left to ponder why 2,300 pages of Dodd-Frank, a new Consumer Protection Bureau, and a Securities and Exchange Commission could not prevent such a problem.  (Note: See the second video for more on this).

3) Will Jamie Dimon lose his job as a result of this?  In my opinion, it depends on a) if the firm followed (or follows) all disclosure and accounting rules, b) if the loss gets much worse (like $10 billion), and c) if Dimon or his subordinates are found liable in some way by regulators/authorities.

Tomorrow, I will address the Volcker Rule and how it would not necessarily represent the cure to some of our financial ills.

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