Wednesday, June 13, 2012

Businss Leaders- Big Banks: Risk & Regulation

These days big bank executives seem like evil masterminds to anyone not trying to become one. Recently JPMorgan Chase & Co, who recieved "bailout money" during the financial crisis, lost $2-3 billion. Because of this, their CEO Jamie Dimon appeared before a banking comittee of U.S. senators.

To me this sounds great. The government sees what looks like a huge bank investing money reclessly and brings in their CEO to ask him what is going on. Dimon seemed to be taking responsibility but did so in a way to make sure that there would be no legal issues. Dimon says losses indefensible, still reform skeptic. He said that the new regulations set forth after the financial crisis make it difficult to know what they can and cant do, and who they are accountable to. I say, you might want to look into that!

Dimon said that the company had at one point adopted a new policy that allowed for more risk to be taken by investors. After they saw what was happening with the losses, they quickly changed back to the old policy. The way I see it, these people have more than one type of "risk" that they need to be looking at. With the amounts of money that they are handleing they need to look at not only financial risk but economic risk as well. It is one thing to loose your own money, or even a shareholders money, but when you are taking taxpayer money to keep your huge business running you should not be investing it in high risk portfolios. When your bank is so big that it's mistakes have national and even global implications, you might want to turn back the risk dial.

One good outcome of this is that Dillon mentioned that executives who were responsible for this most current loss of money will be held accountable. Some of them may even have to pay the company back.

3 comments:

  1. I think you hit in on the nail when you said it is one thing to lose your own money, but tax payers money is something different. I agree that risk should have been minimized especially considering the financial state of the economy. As CEO Dimon should not be pushing blames on executives who will be "held accountable" as you put it. He should be holding himself to that statement and pulling money out of his own pocket. It also seemed to be that Dimon was using the old trick of "it's better to ask for forgiveness instead of permission" when Dimon claimed that the new regulations set forth after the financial crisis made it hard to know what they could and could not do and who they are accountable too. Dimon definatley seems to be trying to steer clear of the blame. As CEO by now you would think he has learned that the good and the bad fall on him.

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  2. I definitely agree with your opinion on this recent event. The complexity of many of these large institutions is absolutely incredible and often grossly displayed in public forums when billions of dollars unravel with no one (including the C-suite) understanding where the money went, how there were no back stops to prevent these types of losses and who should be accountable. My concern is not necessarily the singular event of loosing enormous amounts of money, but the apparent inability for these firms to manage their capital safely. Virtually all of us are "investing" in these companies by way of paying insurance (and expecting to be covered when needed), contributing to retirement accounts and directly contributing to savings/checking/etc accounts. The stakeholders need to be protected and I believe this would be more effectively accomplished by less bureaucratic methods of adding more oversight (although I do believe we need some) and instead penalizing these acts as the outright crimes they are with significant criminal punishment at facilities that other criminals are incarcerated in instead of the white collar crime golf courses with low security and low sentencing to match.

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  3. I agree with you, it is a lot easier to use someone else’s money and then say well you know that there is risk involved. The understanding is that there is risk in everything but hey you are paid to know the types of risk involved. I do hope that this time they will be held accountable and payback at least some of the money.

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