2012-05-11thefiscaltimes.com

When Dimon, a vocal critic of tighter Wall Street regulation, commented that the trading loss "plays right into the hands" of the Volcker Rule's advocates, he was right. Indeed, it's hard to think of a better example of why the Volcker Rule was crafted; in fact, this is the single best piece of evidence supporting it. Throughout the debate over the reform of the financial services industry, the common refrain was that proprietary trading, and bank investments in hedge funds and other such vehicles, had never caused losses for financial institutions, their shareholders, or the system. Well, now they have.

When a bank like "The House of Dimon" is too big to fail, its risk management either has to be flawless, or its risk-taking needs to be restricted. After-the-fact apologies -- however welcome, within the context of an industry that tends to prefer explanations to mea culpas -- simply aren't enough. This was a $2 billion loss, incurred in only six weeks, at an institution that sailed through the crisis with hardly a scratch. What does that say about what might be taking place at other large institutions that can't boast similarly rigorous risk management systems?


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