Photo: Mark Wilson / Getty Images
On Thursday, JP Morgan was forced to call an emergency press conference to reveal staggering losses it has incurred from a massive derivatives trade.
This loss has trashed the reputation of the bank and its CEO, Jamie Dimon. It has also inflamed concerns about banks in general and the state of the global financial markets.
So when are the idiots who made and monitored and approved this trade going to get canned?
I mean, how long does it take management to conclude that incinerating $2 billion and trashing the firm’s reputation is a fireable offence?
Or is it NOT a fireable offence?
On Wall Street, is it just totally fine to recklessly gamble with the firm’s reputation and capital like that?
Of course, the truth is that the people who made this trade are not in any way shape or form “fools.” Rather, they’re brilliant gamblers who correctly assessed the risk/reward for themselves (if not their firm) in making the trade:
- If we’re right, we make billions for the firm and get paid $100s of millions in bonuses
- If we’re wrong, we get smaller bonuses
- If we’re REALLY wrong, and blow up the firm, we might get fired–in which case we’ll just go work at hedge funds, where we can make even more money.
With that as the risk/reward proposition, it’s not stupid to make huge reckless bets like this–it’s smart. Heads the traders win, tails shareholders and the firm lose. With this risk/reward, traders will keep making bets like this all day long (as long as they can make the bets so complex that management doesn’t understand them.)
So, JP Morgan also might want to create some incentive NOT to blow billions and trash the firm’s reputation, such as creating clawbacks for all the money traders have ever been paid by the firm.
But, still, there has to be SOME consequence, right?
At the very least, the traders will be forced to call a few people, get new jobs, get new business cards, and fill out tax paperwork at their new jobs (which most will have within a few hours of getting canned.)
You can’t just vaporize $2 billion without at least losing your job.
Or can you?
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