The recent announcement by JP Morgan of a $2 billion trading
loss caught a lot of people’s attention and caused financial stocks to
drop globally.
Was the trade at JP Morgan Chase wrong because of the
unnecessary risks involved or wrong because it failed?
What would have happened if the trader in question had made
money on the trade? It definitely
would not have made the news, or affected global capital markets. But, would it have been criticized at
the bank? What I am asking is whether the trade was wrong because it failed or
wrong because an unnecessary risk was taken. Of course this is speculation on my part. Here is a quote from JP Morgan CEO
Jamie Dimon:
It was a bad strategy, it was badly executed, became more complex, [and] it was poorly monitored,(i)
However, news reports suggest that Dimon was not taken by surprise by the trade, but that alarm bells began to ring when it
became clear that the trade was not going well. (ii) So, it seems likely that the problem with the trade was that it lost
money.
There is a problem with this kind of reasoning - if it works
out O.K. then it was the right thing to do. If we let decisions be measured by whether they succeed or
not, we will be in suspense until the outcome is arrived at.
We can’t substitute morality with the pursuit of
profit. If it is wrong for large
banks to make speculative trades, it is wrong, and whether or not huge profits
can be made is irrelevant. I’m not
going to discuss the proposed Volcker Rule or the effects of the repeal of
Glass Steagall. What interests me
more is how we can be fooled into thinking that a decision that ends well was a
good decision, and only when something goes wrong do we recognize that our
decision was flawed.
We are especially prone to forget about moral principals
where there is potential reward in front of us – especially if it’s financial.
If we want to improve society, and ethics on Wall Street, we
need a system of moral standards that do not change to suit the situation. We need a moral system that doesn’t just
look at the outcome to determine if the right decision was made. We need moral standards that are a consistent guide in all situations.
If you would like to read more musing on morality please click here and here.
If you would like to read more musing on morality please click here and here.
(i) The Globe And Mail. May 11, 2012. Link.
(ii) New York Times. DealB%k. May 11, 2012. Link.
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