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.
