The days after the JPMorgan Bank announced it had lost $2 billion (probably more) in risky financial gambles, three of the bank's top executives resigned, but the reasons for the collapse of the company's huge investments were largely kept secret from the public.
The bank's CEO, James Dimon, called the strategy to gamble the money "flawed, complex, poorly reviewed, poorly executed and poorly monitored," omitting his role in the risky investment for outsize profits.
But where were the regulators that were supposed to prevent such financial disasters? Wasn't that what we were promised with the passage of the Dodd-Frank legislation?
What we now know or should have suspected was that the bank had hired teams of lobbyists to explore every loophole that would make the company more profitable and less risk-prone. The lobbyists apparently persuaded the Federal Reserve Bank and other government agencies, as well as some members of Congress to ease the restrictions on risky investments.
Banks Will Continue to Take Risks to Earn Big Profits
Do the big banks see the appointment of more regulators as a solution to risky financial investments? Wall Street insiders scoff at this suggestion. They believe they have the power to circumvent any set of new regulations that Congress will propose. Their lobbyists are poised for any eventuality.
JPMorgan probably won't change its risk-taking investments. Here is what Matthew E. Zames, a top company executive, predicted::
"I am proud of the firm's efforts over the past several days to address our mistakes, and pleased to join the dedicated employees in our Chief Investment office today." he wrote in his memo to employees. "Together, we will have a sharp, renewed focus on our hedging strategies, risk management and execution. JPMorgan will come out of this experience as a stronger firm," he added.
What happens now? There will be debate on whether more or fewer regulators are needed to prevent future large-scale financial disasters. There may be new investigations of the banking industry, but nothing is likely to change. The bankers will continue to use our depositors' money for their risky, but usually profitable, investments.