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We’ve called on our financial adviser, Chicken Little, for views on JPMorgan Chase’s loss of $2 billion in a trading mistake:
First we have to put the $2 billion in perspective. Jamie Dimon, the CEO, and all the others at JPMorgan Chase will be happy to tell you that $2 billion isn’t much of a loss when you consider that the bank had revenues around $90 billion over the past year. And, yes, we know JPMorgan Chase stock (JPM) has gone down, losing the company almost $20 billion in value, but it’s already on the way back up. So why are so many people upset about $2 billion?
Maybe it’s because the median household income in the US is $46,326. Let’s call that $50,000 just to make the math easier. Now, if you divide $2,000,000,000 billion by the median household income of $50,000 you get 40,000. In other words, that trading mistake equals the sum total of the year-long income of forty thousand households. (That’s a lot of households. Maybe you should check the math. We did. We kept coming out with 40,000 households.)
When Obama said that JPMorgan Chase was “one of the best managed banks”
and Dimon “one of the smartest bankers we’ve got,” the President was reflecting what most people in the banking and financial industry have been saying for years. After all, JPMorganChase was one of the largest banks that did NOT need a bailout,and Jamie Dimon has steered the bank through very troubled financial waters with great success.
It may be that Jamie Dimon had come to that point in his career where he believed he was as wise at investing and at managing risk as other people said he was. No matter the profession, when your work earns you continuous year-in and year-out praise as “the best,” and when you’re paid millions upon millions, you can believe that you simply do no wrong. Your colleagues grow deferential and no longer challenge you, nor do the directors on your board. That’s when you make a mistake, make the wrong assessment of risk, make the wrong bet, and then make another to cover the first. And another to cover the second.
Our prudent financial adviser believes that even pieces of the sky can fall.