Dimon's in the Rough

Like many of you, I suspect, I've been following the JP Morgan Chase story with a certain amount of "Dimonfreude" (oh how I wish I could take credit for that coinage!).

It's true that the $2 billion loss won't materially affect the bank's solid position (the bank is still expected to make more than twice that amount this quarter). But it certainly has shaken Jamie Dimon's position as the "America's least hated banker", as he was termed in a December 2010 New York Times profile by Roger Lowenstein.

Questions about the "London whale" trading activity arose in April. and Dimon dismissed the concerns as a "tempest in a teapot".

More recently, Dimon has been quoted as saying that the trade -- part of a hedging strategy to protect the bank from big losses -- was a "terrible egregious mistake".

But the disastrous outcome shouldn't have been that big a surprise -- Jessica Silver-Greenberg and Nelson D. Schwartz report in today's New York Times that for months, if not years, "risk managers and some senior investment bankers raised concerns that the bank was making increasingly large investments involving complex trades that were hard to understand."

What's the solution to the endless series of banking disasters and near-disasters?

Joe Nocera argues in today's Times that banking needs to be "boring" again, and regulation is the way to accomplish that:

Which brings us, inevitably, to the Volcker Rule, that part of the financial reform law intended to prevent banks from doing what JPMorgan was doing: making risky bets for its own account. JPMorgan executives have insisted in recent days that the London trades did not violate the Volcker Rule (which, for the record, has not yet taken effect). But that is only because the banks have lobbied to protect their ability to hedge entire portfolios. A letter to regulators written in February by a top JPMorgan lobbyist — a letter denouncing the potential effects of a strictly interpreted Volcker Rule — describes a trade that sounds exactly like the ones that have just caused all the problems. Such trades need to be preserved, the lobbyist argues.  

It shouldn't surprise you that I'm in Nocera's camp on this, although I don't think he goes far enough.

I have come to the conclusion that if corporations are persons, then regulation is their superego.

People -- even people working and managing corporations! -- have consciences, but corporations don't. They're sociopaths, if you like, lacking that awareness of others' selfhood that makes us fully human. Since corporations don't have an internal compass, we have to provide them with an external one.

What I'd like to see is a new Glass-Steagall Act, fully separating high-risk investment banks from traditional commercial banks. Will I get it? Probably not, given how actively the banks have been lobbying Congress.