Saturday, May 12, 2012

Back Off of J.P. Morgan

The financial world is shocked, shocked I tell you, that J.P. Morgan lost over $2 billion in a risky investment and that federal regulators, who have increased powers since the 2008 crisis, failed to prevent the sizable loss.

J.P. Morgan, which is one of the healthiest and most successful banks in America, lost near 10% yesterday on the market, as investors punished them for their risky bet.

However, the question needs to be asked: isn't this much ado about nothing?

Hundreds of companies and millions of individuals invest their money into the stock market and various businesses every day of week, and while most of them invest on sure bets, there are those who wager on risky propositions. If they succeed, no-one questions their judgement and are often lauded for their ability to take risks, but if they fail - well, just look at J.P. Morgan's stock price.

The bank took a risk, and obviously failed - losing $2 billion in the process. But isn't that a part of investing? Sometimes you win big and sometimes you lose big. I understand the worry and fear of investors and general observers over risky behavior that led to the 2008 meltdown, but that doesn't mean risk is something to avoid, because most American companies wouldn't be where they are if they didn't take risks... and where would be if they didn't?

So, please, everyone take a step back from the outrage over J.P. Morgan. They took a chance, and lost horrifically. But that doesn't mean (1.) that would they did was wrong, considering the entire concept of investing is to take risks and (2.) they need to be punished for their actions, especially since $2 billion is forever lost.

And besides, if J.P. Morgan's stock continues to drop, that might just be a risk I'm willing to take...

What say you?

1 comment:

  1. I say that the derivatives problem goes far beyond JPM who will undoubtedly report more losses due to this trade, The larger problem is the vastness of the derivatives market and what any more cracks in the EU will trigger.

    And once triggered, will the global financial markets be able to withstand it.

    I have a video and article explaining exactly what CDS and CDO are here:

    The Political Commentator