When you’re the king of risk management, beware the scepter of hubris

The king of risk management

When you’re the king, beware the scepter of hubris.

JP Morgan chief Jamie Dimon  tells Meet the Press that when he first learned about a hedge that has produced $2 billion in losses (so far) he  “got defensive”  and began  “justifying” the worst laid plans in hedging history.

The gut reaction also has the ring of truth.  The bank sailed through the financial crisis,  it’s vigor never in doubt. Why cast doubts on its prowess now?

So stop chewing for one moment on the irony of the bank with ironclad risk management systems suffering a meltdown. Here’s something better to chew on: JP Morgan took a long walk out on the risk curve because its deposits way exceeds its loans. It needed to put the excess capital to work. And, well, US Treasury securities earn next to nothing, thanks to the Federal Reserve policies put in place to save the financial system. So JP Morgan did what every other investor has been doing for the past few years: Look for more yield elsewhere.

Dimon is the trendsetter. Who’s next?


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