Proving Your Opponents' Point: JP Morgan's $2 Billion Loss Came Amid Its CEO's Campaign Against Regulation

If you are going to embrace the role of spokesperson for your industry. Of poster boy for the post-financial-crisis, no-apologies banking lobby, you had best not take your eye off the risk metrics. Or begin to believe your own windy rhetoric. Let the financial press do your bidding. But don't fall for your own invincibility mantra.

The London Whale has been harpooned. The London Whale being the nickname given to the London-based JP Morgan trader whose strategy - and the size of whose movements - was deemed so vast and so brilliant a few weeks ago that global markets were moved.

The curious thing is, this is not the same old story of rogue traders gone bad. This guy had the full faith and confidence of his management. Which is maybe even scarier. We thought these guys knew things the rest of us didnt. Supposedly the reason why they get the ginormous bucks. But the larger point, for managers great and small, is that all that talk about disruptive innovation, of Black Swans and inherent risks, is still pertinent. If you have to talk publicly, measure your words. Consider the possibility, however remote, of a potential downside. And remember that no one out-thinks the markets for too long. JL

The Huffington Post reports:

Oh, the irony.

After roundly criticizing regulations aimed at preventing banks from taking huge and unsustainable risks with their own money, Jamie Dimon's bank may have done just that -- and lost.
In a conference call Thursday, Dimon announced that JPMorgan Chase lost billions of dollars due to "egregious and self-inflicted mistakes" from trades on credit derivatives that were "poorly executed and poorly monitored." The London desk responsible for the huge loss, which had become well known for its risk taking, had previously been defended under the argument that it hedged bets, not increased risks.

The Volcker Rule, a provision in the Dodd-Frank financial reform act aimed at curbing banks' bets with their own money, has been a huge bugaboo for Dimon. Though many in the banking industry oppose the rule developed by Federal Reserve Chairman Paul Volcker, Dimon has been one of its most outspoken critics.

In a self-aware moment on the conference call announcing the loss, Dimon acknowledged the irony of the situation, saying that it "Plays right into the hands of a bunch of pundits out there," The New York Times reports. "But that's life."

"We have egg on our face," he added. "We deserve any criticism we get."

In January, Dimon told the Fox Business Network that "proprietary trading had very little to do with the financial crisis," adding that “you can’t even make markets for your clients” with the Volcker Rule in place. During that same month he also expressed a similar sentiment to CNBC, criticizing the Volcker Rule for getting rid of liquidity in the market.

Later in the year, Dimon criticized the rule for tying traders’ hands, telling BusinessWeek in February, "you have to have a lawyer and a psychiatrist sitting next to you determining what was your intent every time you did something."

He even went on to criticize Volcker personally, telling FOX Business in another interview “Paul Volcker by his own admission has said he doesn’t understand capital markets. He has proven that to me.”

But now trying to clean up a huge mess that may have been prevented had the Volcker Rule been in place, Dimon is singing a different tune. "This may not have violated the Volcker Rule, but it violates the Dimon Principle," he said of the bank's mistake on the conference call, according to the NYT.