Some Thoughts On Recent Financial News

Peter Wallison writes on financial matters at the American Enterprise Institute. This morning he was interviewed on the Bill Bennett radio show about the recent trading losses suffered by JPMorgan Chase (as reported in USA Today). I don’t claim to understand this level of finance, but there were a few things I picked up along the way.

I am going to attempt to repeat what he said, because he clearly understood exactly what was going on and shed considerable light on the subject.

Mr. Wallison explained that the JPMorgan Chase trades had to do with something called “hedging,” a process that is legal. The bank was using “hedging” to protect itself from losses it felt would occur due to the unraveling of the financial situation in Europe. Mr. Wallison further explained that the loss represented a very small percentage of the total worth of the bank and was actually not as significant as it is being made out to be. Essentially, the news media is being part of the ‘silly season’ of an election year. The Volcker Rule (part of the Dodd-Frank bill that was supposed to reform Wall Street) would not have stopped this loss–“hedging” is legal under Dodd-Frank. What is not legal is the buying and selling securities by banks for their own accounts. Unfortunately, it is not always easy to tell the difference between “hedging” and trading for their own accounts. Because it is so difficult to differentiate between “hedging” and banks trading for their own accounts, Dodd-Frank is essentially an unworkable law that needs to be changed or overturned.

The link to the American Enterprise Instituteabove links to Peter Wallison’s article entitled, “Dissent from the Majority Report of the Financial Crisis Inquiry Commission.” I strongly suggest reading this in order to understand how politics has hindered, rather than helped, America in solving the financial crisis that we have been in for the past four years.

 

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