Perhaps it's just a reckless trait of human nature, but one of the driving forces of criminality -- call it the I'll-Never-Get-Caught syndrome -- evidently plays a role in the banking industry, too. How else do you explain the $2 billion blunder at JPMorgan Chase that is fanning the flames for just the kind of increased regulation that the industry would love to avoid? It's remarkable how resistant to education individuals and institutions can be.
There is, indeed, a strong move to add new layers of regulation to the industry in the aftermath of JPMorgan's public pratfall. We have sympathy for those who are calling for that response -- it was the banking crowd that helped bring on the Great Recession in the first place -- but it would be better to hold off for now and see how the company and the industry respond to this stupendous failure.
So far, the response has been the resignation of the person who is reported to be responsible for the loss. Ina Drew, one of the highest-ranking women in Wall Street, will retire. She was the bank's chief investment officer and worked for the company for 30 years. In that, it is fair to say, she was hardly an unknown quantity to JPMorgan Chase. It is hard to believe that the only fingerprints on this debacle were hers, or those of at least two other executives expected to held accountable.
This massive mistake, which has cost the company billions of dollars in stock market value, was brought on either by a laudable if failed effort to manage financial risk, as the bank says, or was, as critics contend, a "major bet" on the direction of the economy -- that is, gambling with the bank's own money.
Few are rallying to JPMorgan's defense. "It just shows they can't manage risk," said Simon Johnson, former chief economist for the International Monetary Fund who, after sticking in the knife, then twisted it: "And if JP Morgan can't, no one can." JPMorgan was the only major bank to remain profitable during the 2008 financial crisis.
But the bank's mistake -- if so calamitous a failure can be accurately described that way -- is critical as the nation continues to recover from the catastrophic recession the banking industry precipitated. Hence the push for more stringent regulations.
Of course, more stringent doesn't always mean better, and that is why Congress should wait and analyze before leaping. This is a golden opportunity for the banking industry to demonstrate that it has, finally, learned something about the consequences of its bad behavior and will act to ensure that it is vastly more difficult for an episode like this to repeat itself.
JPMorgan Chase has noted that it remains profitable despite this enormous loss, and there appears to be be no added significant risk to the economy. That's good, but it's not enough. Nor are the departures of three individuals, at least one with a retirement package that we are sure would be the envy of most of the bank's customers.
If the industry wants to demonstrate that it can be trusted to act responsibly without Congress toughening regulations, then a clock is ticking. Let's see what happens.