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JPMorgan dismissed risk control warnings

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Once again, the risk geniuses at JPMorgan were more PR-spin geniuses than anything. JPMorgan, like their CEO Jamie Dimon, knew everything and were the experts. Heaven forbid anyone tell them anything because like the Enron team, they were always the smartest guys in the room.

JPMorgan is now planning to follow one of the risk-related recommendations but it only shows how wrong the bank was leading up to the now $3 billion loss. There are suggestions that the risk team at the bank was equipped with the power to control risk but obviously that was either not the case or the risk team director (who was known as a "natural trader") was a willing participant. NY Times:

Still, that will not address weaknesses that critics say undermined the power of the bank’s chief risk officer. According to two former traders at the chief investment office and outside specialists, the chief risk officer was not focused on the huge credit market bets the chief investment office made that eventually went bad.

What is more, in some cases, the chief risk officer did not review large trades by the chief investment office or properly set position limits, the former traders said.

“They got a bit too comfortable and seemed to ignore the chief investment office,” said one of the former bankers, who insisted on anonymity because the loss is under investigation by a host of regulators.
Cheaters are always going to cheat but the banking system needs much stronger regulation than exists today. Now that we're saddled with too many too-big-to-fail banks, much more needs to be done to minimize risk for taxpayers. If the banks want to risk their own money and not receive bailouts or free money loans from the Federal Reserve, they can do as they please, but that's not the case. These banks all keep their hands out for easy money and continue to take unreasonable risks. Their bonus payments rely on it.

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