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Thursday, May 17, 2012

Griper Blade: Lighting Money on Fire and Romney's Idea of 'Over-Regulation'

It was one of the dumber things the Romney campaign said this week and it's getting almost no coverage. On NBC's Today show, campaign adviser Eric Fehrnstrom said that the JPMorgan trading debacle was no reason to go and start regulating Wall Street banks. "The leadership of that company will be held accountable for this trading loss, but we don't want to punish companies," he said. "There was no taxpayer money at risk. All of the losses went to investors, which is how it works in a public market."

Fehrnstrom apparently has no earthly idea "how it works in a public market." Plenty of people who weren't investors in JPMorgan are harmed by this -- most notably you.

First, let's let NPR's Planet Money explain what happened:

The trade came to light earlier this year, when reports surfaced of a "London Whale" — a trader at JPMorgan who had accumulated a position so big it was affecting the whole market.

The trade involved an index of corporate credit default swaps. These are essentially insurance policies that pay off if a company can't make payments on its debts. (Credit default swaps became a household name during the financial crisis, when they were central to the blowup of AIG, a giant insurance company.)

JPMorgan took the big hit when it tried to back off from the trade and had to sell at a loss.

Here's what I want to make extremely clear here: JPMorgan didn't get screwed on some deal by someone who outsmarted them. No one out there is $2 billion dollars richer because of this. The bank might as well have stacked up $2 billion in American wealth -- that's two and nine zeros -- and put a match to it. It's just gone. $2 billion taken out of the US economy and nothing to show for it...[CLICK TO READ FULL POST]

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