So it appears that middle ranking folks at J P Morgan are for the high jump over the loss making trading blow up of last year.
Rogue traders who had made the bank fortunes, then lost them in what the boss termed considered a storm in a teacup but turned into yet another financial scandal.
Heads have rolled and it appears will roll further.
This is a very strange kind of justice.
Now these people may or may have committed heinous crimes but there appears to be a massive and obvious injustice at work.
Only people who loose huge money at financial institutions get busted and go to jail.
What about the rogue traders who make huge amounts of money??? Heard of any?
They should be arrested and go to jail too. But success brings immunity.
The regulators should know that outsized profits are likely to be as shady as outsized losses.
Why?
Because the efficient market hypothesis, under underpins most financial rule books including the key one of capital adequacy clearly states you can’t beat the market, at least not by much:- unless you cheat.
You could say, you can’t beat the market unless you have a market “asymmetry.”
However in practice asymmetries invariably boil down to cheating.
So to regulate the market properly, that is to catch people up to no good before the situation ends in financial catastrophe, is to identify where people are doing very well indeed, be it in private equity, hedge funds or investment banking and ask for a clear explanation of how they are making so much darn money.
“We are the smartest guys in the room,” as we have all learnt to our cost, is not an answer.
In zero sum markets like commodities, massive profits can mean only one thing, cheating is going on. Where vast profits are being magically generated, the regulator simply needs to go looking for skulduggery. Merely by hunting the regulator should keep the worst of the cheating at bay.
However the regulator is also basically cheating. The asymmetry of its behaviours is to apply “hunger politics” to financial services by only aggressively applying oversight once things have gone horribly wrong.
Regulation is not solely retaliation.
You don’t have to be envious or two smart to realise for every 10 bright Lamborghini’s that pass by you will see five criminal behind the wheel and this is what the regulators need to grasp.
For every ten supernormal profits being made on Wall street there are five crimes going on.
Rather than retrofitting the law to incarcerate hapless traders they should be burrowing into the core profit centres of financial companies holding their upper management responsible for turning a blind eye to unexplained, unsustainable and dubious profits.
Until they do the financial system will not be safe.