JP Morgan Chase announces a loss of at least $2 billion (yes with a B) on a hedging strategy gone awry.
The hue and cry associated with the announcement—primarily from the political class—demonstrates how there is a mismatch with Washington DC and the private sector and may shed some insight as to why we are not generating job growth in our country.
Let’s review some facts: Morgan is privately owned by shareholders. Although it took TARP during the financial crisis, it did so not out of need but to not embarrass others who did have a need. It paid back TARP as soon as it was allowed. The government did not save it. Morgan has $2.3 Trillion (yes T) in assets. It has $180+ Billion in equity and it earns $20+ Billion in a normal year.
The loss was a bad mistake—and was admitted as such. Who was harmed? The shareholders of Morgan. That’s what owners do; they win or lose with their own capital. Based on the size of Morgan, the $2 Billion loss is not catastrophic. They will move thru it.
Let us contrast that situation with the profit/loss of the US Government. Our recent deficits have been in excess of $1 Trillion. We’ve added $4-$5 Trillion of debt in the last 3+ years. Yet, the US Senate has not passed a budget for the last 3 years. You and I as families cannot operate that way. The businesses we work for cannot. The budget is a simple framework of the priorities of a given entity. It provides discipline.
The political class decries Morgan’s loss, but cannot focus on providing an economic environment that encourages growth and eliminates uncertainty. Having no budget creates uncertainty. Uncertainty causes businesses to “freeze” their decisions and that freeze is a huge hindrance to job growth.
Political yelling at JP Morgan is nothing more than a smokescreen for the politicians that don’t want to focus on their jobs and do what the American people elected them to do.
The private sector creates jobs when the sector is growing. The sector grows when the economic environment—tax policy, regulatory balance, etc is structured to let America compete. We are not there now. Our elected politicians are not doing their jobs. Too many families suffer.