This was a rough week for the world of investing. At the start of the week, a modestly successful broker in Iowa botched a suicide attempt as his firm was found to have misused client cash to the tune of $200 million. These may not be MF Global or Bernie Madoff numbers but this is big for the Midwest where this man was the pillar of his community. At the close of this week, A different pillar showed much larger cracks as the leaders at JPMorgan Chase had to admit that their Bad Bet was now a $5 billion debacle.
They probably miss the good ol' days when the London Whale’s hedge was just a modest $2 billion loss.
While there has always been risky behavior and outright fraud in capital markets - read The Coffee Trader for details about how dangerous life was around the exchanges in the Netherlands in the 1600s - this news fails to phase us Americans. At times, it appears that we consider that this is the way to do business. Just look across the pond at England where the CEO of Barclays stepped down for allegedly rigging interest rates in the current Libor scandal. Leaving in disgrace is rather classy tradition compared to the bankers in Wall Street who feel no shame in pushing rules to the limit and not raising an eyebrow when their banks crash and burn. Look at pictures of the bank CEOs who have appeared before the media and the Congress - are they repentant or more annoyed at having to explain themselves?
Critics of the banks believe that more regulation as necessary but the banks have their doubts, naturally. Granted the laws have been passed but the details remain to be hashed out - and other questions remain. Namely, can regulators realistically enforce the Volcker Rule? Many of these issues need to get settled, as well as the global fight over HFT and its impact on FX. Further, we are seeing the further consolidation of exchanges - something that has stalled in the early days of the recession - but we are seeing some signs of life as Canada’s exchange operator TMX takes aim at Direct Edge.
Have a nice, cool and blessedly undramatic weekend -- see you on Monday.