Though JP Morgan Chase CEO Jamie Dimon dismissed the $2 billion loss due to a failed hedging strategy as “a stupid thing” that it will not be life threatening to the bank during a Meet the Press interview this Sunday, the incident is a stark reminder of the deregulation climate that produced the financial crisis of 2007-08.
The incident, now investigated by both the Securities and Exchange Commission and the bank itself, brings back the case for stronger financial regulation just when politicians from Europe and the United States debate whether to keep pushing for austerity measures to boost anemic economies on both sides of the pond.
In Europe, the upcoming showdown between Germany’s right-of-center Chancellor Angela Merkell and socialist French president-elect François Hollande is highly anticipated as the meeting could potentially chart a new course for the old continent, where stringent austerity measures have prompted a strong rejection from voters not only in France but also in Greece and the United Kingdom.
In the United States, where presumptive Republican presidential nominee Mitt Romney (a former venture capital CEO) has been making the case for government deregulation as the way to accelerate what he sees as President Obama’s anemic economic recovery, JP Morgan Chase’s $2 billion loss could deal a blow to this argument, while potentially boosting Obama’s landmark 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act as well as its “Volcker Rule,” which seeks to restrict banks from making certain speculative investments.
The issue will likely become an increasingly important campaign topic after a 2010 midterm election in which the rise of the small government-oriented Tea Party movement blamed Dodd-Frank and other policies from the Democrats for a supposed climate of overregulation and business uncertainty that would be preventing the private sector from creating jobs.