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Saturday, September 21, 2013

J.P. MORGAN – Why the Death Penalty Doesn’t Work


J.P. MORGAN – Why the Death Penalty Doesn’t Work
 

A Cranky Opinion for

CRANKY OPINION SATURDAY

The following is the opinion of a cranky old man.  Opposing opinions are welcome, wrong, but welcome, and please, no name calling…that means you, you big stupid head.

This cranky opinion may be a bit boring, deal with it, you should see some of the crap I read!

 

J.P. Morgan was just fined 920 million dollars for inadequate controls in their trading operations.  These inadequate controls led to a 6 Billion dollar loss from bad trades.

What are bad trades?

What does this have to do with the death penalty?

Bad trades are transactions that lose money for a brokerage firm or bank.  Good trades result in profits for the firm and a bonus for the trader.  Bad trades result in the firm losing money and the trader losing his job and his reputation.

Firing a trader for a bad trade is a career death penalty. 

Time and time again, every year, at every firm, there is a trader who makes a bad trade which jeopardizes his job.  Does he own up to the mistake and cut his and the firm’s losses?  Sometimes, but he pays a steep penalty.  Often, with nothing to lose personally, he doubles up on the trade (double or nothing) hoping the market turns around and he can hide his bad trade, keep his job and still earn a ridiculously huge bonus.

When doubling up doesn’t work, he will cover up, hide, and lie.  If his supervisor does not catch the losing position, he also faces the career death penalty and he will then aid in the cover up.  Delay owning up to the mistake long enough and maybe the market will turn around and they will save their jobs. 

Often that is exactly what happens and both the trader and his supervisor breathe a sigh of relief while they also feed their ego that they are geniuses and invulnerable.

Often the market does not turn around and the loss gets bigger and bigger.  Sometimes the loss gets so big it will put a firm out of business.  That is what almost pulled J.P. Morgan under. 

What does this say about the death penalty?  When someone has everything to lose, he will continue his ways with the hope of saving his skin.  Anything goes when the result of owning up to a mistake and giving yourself up is DEATH.

Outside of Wall Street, does the death penalty stop murderers?  Does anyone think, “Gee I better not bring a gun, if I kill someone will I get the death penalty?” Maybe…on a rare occasion, but what if one commits the capital crime?  Will he give himself up or will he fight to the death to get away, killing others in the process?

Wall Street needs to end the trader “Death Penalty.”  Bonuses should not encourage risky trading; instant termination should not encourage cover-ups.   If a trader makes a fortune on a trade, analyze it.  If he took a huge risk and got lucky, maybe he should not be rewarded.  If a trade goes wrong, maybe he should not take the maximum penalty.  Perhaps a fine or extra supervision would correct the behavior while eliminating massive losses taken in desperation to avoid the “Death Penalty.”

I know, a boring topic, but one which was once a part of my life.

 

The preceding was the opinion of a cranky old man and not necessarily that of management…Mrs. Cranky.

7 comments:

  1. Good, rational points you make Cranky, but you and I both understand how big bidness works. When something bad happens, BLAME SOMEONE. Throw someone under the bus. Deflect attention away from yourself. It makes your halo seem just a bit brighter. And if one guys bonus is withheld, then YOURS might someday be withheld, too. Nooooooooo!

    S

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  2. Actually, Joe, I read every word. Every enterprise has potential for abuse, and probably is, from harassment to inability to stop ordering parts to build a failing product to wanton trading to cover losses. How about personal gambling in hope of making the mortgage. Rather pervasive, isn't it. Personal choice is the deciding factor.

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  3. You raise some interesting points Joe. But Joanne is right, personal choice is the deciding factor and that is influenced by how you were raised and peer pressure as well.

    If you and another person are confronted in the woods by an angry bear, you don't need to be able to outrun the bear, just the other person.

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  4. My brother is a partner for Morgan Stanley and the stories he tells would curl your hair. This is all a house of cards, waiting to again come crashing down.

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  5. I read every word. Was that written in Greek? I feel like a dog trying to read the user manual for flying a 747. Markets, Wall Street, trading...things I've never been able to understand. I have a mental block. I even had trouble playing that card game, Pit, with my cousins when I was a kid.

    My woman's brain is wired for complaining and controlling, not for such amorphous concepts as buying stuff that doesn't come home with me in a plastic or paper bag.

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  6. Death penalty will never stop potential killers from killing.

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  7. Not boring to me - I work in broking too and I find this topic endlessly fascinating! I agree with you 100% here.

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