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.
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!
ReplyDeleteS
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.
ReplyDeleteYou 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.
ReplyDeleteIf 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.
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.
ReplyDeleteI 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.
ReplyDeleteMy 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.
Death penalty will never stop potential killers from killing.
ReplyDeleteNot boring to me - I work in broking too and I find this topic endlessly fascinating! I agree with you 100% here.
ReplyDelete