JPMorgan Fiasco Echoes Corporate Credit Union Meltdown
JPMorgan Chase’s $2 billion failed credit risk hedge is different than the investments that led to the corporate credit union crisis. However, there are also similarities, according to industry investment experts. Specifically, overleveraging and a drive for income that compromised risk management.
Jason Haley, fixed income strategist for ALM First Advisors, admits he wasn’t in his current position during the corporate crisis, so his knowledge regarding the specific securities that led to the corporate meltdown is limited. However, he said high-leverage investments like the JPMorgan Chase deal could cause big losses anywhere, even at credit unions.
“Don’t discount the fact that JPMorgan is enormously big,” he said. “At $2.3 trillion in assets, it’s more than twice the size of the whole credit union industry. JPMorgan would have to lose more than $26 billion to make it equivalently as bad as our $12 billion corporate crisis.”
Hague agreed with that comparison.
“This is great campaign fodder, couldn’t happen in a better year,” Hague said. “Both sides will get their sound bites, but if we have any increased regulation, it will be so watered down, it won’t be effective.”
Trading, especially derivatives, has become so complex, Hague said he doesn’t think regulators understand them enough to effectively regulate them.