|BLACK EYE FOR JP MORGAN|
The controversy is that the funds that were lost could test the banking system itself. The money lost wasn't on bad loans it was from GAMBLING. JPM will state that the losses were from "trading securities" used to "hedge" (or insure) against loan losses by buying securities as an offset to the potential losses. The practice is called "Hedging", and no one would argue against a bank's right to take steps to protect the shareholders and the DEPOSITORS from loan losses.
Here however, it is clear (to me in any case) that the loss stems from JPM buying securities/options/contracts or the RIGHTS to these instruments for its PROFIT ONLY. Well, the market went the other way and instead of protecting against losses from loans (hedge) the trading,done just for PROFIT, created a sink hole SO DEEP...
JPM takes in money from depositors. The FDIC backs those deposits up to $250,000 per depositor (lots of rules). What JPM did was to GAMBLE on the financial markets and LOST. Why is that important - the money that was lost, if the loss is big enough, could impinge on the Bank's stability and force another bail-out, but one the Government CANNOT afford.
JPM engaged in "Proprietary Trading". They used depositors money to GAMBLE on the stock market. JPM has enough reserves and capital (saved earnings) that it could absorb the loss without going to FDIC. But, what if it didn't. The loss was $2 Billion, now disclosed to be $9 Billion. What will next week show?