Banks and Stocks Issues - Essay Example

JP Morgan did not disclose the trade factors of the company in detail which led to competing investors and hedge fund dealers taking advantage of the situation. The loss of JP Morgan added up on the corporate index due to the steepening of the credit yield curve; thus matters got worse resulting in the mismatch of the expiration date of the securities enhancing further loss of the company. In the process of retrieving from the loss of $2 billion, JP Morgan Chase and Co. sold its profitable securities worth $ 25 billion to increase its earning thus resulting in more soup and causing a further loss of $ 1 billion and more. Such was the scenario that the government of the United States and Britain started with the investigation of the accounting practices and the disclosure of public policies of trade of JP Morgan Chase & Co. Later it was learned that the company being a giant in the financial market was cheating not only their clients but also their investors. Thus the decisions taken by the company in dealing with risky derivatives were wrong as they did not seem to have understood the derivative market and secondly, they sold off their assets of high worth which were hard to replace. However, the lack of detailing for the sales of its securities leaves every detail unaccounted for the massive loss of the company leading to a “London Whale” in the credit markets (Nesto, “Another Rogue Trader? JP Morgan’s $2 Billion Loss Stuns Wall Street”).

The government of America already made stringent measures for the banks without disturbing the global financial system. But the case of JP Morgan Chase & Co. calls for tougher rules to be implemented on the banks regarding its dealings. This may disrupt the regular course of dealings in the banking industry as the customers may refrain from buying financial products which would affect the industry as a whole. The economy may face crises for the sudden loss of JP Morgan Chase & Co. Looking at which the government of America is more concerned in dealing with the reasons for the financial distress that are being caused by frequent gaps. One of the main rules of Volker is that the bank cannot enter into business for its profitability without disregarding the interest of its clients which was violated by JP Morgan & Co. resulting in the ceasing of the US-based banks the proprietary trading involving risk. The hedge funds went to an advantageous position regarding this. Financial overhauling came into being after JP Morgan’s loss of $ 2 billion (Marcinek, Griffin & Kopecki, “JPMorgan Said to Consider Clawing Back Bonuses after Loss”).

Before the loss made by JP Morgan, the claw back of the company was not an option for its revival. The investors became smarter from this happening as they started keeping their investments in different baskets so that the loss in one investible security will not harm them as much. Moreover from the study, we can interpret that the main reason behind the loss of JP Morgan is the hiding of the accounting practices carried out by the company. Further, the losses were a result of the assets which could not be revived from the market being sold off for the retrieval of the company. Thus the wrong decisions taken by the company went against it.