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| Re: JP Morgan Chase Execs Vaporize $2B (941685) | |||
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Re: JP Morgan Chase Execs Vaporize $2B |
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Posted by Charles G on Tue May 15 12:07:46 2012, in response to Re: JP Morgan Chase Execs Vaporize $2B, posted by AlM on Tue May 15 09:06:35 2012. Look at other industries for which there are no bailouts.In my industry, reinsurance, there are no bailouts. You simply don't place risk with anyone who you don't think can pay the loss -- and even if someone can pay the specific loss you don't over-expose yourself to any one name on an aggregation of losses. Alternatively, look back to the 1980's. The investment banks did just fine. Why? In no small part because their own money was at stake and they knew no bailout would be forthcoming. So they managed their downside risk. Meanwhile, who went bust? The Savings and Loans where, (surprise!) a bailout was almost immediately available. Or, look at the 1990's and the failure of Long Term Capital Management. The investment banks money was again at risk -- so who bailed out LTCM? The investment banks did so collectively -- because doing so mitigated their total risk. There was no reason to expect a government bailout for a hedge fund, so the banks did it themselves. If your own money is at risk, you always manage your downside and you always find a solution before a bankruptcy happens. If someone else's money is at risk and there is a regulator watching, you worry about how you can leverage capital and use a model to minimize capital requirements. |
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