Mitt Romney: This was a loss to shareholders and owners of JPMorgan and that’s the way America works. Some people experienced a loss in this case because of a bad decision. By the way, there was someone who made a gain.
Paul Krugman tells a story in which Jimmy Stewart in It’s a Wonderful Life makes a risky bet, and the entire town’s economy collapses as a result: “If the bet was big enough, he no longer has enough assets to pay off his depositors….[I]t’s not O.K. for banks to take the kinds of risks that are acceptable for individuals, because when banks take on too much risk they put the whole economy in jeopardy — unless they can count on being bailed out.”
Okay, but in the real world, this didn’t happen to JP Morgan, which I think is Romney’s point; its bet wasn’t too big. The story and philosophy behind the idea that we should limit the risks banks take is one thing, but we knew that before JP Morgan’s losses. The more specific question is how much risk is too much, and what level of regulation is adequate. What is Krugman’s position, and how does JP’s loss bolster that position if they did not collapse as a result of their trades?
We don’t find out, because the article is really a morality play- Jimmy Stewart and “evil plutocrat” Mr. Potter, enlightened pro-regulation forces vs. unenlightened anti-regulation bankers. It isn’t about the specifics of what regulations are necessary and unnecessary, or the best ways to regulate. JP Morgan’s Jamie Dimon is “the point man in Wall Street’s fight to block any tightening of regulations despite the immense damage deregulated banks have already inflicted on our economy.” So JP’s losses serve to personally discredit the point man against regulation, proving that these regulations must be a good idea- regardless of whether these losses threatened to take the economy down. And when Krugman writes that “deregulated banks” inflicted damage on the economy, you’re supposed to read that as “deregulation” inflicted damage, and not even notice the difference.