Economics & Finance
May Wed 16, 2012
The reform of Wall Street is back in the limelight after the case of JPMorgan. The New York finance company found itself with a hole of $2 billion as a result of risky speculation. The first super manager to be fired was the head of investments, Ina Drew, but now even the CEO, Jamie Dimon, could lose his job. Barack Obama also commented on the affair, stating "The JPMorgan risky bets that led to a loss of 2 billion dollars show that the reform of Wall Street is necessary". Ilsussidiario.net interviewed Thomas F. Cooley, a professor at the Stern School of Business at New York University, asking him to comment on this story, which is crucial to the global financial world.Professor Cooley, what do you think about President Obama’s statement stated that there is need for a Wall Street reform. Do you agree with him or not?Tremendous pushback on the part of the Wall Street banks, arguing that the Wall Street reform in the way that it has been interpreted in various respects, like the limits on counter-party exposure, are hampering the banks a lot, and Jamie Dimon has been one of the biggest critics of the Wall Street reforms. Everyone respects Dimon for being a great banker, but I think what Mr. Obama was saying is that he has blinders on when it comes to thinking about the deeper reason for reforms. Partly this is because the amounts of money, although 2 billion dollars is a lot for mere mortals, it is less than 1% of their equity capital, so it is not as though they could not absorb the loss. The deeper issue is what it says about the structure of risk management, and risk oversight within the bank, and this gives them a very bad reputation, and calls into question whether or not they are in control of the things that happen there.Should the reforms be put into place right away?The reforms are already in place, or being put into place. I do think they need to be enforced and we need to strengthen the reforms to require banks to have higher levels of equity capital so they can withstand events like this, and also limits on counter-party exposure so they do not get overexposes to any one. I absolutely believe that the reforms should go through. I do not think they are perfectly designed in every respect, but the general crux of these reforms is exactly what it has to be.The Wall Street reform was one of Obama’s signature domestic policy achievements. Has he not implemented it yet because he did not really want to do it, or because the opposition he faced was too strong?
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