The senator surely understands that the Volcker Rule, which he helped draft, was not meant to prevent all forms of hedging activity by banks, but he kept the language of his statement very short and very simple.
Lawrence Harris -- the Fred V. Keenan Chair in Finance at the University of Southern California's Marshall School of Business -- says that Banks are "trying to manage their risk through a hedging strategy and since it is not in the interest of the public to have banks overly exposed to risk, they will be allowed to continue to do so."
What happened at JPMorgan, according to Harris, is that "risk management models were either incorrect or the processes were out of control."
Harris goes on to explain that "hedging trades are often losing trades. If you have a true hedge -- selling the risk of an instrument through a hedging vehicle -- if the value of the instrument rises, you lose money on the hedge, but you have made money on your original investment. So the purpose of hedging is not to prevent losses on hedging trades but to minimize the volatility of the combination of the
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