This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bankers Should Be Afraid of Their Own Shadow

Stocks in this article: BCS JPM

Updated to reflect Diamond letter to Andrew Tyrie, chairman of the U.K.'s Treasury Committe.

NEW YORK ( TheStreet) - On Wall Street, no reputation is too great to be broken by the gigantic, opaque and largely unregulated derivatives market, which recently left Jamie Dimon of JPMorgan Chase (CJPM) and Bob Diamond of Barclays (BCS) -- two best of breed managers -- snake bitten.

As JPMorgan and Barclays shares tumble on expectations that losses from inappropriate derivatives trading will multiply, it's now time to view the recently blistered reputations of Dimon and Diamond as a clear sign that high finance needs a drastic overhaul.

In a 'whale' of a derivatives trade gone awry at JPMorgan and allegations of manipulating the setting of short-term interest rates at Barclays, both banks and their leaders are proving, yet again, that even the top minds in finance can't self-regulate the risk taking that occurs in the shadows of the banking system.

After surviving the financial crisis without needing to ask for government bailouts - and even acting as financial safe harbors in the U.S. and U.K. when peer institutions came near collapse -- Barclays and JPMorgan both were among the most vocal and credible critics of financial system reform. Credited with taking over the likes of Bear Stearns, Washington Mutual and Lehman Brothers' North American operations, JPMorgan and Barclays saved thousands of jobs and exited the crisis with a distinguished presence in U.S. and U.K. finance.

That is no longer the case.

Barclays and JPMorgan's respective problems in derivatives trading run amuck leaves the banking sector with few -- if any -- examples left to hold as reason not to go ahead with a sweeping overhaul of the financial sector, highlighted by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act's clamp-down on derivatives markets and Britain's Independent Commission on Banking.

In the case of JPMorgan, a unit outside of the bank's everyday operations invested billions of dollars of excess deposits in obscure and illiquid credit derivatives that have precipitated $2 billion in losses, which the New York Times said on Thursday could total $9 billion. Since an initial loss estimate was revealed in early May, JPMorgan shares have fallen nearly 15% and it's disbanded the upper ranks of the unit responsible for the losses.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs