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.