Obamacare morning was a good moment to try to bury the news that JP Morgan's "fail whale" trade out of London might end up costing them $9 billion. You can say "fortress balance sheet" all you like, but the fact of the matter is that when a bank is this poorly managed there's always a chance of a blow-up and insolvency.
Which reminds me that in all the ruckus around these events there's been remarkably little focus on what I think is the most important political issue of them all—does the Dodd-Frank bill provide a workable framework for resolving the bankruptcy of a large multinational bank or doesn' it?
All the business about Volcker Rule implementation is really a sideshow to that main event. If Dodd-Frank resolution works, then even some things slip through the cracks of our prudential regulation we're still basically okay. The FDIC is supposed to supervise small banks, but we see that small banks fail all the time. But what the FDIC offers is a framework for dealing with bank failures that everyone's comfortable with and that doesn't require crazy ad hoc legislation. Dodd-Frank's authors and officials in the Treasury Department say their legislation has something comparable up and running for big firms. A lot of people don't believe them. As an odds-maker, I'd probably put this 70/30 in favor of Dodd-Frank. But this is really the topic we should be focusing on. If JP Morgan finds a way to lose $90 billion in a crazy trade, do we have the tools in place to unwind the firm or are taxpayers going to end up writing Jamie Dimon a check for $90 billion?