The $ 2B loss by J.P. Morgan has seriously dented the reputations of the hallowed institutions of J.P. Morgan and the larger-than-life persona of Dimon.
These kinds of incidents raise the larger issues of integrity, competence and leadership at the most senior levels of the banking and finance sector.
For instance, many of these complex instruments are created at a relatively junior leadership level. At a junior leadership level, they know what the instrument is composed of, yet they do not have the experience to understand the risks and future implications. Meanwhile the senior leaders, who have the experience to understand the risks, probably don't have the vaguest idea about how these instruments are structured. That's competency failure.
There is a failure at the level of top management to accept this ignorance and then do something about it. That's integrity failure.
Top leadership should have the competency to put in the right risk management structures, even though they don't understand the nitty-gritties of the instrument. That does not happen. That's leadership failure.
It’s these issues of integrity, competence and leadership that bought down Lehman Brothers and resulted in many iconic names like Citibank, J.P. Morgan and Goldman Sachs lining up at Capitol Hill with a begging bowl.
