Sven certainly is entitled to make his case below for regulation (and it is clear from the comments that he is talking about more than the recent JPM loss). But this article by Jonathan Macey in the WSJ is closer to my own view (as you’ll also see in the comments to Sven’s post).
The entire piece is worth reading, but here is a nice sample:
The trades that J.P. Morgan made were extremely complex, and it certainly appears that they did not work the way that they were supposed to. But the reason that markets work better than central planning is because market participants learn from experience, and they learn fast and thoroughly because they suffer significant losses when their investments, whether they be hedges or not, turn out badly.
Thus, far from serving as a pretext to justify still more regulation of providers of capital, J.P. Morgan’s losses should be treated as further proof that markets work. J.P. Morgan and its competitors will learn from this experience and do a better job of hedging the next time. They will learn because they have to: In the long run their survival depends on it. And in the short run their jobs and bonuses depend on it.
The second lesson from J.P. Morgan’s failed hedging effort is that politicians and regulators are opportunists who will use any pretext to increase their power and influence. Rahm Emanuel, the former chief of staff to President Obama, once famously said that one should never let a crisis to go to waste. It appears that the current regulatory class is of the view that even crises that are not serious must be exploited.