Comparing JP Morgan’s Trading Loss to the Daily Federal Deficit

| 05/28/2012 |
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Morgan’s Loss Pales by Comparison

We would like to write in depth about JP Morgan’s recent trading loss, but given the criticism and demonization (dimonization?) by our chattering politicians, for now we’ll make a small point that too few folks are considering.

The $2 – $5 billion that JP Morgan lost (and is losing) this spring is a heck of a lot of money. (We wish that we had a small fraction of any number in that range.) Moreover, it seems the loss was avoidable but arose unintentionally through the usual combination of hubris, modeling errors, and poor controls.

For no good reason, let’s take the midpoint of the $2 – $5 billion as the eventual total loss, say, $3.5 billion.

Now, compare that to the federal government’s daily deficit. Wikipedia shows that for the 2012 FY budget enacted, the deficit is approximately $1.327 trillion or $1,327 billion. Divide that by 366 days–it’s a leap year–and you get a daily deficit of $3.625 billion.

So, every single day of the year, the federal government loses more money that our rough estimate of JP Morgan’s loss on that one trading strategy! The bigger difference is that the government’s loses are intentional!

Actually, it’s far worse than that. The federal government doesn’t accrued all of its liabilities like firms must. According to this recent USA Today article, if the government did account for its liabilities properly, the actual deficit this year would have been about $5 trillion, or $13.661 billion per day, which is more than 260% of the maximum estimate of Morgan’s losses. No wonder they want to deflect attention to Morgan!

Here are a couple of other things to consider:

  1. It’s hard to (reasonably) argue that such losses indicate the need for regulation. There is no absence of regulation now, and one could only (reasonably) make that argument if there were no regulation now.
  2. Your household’s share of the federal debt plus retiree commitments is $561,254.

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