This is cross-posted from my blog.
Lots of digital ink has been spilled about JP Morgan’s $2 billion trading loss. I don’t want to add too much more, except to call out one issue that I think has been downplayed through all of this: the notion that JP Morgan “lost” the money.
When most newspapers talk about the story, they use the words “loss” and “lose” (search for “2 billion loss” on Google News and you will get almost half a million results). But this is wrong. The money didn’t get “lost”. It didn’t disappear down a hole, or get shredded, or get burned in a fire. It simply went to other people making the opposite bet than JP Morgan did. It was a pure transfer of money, and a lot of people are now collectively two billion dollars richer.
This is the real issue here: this is nothing more than gambling. One set of rich gamblers lost a large sum of money to another, no more. Neither group, it should be said, is terribly interested in taking that money and creating jobs: it’s about making more bets. Had the money been “lost” such as by dropping bags of dollar bills at random in this country, allowing people to spend it, the economy would be a lot better off.
What people should be upset about is not the nominal dollar amount, but that this kind of gambling exists at all with little oversight and in a way that destabilizes our financial system.