Tuesday, May 15, 2012

Ted Williams was a bad baseball player

Or so Nobel laureate Paul Krugman must think, judging by his latest NY Times piece.  After all, Williams struck out (2,021 times in 19 years) almost four times as often as he hit home runs (521), and with a career batting average of just .344 he failed to get a hit almost 66% of the time.  About twice as often as he succeeded.

Why, oh why, did Boston Red Sox managers keep him in the line-up with failure rates like that?  Oh, maybe because they didn't have anyone who was any better at doing that thing he did; that complex, difficult task of putting a round piece of wood onto a round baseball travelling at over 90MPH, squarely.

Or so one must conclude from such logic as;

What did JPMorgan actually do? As far as we can tell, it used the market for derivatives — complex financial instruments — to make a huge bet on the safety of corporate debt, something like the bets that insurer AIG made on housing debt a few years ago. The key point is not that the bet went bad; it is that institutions playing a key role in the financial system have no business making such bets, least of all when those institutions are backed by taxpayer guarantees.
For the moment Dimon seems chastened, even admitting that maybe the proponents of stronger regulation have a point. It probably won't last; I expect Wall Street to be back to its usual arrogance within weeks if not days.
But the truth is that we've just seen an object demonstration of why Wall Street does, in fact, need to be regulated. Thank you, Mr. Dimon.
Where's the 'somebody better' (of judgment) than Morgan's Jamie Dimon, to regulate him.  Did anyone ever pinch hit for Ted Williams?

The fact is that by the standards of the banking profession, Dimon is something like what Williams was to baseball for three decades.  Possibly better, as William's team never won a World Series (and only made it into one, in 1946).

It almost isn't worth mentioning that the recent loss of $2 billion (against shareholder equity almost 100 times that) that Krugman says is like the bets AIG made on housing debt, is clearly wrong.  In addition to it being not a 'bet', but a hedging strategy designed to protect Morgan-Chase's shareholders from large losses, it will have nothing like any threat to the viability of the firm.  No taxpayer money was lost in the execution of this trade and almost certainly will not be.

No comments:

Post a Comment