Posts Tagged ‘regulation’

JPMorgan Loss Paradox. Human Made Crises Fractal

I am having difficulty understanding the outrage against JPMorgan. Well, I understand the story and what media is trying to say. But that is not the whole story. More importantly, if any measures are taken and they are based on incomplete information lead to unintended results, ironically, similar to JPMorgan loss, again. That is, the “monster” replicates itself over and over again.

Let me clarify my point.

  1. JPMorgan made bad decisions.
  2. JPMorgan lost the money.
  3. Other parties made the money – no one bothers even to suggest who made the money. I do not even mention suggesting why other parties made a good decision. But it is clear, wealth does not disappear that easy.
  4. The government wants to introduce more regulation based on incomplete information. Sadly enough, that regulation would apply to those who make bad decisions and those who make good decisions, but would cost almost equally for many market participants.
  5. If regulation is based on incomplete information, it leads to unintended results.
  6. Like I already said, the situation repeats.

So I do not understand why it is okay for other investors to loose money and not okay for JPMorgan and why it is okay for JPMorgan to profit and not okay for other investors.

On Regulation

We can hear more and more “We need more regulation here, we need regulation there…”, but not many think, including government, about consequences. I am not sure if there any ‘performance studies’ are done on particular laws to assess intentional and unintentional changes laws introduced.

But somehow the majority of people do not realize the cost of new regulations. It is assumed that it does not cost too much unless a new organization needs to be established. But in many cases if a law is introduced, it needs someone to enforce that law, hence, require more spending. Another delusion comes from an assumption that there is no cost if the burden to follow a law is pushed to businesses. While it makes government balance sheets look better, in reality it just hides problems. I can name a couple. With imposing more regulations on businesses, business may decide to move to another country (or area) where laws are not so strict. The result is obvious, less collected taxes in the budget. Another problem, say, a business decided to stay, but because it needs to follow the new law it spends more, hence, pays less taxes. This in turn means we get more and more into debt.

Categories: economics Tags: , ,