Double Liability A Better Response to J.P. Morgan Mess

This excerpt was originally published in US News and World Report. Read the full text here.

Gasps about J.P. Morgan's more than $2 billion in trading losses dominated Washington conversation last week. J.P. Morgan, the government-anointed rescuer of its weaker brethren during the financial crisis, was not supposed to make a mistake like this. As people fret about the need for more regulation to keep big banks from losing money, it is worth asking whether regulating banks into profitability is really the answer.

J.P. Morgan's status as a banking entity means that, for some, Jamie Dimon's apology and the company's own damage control efforts are not enough. J.P. Morgan can't be trusted to clean up its admittedly massive mess the way similarly humiliated nonbanks do when they make money-losing business decisions.

Instead, many observers are calling for a regulatory solution: Regulators would identify bad business decisions in advance and order banks not to make those decisions. That sounds great, except it doesn't work. Remember, more than 400 heavily regulated banks have failed since 2008 and many others survived only because of taxpayer bailouts...

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