Gambling vs Investing - by Andrew Rosenthal

                                                                                                                                                                                                                                                                     Jamie Dimon on Gambling

By Andrew Rosenthal

NY Times Opinion Pages,

 June 19, 2012

Jamie Dimon, the head of JP Morgan Chase, testified before the House Committee on Financial Services today. This was my favorite exchange:

    Rep. Gary Ackerman: What is the difference between gambling and investing?

    Dimon: I think when you gamble you usually lose to the house.

    Ackerman: That’s been my general experience with investing.

    Dimon: I’d be happy to get you a better financial advisor.

There are many obvious differences between gambling and investing, but let’s just stick to the one that Mr. Dimon offered – there is no fix for the house (the bank) when you invest.

Mr. Ackerman’s question reminded me of a Louise Story article from last year, on JPMorgan and Sigma, a troubled pre-crash investment vehicle. “In the summer of 2007, as the first tremors of the coming financial crisis were being felt on Wall Street, top executives of JPMorgan Chase were raising red flags about … Sigma,” Ms. Story wrote. “But the bank chose not to move out $500 million in client assets that it had put into Sigma two months earlier.”

The result? Sigma collapsed. The clients lost nearly all their money, and JP Morgan collected nearly $1.9 billion, according to a lawsuit filed against the company. That’s just one particularly costly example of the gamblers losing to the house.