JP Morgan’s $2 billion experiment with truthiness
JPMorgan Chase & Co blames its $2 billion, and maybe much larger,
trading loss on mistakes made in hedging the market. Bill Black, a
finance criminologist, calls this “hedginess.”
“Hedginess” riffs on “truthiness,” the word the comedian Stephen
Colbert invented in 2005. Truthiness means favoring versions of events
that one wishes to be true, and acting as if they were true, while
ignoring facts to the contrary that are staring you in the face. Fake
hedges are to real hedges as “truthiness” is to truth. Hence
“hedginess.” JPMorgan’s trades got around the Volcker rule, which tries
to prevent banks from speculating in financial derivatives, by labeling
as “hedges” bets that were clearly not hedges.
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