I agree with Randall Holcombe on the JP Morgan loss (HT: Don Boudreaux of Cafe Hayek). He had me at:
The correct argument, which Krugman acknowledges, is that the loss was entirely borne by JPM and their shareholders. They took the risk; they took the loss. That’s how markets are supposed to work.
He goes on…
…to add that unless people take risks, economic progress will come to a halt. So the fact that people are willing to take risks is good for the economy, and the fact that in this case the bad outcome for the risk takers involved only their loss sends a signal to others to weigh carefully the risk against the return. The bottom line is that risk-taking is beneficial to the economy, and the incentives are correct in cases like this when losses are borne entirely by those who took on the risk.
As Milton Friedman said, capitalism is a system of profit and loss. Profits encourage risk-taking (and that’s risk-taking to find things that improve our lives, by the way). Losses encourage prudence.
A private company losing money because of a boneheaded decision that is entirely borne by the shareholders of that company should not be an example for more regulation. That is foolish because it will only lead to less prudence.