NEW YORK, May 15 (DPI) – Thursday’s announcement by JP Morgan Chase of a $2 billion trading loss — and the fallout among the press and government regulators — reflects the politically messy, not-so-brave new world of global finance.

Much of the reaction — from the press, from politicians, and on comment boards of all stripes — has ignored a core fact:  Without a dramatic surrender of sovereignty, no single nation can regulate 21st century cross-border markets. And large banks, like it or not, are major instruments of national power in the global economy.

Most commentators are stuck in rear-view-mirror thinking: many want to reintroduce Glass-Steagall, which once barred commercial banks from investment banking activities, or impose the so-called Volcker Rule, which would bar commercial banks from engaging in proprietary trading.

Why hasn’t Washington passed such rules, almost four years since the initial crisis? There’s an obvious answer, most often uttered by a frustrated public — Wall Street banks own and control our politicians and policymakers.

The less obvious answer relates to America’s global competitiveness, and it may be the underlying reason legislators are reluctant to pass any new laws. As Chinese and other state banks expand their reach — banks that will never be too big to fail — the last thing America can afford is to curtail potentially profitable activities by its banks.

(The regulation and transparency of the markets themselves — i.e. derivatives markets in which leverage remains unconstrained — is a separate matter, and one smart observers rightly identify as needing a fix.  But that too requires a coordinated solution, and US regulators returning from their Basel meetings report little progress seeking to achieve uniform regulation on banking activities and capital requirements. )

The actual financial fallout of Chase’s trading “event” — reportedly from an ill-designed hedge, originating in the bank’s London office — is still unclear. The trading position reportedly is still open.

Yet JP Morgan Chase took the unusual step of announcing the loss now.

CEO James Dimon last Thursday hastily arranged a news conference, and then used language almost never uttered by a senior banker.  He said the hedging strategy was “ineffective, poorly monitored, poorly constructed” — withering criticism of his own bank’s operations. On Monday three people — two managers and a trader — were fired.

What’s more, The Wall Street Journal named specific hedge funds as trading counter-parties that have benefited from Chase’s losses. That’s remarkable because it is rarely reported who benefits from someone else’s losses. (Another reported example: Goldman’s huge CDS gain against AIG in 2008, when the feds stepped in and made Goldman and others whole.)

Naming counterparties underscores the fact that, while active, liquid markets may raise all boats from time to time, trading in opaque, illiquid and highly leveraged markets, with dealers who possess all the market’s information, is very much a zero-sum game.

Chase will of course survive. Given that it is America’s largest bank with $2 trillion in assets and a current market cap of $130 billion, Chase is unlikely to face serious financial consequences — the cost is political, a public-relations black eye.

According to one of the NY Times blogs Friday, United States and British regulators had been looking at the JPMorgan unit “for nearly a month,” after the Wall Street Journal reported the large trade in the credit default swap market.

Many commentators on WSJ.com were fixed on the fact that Chase’s loss was by a private institution, even with taxpayer-protected deposits:

“Since when is it illegal for a company to lose money? It happens all of the time–ie Solyndra. Or did everyone forget about that? I don’t believe that the tax payers are paying for this loss. If the banks make money, they are scoundrels, if they lose money they are crooks. What everyone is asking for is socialized banking. Then we’ll get Fannie and Freddie. The government has sure demonstrated how well they can run financial institutions. (Dave, Chicago)

“The odd thing about this is that it is now considered somehow scandalous when a business loses money. It’s a scandal when banks make profits, and it’s a scandal when they make losses. The only thing financial firms do that Democrats do not object to is write checks to Barack Obama. What a waste of time.

“Please point to anything in FinReg or the Volker Rule which would keep a bank from losing money in a credit exposure like this, which is the business banks are in after all. If you really want to shield financial institutions from losing money, make it illegal to lend it.”  (John Reese, WSJ comment board)

” ‘JP Morgan Draws Washington Criticism’ — The hypocrisy hurts my brain. Don’t get me wrong, I wouldn’t trust any of these big banks, but it is hard to stomach the federal government criticizing the private sector for losing money.” (Kirk Moon, WSJ)

Most recommended post on NYTimes.com : “Time for a bit of intelligent adult supervision. From people not personally benefiting from the current system.

For capitalism to work, those who lose must pay the price without causing harm to those who had no involvement. At the present time the system is obviously perverted. Profits remain in the hands of those taking the risks. Losses, when big enough, are socialized.

We need reform of the financial system and we need it now. TBTF must be eliminated. A modern version of Glass-Steagall must be reinstated. Derivatives trading must be made transparent. Derivatives must be subject to intelligent and rational regulation.”