What was the trade?

Bruno Iksil, a London-based trader for JPMorgan Chase, assembled a huge portfolio of investments designed to hedge against risks the company takes with its own money. Iksil’s bet was so big he became known as the London Whale. It’s incredibly complicated, but basically he was selling a form of insurance to other investors based on his belief that certain U.S. corporate bonds would be very secure. He sold so much of it that any blip in the market could have caused him enormous pain. The market blipped. JPMorgan suffered losses of at least $2 billion, and potentially much more.

How did they make this mistake?

No one really knows yet. Matt Levine, the editor of Dealbreaker, thinks they simply messed up the math that was governing the trade. Also, it’s never a good idea to let everyone see that you’ve gone that far out on a limb. Once Iksil started facing losses, other traders could take advantage.

How much did JPMorgan lose on it?

We probably won’t know for a while. The number $2 billion is floating around. But it could easily be closer to $5 billion when all is said and done. The key here is that the trade isn’t over. JPMorgan Chase is still trying to get out of its positions.

Will JPMorgan need a bailout?

No. It’s hard to believe, but $2 billion, or even $5 billion, just isn’t that much money to the bank. In 2011, JPMorgan’s profits were $19 billion. And chief executive Jamie Dimon called that “mildly disappointing” at the time.

So why does this matter ?

For one thing, JPMorgan was known as the best manager of risk on Wall Street. That’s largely because the company made it through the financial crisis mostly unscathed. But it turns out that even the best manager of risk can slip. This trade, in fact, echoes the financial crisis: They bet on something unlikely as if it were impossible. That’s what all those banks did when they bet almost everything on the belief that the housing market never goes down everywhere all at once. It’s a reminder that even “good” banks make this kind of mistake. And remember, JPMorgan made this mistake less than four years after the fall of Lehman Brothers, so this came at a time when the lessons of the crisis were still fresh, and when regulators were watching closely.

So what does this mean in Washington?

JPMorgan has used its sterling reputation to fight the Volcker Rule. That’s the regulation that says banks that take commercial loans and get federal insurance to protect those loans — banks that you might open a checking account with, such as JPMorgan — can’t make speculative bets on their own behalf. If you’re going to be a bank, then you can’t play at the casino.

The problem is that it’s very hard to say when a bank is betting on its own behalf and when it is betting on its clients’ behalf. JPMorgan says that this trade was a “hedge” — that it was there to reduce risk, not make money. But given how exquisitely it blew up in JPMorgan’s face, regulators are going to make sure that the Volcker Rule will stop trades like this one from happening. Otherwise, they’ll get the blame next time. That means a much tighter rule, which in turn means JPMorgan (and other banks) won’t make as much money in the coming years.

What are you more worried about : JPMorgan or Greece?

Oh, Greece. A thousand times Greece. This JPMorgan thing is bad for JPMorgan. What’s going on in Europe might be bad for the global economy. Or, to put it another way, JPMorgan’s losses are something you might be angry about, or smug about, but they’re not something you should be worried about.