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J P Morgan loses 2 Billon in six weeks
Topic Started: May 10 2012, 04:50 PM (927 Views)
LTC8K6
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Baldo
May 14 2012, 10:44 AM
JPMorgan Chase's chief investment officer, Ina Drew, retires in wake of $2 billion trading loss.

Is she going to get a golden parachute? I am growing tired of senior execs getting rewarded for crappy results. But that appears to be the norm on Wall Street & in Govt.
Well, she was paid $15M a year.

You can hardly expect her to do her job well on only $41K a day.
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Baldo
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The Yahoo financial reporters admit they can't figure out what happened and think JPM still doesn't know. Their losses could be a lot more. The whole Bank sector has been walloped since Dimon's conference.

JP Morgan Trading Loss: Still More Questions Than Answers
It's been four days since J.P. Morgan (JPM) dropped a bomb on the financial world with a hastily arranged conference call announcing an unexpected $2 billion loss in their trading and/or hedging operation.

The issue isn't the $2 billion. The issue isn't really even the degree to which analysts and the media remain ignorant as to precisely what happened, save for the fact that something went very wrong at J.P. Morgan's Chief Investment Office.

What really frightens the Street is that it isn't at all clear that JPM or CEO Jamie Dimon knows precisely what happened. Dimon has guided the bank relatively unscathed. If anyone could be said to have a grip on what happens in the murky world of derivatives in the banking system, it's JPM and Jamie Dimon....snipped


Watch the Video at

http://finance.yahoo.com/blogs/breakout/jp-morgan-trading-loss-still-more-questions-answers-154010320.html

If "the Best & the Brightest" don't know we have problems. Whether it is just too obtuse or too crooked there is no justification for these Super Banks to operate with protection of our Tax money & special benefits from the Fed & Uncle Ben's magic money maker
Edited by Baldo, May 14 2012, 05:54 PM.
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LTC8K6
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Quote:
 
Just hours after a top JPMorgan Chase executive retired in the wake of a stunning $2 billion trading loss, President Obama told the hosts of ABC’s “The View” that the bank’s risky bets exemplified the need for Wall Street reform.

“JPMorgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion and counting,” the president said. “We don’t know all the details. It’s going to be investigated, but this is why we passed Wall Street reform.”


:bump:

http://abcnews.go.com/blogs/politics/2012/05/obama-jpmorgan-is-one-of-the-best-managed-banks/
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Baldo
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Jamie Dimon has access to the Oval Office. He is a Democrat & insider.

Another Big Jon Corzine?
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Kerri P.
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http://news.yahoo.com/obama-jpmorgan-one-best-managed-banks-214359921--abc-news-politics.html
Obama: JPMorgan Is 'One of the Best-Managed Banks'
ABC OTUS News – 4 hrs ago

Just hours after a top JPMorgan Chase executive retired in the wake of a stunning $2 billion trading loss, President Obama told the hosts of ABC's "The View" that the bank's risky bets exemplified the need for Wall Street reform.

"JPMorgan is one of the best managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion and counting," the president said. "We don't know all the details. It's going to be investigated, but this is why we passed Wall Street reform."

snip....
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Baldo
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Obama has assets in JPMorgan accounts: White House

WASHINGTON (Reuters) - President Barack Obama has $500,001 to $1 million in a JPMorgan Chase private client asset management checking account, according to financial disclosures released by the White House on Tuesday.

Obama said this week that JPMorgan was "one of the best managed banks there is" despite its $2 billion trading loss being investigated by the Securities and Exchange Commission.

"This is a checking account used by the president and the first lady," said White House spokeswoman Amy Brundage. "It is the equivalent of an interest-bearing checking account available at many other financial institutions," she said, noting that it generated less than $201 in interest income in 2011...snipped

http://finance.yahoo.com/news/obama-assets-jpmorgan-accounts-white-222254441.html
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Baldo
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JP Morgan Used “Hedginess” to Engage in Illegal Speculation

Smart people like Sajiat Das, Karl Denninger, Tyler Durden, Nomi Prins, Yves Smith and Janet Tavikoli have all demolished JP Morgan’s argument that its recent multi-billion loss was caused by a hedge gone wrong.

Now, former senior S&L prosecutor – and current professor of economics and law – Bill Black provides a succinct and memorable take-down of the faux hedges:

The claim from out of JPMorgan is nobody was looking very carefully at the supposed hedge, and the hedge didn’t perform to offset losses, instead it increased the losses and increased the losses dramatically. And supposedly, no one was looking, and no one adjusted for this. And they woke up, and they had a $2 billion loss. So that’s the story from JPMorgan [which] doesn’t make sense.

***

If you have distressed European debt [the underlying asset holding that Dimon against which JPM's so-called "hedge" was made], you’re supposed to have already reserved against the losses in it. So, why hedge the position at all? Just sell it. Get rid of these incredibly risky assets before they can suffer any additional losses. If you’ve already got loss reserves, you don’t even have to recognize a loss, because you’ve already reserved for it. So, you shouldn’t have had to hedge, period.

Second, if you were going to hedge, he should have hedged. And the way you would hedge something like this is to buy a credit default swap protection against the bad assets. That would hedge. In other words, if you lost on the value of the European debt, the credit default swap would go up in value, and you would be protected against loss. Instead, they have allegedly bet in the opposite direction by buying this derivative of a derivative. If the European debt lost value, the derivative of the derivative was also likely to lose value. Well, that’s not a hedge. That’s a double speculation in the same direction. You’re doubling down on the bet.

And the reason you’re calling it a hedge is because it’s illegal, under the Volcker Rule, to speculate in this fashion. So the story coming out of JPMorgan doesn’t make any sense as a financial matter. It seems reasonably clear that this is faux hedges. This is, you know, to hedging like truthiness is to truth. So this is hedginess: not really a hedge, but you call it a hedge to evade the law.

***

Even when the Volcker Rule was adopted, over their opposition and over the opposition of the Federal Reserve and of Treasury Secretary Timothy Geithner, who remains true to his former boss, Jamie Dimon, after that, they gutted the rule—at least the draft rule to implement the Volcker Rule. And unless it is changed, the Volcker Rule will be essentially unenforceable, because you’re allowed, under the current draft, to simply call something a hedge, even though it operates in the exact opposite of a hedge. And voilà, this hedginess is OK, and the losses just mount up and produce the next disaster.

http://www.washingtonsblog.com/2012/05/jp-morgan-used-hedginess-to-engage-in-illegal-speculation.html


It is all pretty much french to me. But my gut feeling is you don't lose two billion that easily, nor do you sit on it during the downside. Of course I don't make 20 million a year like Dimon, but something tells me Jamie was using the Big Jon Corzine Batphone.

Why do I think we are not hearing the complete story? Were these fools at JPM buying EU debt? Something I read months ago was putting our TBTF Banks at risk.

Something just isn't right here
Edited by Baldo, May 16 2012, 11:52 PM.
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kbp

Baldo
May 16 2012, 11:50 PM
JP Morgan Used “Hedginess” to Engage in Illegal Speculation

Smart people like Sajiat Das, Karl Denninger, Tyler Durden, Nomi Prins, Yves Smith and Janet Tavikoli have all demolished JP Morgan’s argument that its recent multi-billion loss was caused by a hedge gone wrong.

Now, former senior S&L prosecutor – and current professor of economics and law – Bill Black provides a succinct and memorable take-down of the faux hedges:

The claim from out of JPMorgan is nobody was looking very carefully at the supposed hedge, and the hedge didn’t perform to offset losses, instead it increased the losses and increased the losses dramatically. And supposedly, no one was looking, and no one adjusted for this. And they woke up, and they had a $2 billion loss. So that’s the story from JPMorgan [which] doesn’t make sense.

***

If you have distressed European debt [the underlying asset holding that Dimon against which JPM's so-called "hedge" was made], you’re supposed to have already reserved against the losses in it. So, why hedge the position at all? Just sell it. Get rid of these incredibly risky assets before they can suffer any additional losses. If you’ve already got loss reserves, you don’t even have to recognize a loss, because you’ve already reserved for it. So, you shouldn’t have had to hedge, period.

Second, if you were going to hedge, he should have hedged. And the way you would hedge something like this is to buy a credit default swap protection against the bad assets. That would hedge. In other words, if you lost on the value of the European debt, the credit default swap would go up in value, and you would be protected against loss. Instead, they have allegedly bet in the opposite direction by buying this derivative of a derivative. If the European debt lost value, the derivative of the derivative was also likely to lose value. Well, that’s not a hedge. That’s a double speculation in the same direction. You’re doubling down on the bet.

And the reason you’re calling it a hedge is because it’s illegal, under the Volcker Rule, to speculate in this fashion. So the story coming out of JPMorgan doesn’t make any sense as a financial matter. It seems reasonably clear that this is faux hedges. This is, you know, to hedging like truthiness is to truth. So this is hedginess: not really a hedge, but you call it a hedge to evade the law.

***

Even when the Volcker Rule was adopted, over their opposition and over the opposition of the Federal Reserve and of Treasury Secretary Timothy Geithner, who remains true to his former boss, Jamie Dimon, after that, they gutted the rule—at least the draft rule to implement the Volcker Rule. And unless it is changed, the Volcker Rule will be essentially unenforceable, because you’re allowed, under the current draft, to simply call something a hedge, even though it operates in the exact opposite of a hedge. And voilà, this hedginess is OK, and the losses just mount up and produce the next disaster.

http://www.washingtonsblog.com/2012/05/jp-morgan-used-hedginess-to-engage-in-illegal-speculation.html


It is all pretty much french to me. But my gut feeling is you don't lose two billion that easily, nor do you sit on it during the downside. Of course I don't make 20 million a year like Dimon, but something tells me Jamie was using the Big Jon Corzine Batphone.

Why do I think we are not hearing the complete story? Were these fools at JPM buying EU debt? Something I read months ago was putting our TBTF Banks at risk.

Something just isn't right here
It is "French" the way that blog explains it!

Nobody knows what JPM did.

That "already reserved against the losses in it" does not mean what the article seems to tell you. The "reserves" would be digits in accounting set aside (supposedly) to cover whatever loss they say they could suffer, in their opinion.

That "buy a credit default swap protection" is a transaction that has somebody on the other end (buyer / seller). Maybe JPM was doing both, which could create an open position somewhere in the span of bonds losing value.

They had to have been open to loss some where in the scheme or they would not have lost as much money as is reported.

Since they actually were so active in the market that they temporarily created a change in the value, they had to have doubled down some way or another or maybe many ways.
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LTC8K6
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Barry lost a lot more than $2B...
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Kerri P.
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http://finance.yahoo.com/news/jpmorgans-trading-loss-said-rise-100803486.html
JPMorgan's Trading Loss Is Said to Rise at Least 50%
New York Times – 5 hours ago

The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank's initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses.

When Jamie Dimon, JPMorgan's chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan's distress, fueling faster deterioration in the underlying credit market positions held by the bank.

A spokeswoman for the bank declined to comment, although Mr. Dimon has said the total paper trading losses will be volatile depending on day-to-day market fluctuations.

The Federal Reserve is examining the scope of the growing losses and the original bet, along with whether JPMorgan's chief investment office took risks that were inappropriate for a federally insured depository institution, according to several people with knowledge of the examination. They spoke on the condition of anonymity because the investigation is still under way.

snip....
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LTC8K6
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Kerri P.
May 17 2012, 10:35 AM
http://finance.yahoo.com/news/jpmorgans-trading-loss-said-rise-100803486.html
JPMorgan's Trading Loss Is Said to Rise at Least 50%
New York Times – 5 hours ago

The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank's initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses.

When Jamie Dimon, JPMorgan's chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan's distress, fueling faster deterioration in the underlying credit market positions held by the bank.

A spokeswoman for the bank declined to comment, although Mr. Dimon has said the total paper trading losses will be volatile depending on day-to-day market fluctuations.

The Federal Reserve is examining the scope of the growing losses and the original bet, along with whether JPMorgan's chief investment office took risks that were inappropriate for a federally insured depository institution, according to several people with knowledge of the examination. They spoke on the condition of anonymity because the investigation is still under way.

snip....
Basic math can be tricky...
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kbp

LTC8K6
May 17 2012, 09:11 AM
Barry lost a lot more than $2B...
Well, sort of! He did spend much more than that foolishly, however Ben has it all balanced on the accounting books he must share with us (no idea what the secret books look like, and Congress needs to enact a law that opens those books up to let the sun shine in).

This JPM story brings back memories that hit close to home;
Quote:
 
U.S. Seizes Franklin Savings Association

By THOMAS C. HAYES, Special to The New York Times
Published: February 17, 1990

Federal regulators today took control of the Franklin Savings Association, a large and unorthodox savings institution based in Ottawa, Kan., with $11.4 billion in assets and close ties to Wall Street. It is now the largest savings unit in Government hands.

snip

Ernest M. Fleischer, an unassuming, analytical executive who built Franklin into the nation's 25th-largest savings institution, was removed from the chairman's post at Franklin as part of the Government action today.

Many on Wall Street had considered Mr. Fleischer a visionary in designing financial instruments to reduce risks from interest-rate swings. The primary market for his techniques was mortgage-backed securities. But as his success with the techniques in the mid-1980's were widely copied, profits for all players in that growing market, including Mr. Fleischer, became more elusive.

Mr. Fleischer attempted to expand Franklin's activities in search of new profits by acquiring brokerage firms. Franklin's parent acquired the Wall Street firm L. F. Rothschild Holdings Inc. in 1988. Earlier, it bought a large Houston-based brokerage, Underwood Neuhaus & Company.

Both efforts failed. Underwood Neuhaus was acquired by a unit of the Kemper Financial Group last November. And L. F. Rothschild's operations are essentially moribund after the firm filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Code in June. Mr. Fleischer did not respond to telephone messages placed to Franklin's offices in Kansas.

How Course Was Altered

Franklin had less than $400 million in assets when Mr. Fleischer altered its course from home lending to a wide range of investments.Franklin invested mainly in mortgage-backed securities, which are mortgages packaged as certificates such as those issued by the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. By the end of 1988, $7.3 billion, or more than half Franklin's total assets were in this market. It also began trading in the financial futures market and dealing in interest-rate swaps.

Among the many Wall Street executives Mr. Fleischer recruited to Franklin was John A. Scowcroft, a former head of mortgage-securities trading at Merrill Lynch. Mr. Scowcroft directed research at Franklin Savings and was its vice chairman. Mr. Scowcroft also did not respond to a request late this afternoon for an interview.

Mr. Fleischer, a Harvard-trained lawyer who practiced tax law for several years in Kansas City, Mo., controlled the majority of Franklin's stock, which was thinly traded in the over-the-counter market. His stake was worth approximately $200 million at the height of Franklin's success in 1988.

The stock rose 12.5 cents today in over-the-counter trading, closing at $2.50 a share, after having plunged $2.625 on Wednesday, when Franklin disclosed that it was undergoing a routine Federal examination.

Operations Worsened

Mr. Adams of the Office of Thrift Supervision said Franklin's operations worsened over the last 18 months because the institution was unable to generate sufficient profit from securities trades or interest income to cover the high interest rates it had to pay to attract brokered deposits, which are those acquired through brokerage firms.

Franklin has nine retail branches in Kansas, but 71 percent of its deposits at the end of 1989 had been gathered either through telephone marketing programs or brokerage firms.

Mr. Adams said Franklin profitably sold big portions of its mortgage-backed securities in recent months, but the proceeds were inadequate to cover the high interest rates paid on the deposits. ''What is left is a lot of low-yielding assets,'' he said. ''There was no reasonable prospect that they would be able to recover.''

In an interview two years ago, Mr. Fleischer said more savings institutions should follow Franklin's methods. ''I do not believe many thrift executives seek to destroy their own financial institutions,'' he said. ''It's simply a result of not understanding or knowing what to do, or what can be done.''


My guess is that JPM was playing a game similar to that which Ernest M. Fleischer made famous a few decades back. Fleischer, again and again, told the world that the government employees were too stupid to understand what he was doing, which basically was like betting long on the interest rates "X" number of years out and short on interest rates "Y" number of years out, all to justify an unrealistic rate he paid depositors so that he'd have 'mo money' for the margins to add digits to his gambling venture.

Maybe it would have worked out, but ....BIG "BUT" ...he was at or over the line on his margins and gambled paying higher rates to get more deposits to cover that margin (double down). Then Reagan, in what I considered a MISTAKE, changed the rules so quickly that the Savings and Loans did not have time for a transformation to divest and increase their reserves to meet those new rules ...thus the Savings and Loans crisis struck.

Fleischer was playing mortgage securities and betting (hedging sort of) he could out-think the rate changes, while paying higher interest for deposits than he was getting from the investmments in mortgage securities.


JPM looks to have been basically betting long on the interest rates "X" number of MONTHS out and short on interest rates "Y" number of MONTHS out, all wagered with 'mo money' they get cheap from Ben (US dollars for free to gamble on European investments!) for the margins to add digits to their gambling venture.

Evidently JPM's gambles were on a much shorter time span than Fleischer's were, so the tricky accounting is not as beneficial to them ...too many losses must be absorbed in the short term columns, no spreading them out in the long term columns over the years.

I'm just guessing, but I can't imagine JPM not actually having hedged some way or another, a way that time was not coooperative with them on.
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Baldo
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Nassim Taleb, author of the Black Swan, speaks out about JPM losses.

This is a real interesting interview

"JPM has 10-15 times the risk of a regular hedge fund... They should not be using my money to play in something that is way too dangerous and too complicated for them... What I want [for JPM] is the following - skin in the game. People when they make money should get the upside, should get the upside; and people should be harmed when they have the downside. Hedge funds have that."

http://www.youtube.com/watch?v=op92Wb_xmBU&feature=player_embedded


Back in 2009 I exchange e-mails with Bill, our Blog Hooligan extraordinary & Professor of Economics. He said in part what is wrong is that we backstop the losses in TBTF. This is what Nassim Taleb is saying.

These Banks get money from the Fed, US Treasury, and have special privileges. I am all for free enterprise, but they are playing in part with OUR MONEY.

Edited by Baldo, May 19 2012, 12:37 PM.
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kbp

Baldo
May 19 2012, 12:37 PM
Nassim Taleb, author of the Black Swan, speaks out about JPM losses.

This is a real interesting interview

"JPM has 10-15 times the risk of a regular hedge fund... They should not be using my money to play in something that is way too dangerous and too complicated for them... What I want [for JPM] is the following - skin in the game. People when they make money should get the upside, should get the upside; and people should be harmed when they have the downside. Hedge funds have that."

http://www.youtube.com/watch?v=op92Wb_xmBU&feature=player_embedded


Back in 2009 I exchange e-mails with Bill, our Blog Hooligan extraordinary & Professor of Economics. He said in part what is wrong is that we backstop the losses in TBTF. This is what Nassim Taleb is saying.

These Banks get money from the Fed, US Treasury, and have special privileges. I am all for free enterprise, but they are playing in part with OUR MONEY.

They are most likely playing TOTALLY with our money, the (almost) free loans from the Treasury.

We'd probably roll over and faint if we learned what margins are used to get the Treasury loans and then add in the margins allowed when they play the market. My guess is that a billion dollars in-hand could get them the loans and margin necessary to play more than a half trillion in the market.
Edited by kbp, May 19 2012, 03:30 PM.
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I read somewhere that our dear leader has a large account with JP Morgan/Chase.

Maybe at the end of the year, he will find himself not only unemployed, but also broke.
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