http://americankabuki.blogspot.com/2012/05/bix-weir-jp-morgan-derivatives-book-is.html
and for perspective , check the derivative table below ( look at the top nine , exclude Wells Fargo , you see exactly whom is at risk ) .....
http://www.zerohedge.com/news/what-jamie-dimon-really-said-cias-take
Submitted by Tyler Durden on 05/19/2012 13:42 -0400
and....
http://dealbook.nytimes.com/2012/05/18/c-f-t-c-said-to-open-inquiry-into-jpmorgan-loss/
and.....
http://baselinescenario.com/2012/05/17/geithner-to-dimon-resign-from-the-board-of-the-new-york-fed/
http://jessescrossroadscafe.blogspot.com/2012/05/bbc-interview-with-nassim-taleb-on.html
Rational people keep struggling with the 'why' of all this. I think the struggle is because they start with some wrong assumptions about morally rational behaviour and motives. As Rick Santelli likes to say, traders are not moral when they are trading.
I keep coming back to William K. Black's explanation for this enormous attraction to multi-trillion dollar bets at JPM
I wonder how far the US will go to prevent the failure of their 'best bank' from spoiling the grand illusion, and how many lives of the poor and the middle class will be sacrificed to the god of greed and power.
BIX Weir: The JP Morgan Derivatives Book is Blowing Up
Max Keiser said a while back that if you want to take down JP Morgan, buy silver and demand physical delivery of the metal. Let them eat their naked short positions!
and for perspective , check the derivative table below ( look at the top nine , exclude Wells Fargo , you see exactly whom is at risk ) .....
and...
http://www.zerohedge.com/news/what-jamie-dimon-really-said-cias-take
What Jamie Dimon Really Said: The CIA's Take
- Ben Bernanke
- Ben Bernanke
- Counterparties
- default
- Jamie Dimon
- JPMorgan Chase
- None
- Sovereign Debt
- Trading Strategies
The last time the body language (and ex-intelligence) experts from Business Intelligence Advisors appeared on these pages, their target was Ben Bernanke, and specifically his first ever post-FOMC press conference. This time around, BIA has chosen the analyze what has been left unsaid by none other than the head of JP Morgan in the context of his $2 billion (and soon to be far larger) loss which is still sending shockwaves around the financial world. As a reminder, "Using techniques developed at the Central Intelligence Agency, BIA analysts pore over management communications for answers that are evasive, incomplete, overly specific or defensive, potentially signaling anything from discomfort with certain subjects, purposeful obfuscation, or a lack of knowledge." So what would the CIA conclude if they were cross-examining Jamie Dimon?
BIA Between the Lines: Risk? Forget About It: Jamie Dimon, Chairman & CEO, JPMorgan Chase & Co.
JPM’s European exposure is likely riskier than Mr. Dimon would like investors to believe.
Mr. Dimon is asked several questions about JPM’s exposure to Europe. While he provides and quantifies the company’s amount of exposure, his responses consistently reflect efforts to downplay the level of risk associated with that exposure, suggesting that the firm’s risk profile may be more aggressive than he would like to admit.
Specifically, when Mr. Dimon is asked what JPM’s exposure is to troubled nations, he answers it is about $15 billion net of collateral and ultimately acknowledges that the company could lose $5 billion. But Mr. Dimon is also quick to state that “we stress it,” “not because we’re taking a bet,” but they are “trying to manage exposure” in order to minimize concern about the level of risk associated with that exposure. This language,however, belies a sense that the company is taking a “bet” that they are “trying” to manage, suggesting that JPM may be taking on more risk than Mr. Dimon wants to admit. Further, Mr. Dimon states that “I’m not going to feel terrible” should the worst happen. This is likely a preemptive effort to downplay the severity of the financial impact should some countries default, suggesting that Mr. Dimon has concerns that losing money in Europe is more of a possibility than he would like investors to believe.
Further, when asked if it is possible to be completely sure that hedges with counterparties are truly effective, Mr. Dimon does not answer the question. He instead minimizes concern by explaining that “a lot” of the collateral is cash and that collateral that is not cash is not Italian or Spanish sovereign debt. These qualifications, however, suggest that there may be some portion of collateral backing these hedges may not be as effective as Mr. Dimon would like investors to believe.
More significantly, however, Mr. DImon emphasizes that “we know the exposure to every single counter party.” This statement is meant to assure investors that JPM is aware of their level of risk, but falls short of assuring that the level of risk is appropriate. Further, Mr. Dimon casually acknowledges that “yeah something could go wrong” but not “terribly wrong” in an effort to downplay the severity of both the level of risk, and the potential impact of default associated with JPM’s European exposure. This suggests that the potential for losses is more significant and tangible than he attempts to portray.
JPM may be increasing their European exposure more aggressively than implied.
When asked about the potential for buying assets and businesses from troubled European banks, Mr. Dimon begins his response by emphasizing, for the second time during the interview, that “First of all we really want Europe to recover.” While this statement is meant to be supportive of European banks, it also represents a potential “truth-in-the-lie” -- literallysuggesting that JPM has a strong, specific interest in seeing the crisis resolved. This takes on more significance when Mr. Dimon’s acknowledges that JPM has purchased assets, but attempts to downplay the extent to which the company has done so by qualifying that there are “certain” assets and divisions, “some” that they have bought, “some” they have made bids on and did not get and “some” they are still evaluating. This effort to minimize JPM’s activity in seeking out and acquiring these assets raises questions about how much additional European exposure JPM has taken on in recent months and about the level of risk associated with that exposure.
Volcker rule may require JPM to significantly change their proprietary trading strategies and risk profile.
Mr. Dimon is asked if regulations will compel JPM to enter new businesses or cause them to exit others, Mr. Dimon tries to give the impression that JPM’s business lines and corporate structure will not change as a result of new regulations. However, his qualification that he doesn’t see “a lot” of change indicates he anticipates some change, and his emphasis that the “fundamental” jobs of a bank will remain the same suggest he likely anticipates more change than he implies. With this as a backdrop, Mr. Dimon’s response to a question about the Volcker rule is notable, particularly since the JPM’s proprietary trading function is in flux.
When asked more specifically about what the company will have to do when the Volcker rule is implemented and what the impact on the business will be, Mr. Dimon doesn’t fully address either question.Instead, he uses the opportunity to minimize the significance of, but also signal his concerns about, the impact of the rule on the business, a mixed message that indicates the consequences of this legislation are greater in magnitude than Mr. Dimon attempts to portray.
First, Mr. Dimon characterizes lower spreads as good for investors, as a natural byproduct of an efficient market and as nothing unusual. This is likely an attempt to minimize concern about the potential negative impact of lower spreads on the compensation in the trading business, but could also be an attempt to give the appearance of a balanced and fair position on the rule. Regardless, these statements signal that Mr. Dimon anticipates that implementing the rule will negatively impact traders’ incomes.
More significantly, Mr. Dimon then turns to complain about the government’s desire to regulate the level of risk associated with proprietary trading. His statement, “if you want to be a trader, you’re gonna have to have a lawyer and psychiatrist sitting next to you to determine your intent every time you did something,” is an attempt to cast such regulation as unduly burdensome, but is also reflective of an effort to discredit the rule by portraying it as ridiculous. This type of “attack” signals that the topic is a threat, suggesting that Mr. Dimon has significant concerns about the effects of the Volcker rule on JPM’s trading strategies. He also states that liquidity is good for investors, and tries to convince listeners that “unions, pensions, widows, retirees [and the] military” don’t want liquidity reduced in the market. By aligning himself with the average American, Mr. Dimon is attempting to dismiss the need for regulation and create a “halo” around current trading practices, a psychological mindset that likely suggests he believes the level of risk taken to date may be higher than most observers would like to see. This effort to convince listeners that there is no need for regulatory oversight of proprietary trading suggests that Mr. Dimon has significant concerns that the Volcker rule could have a significant impact on the company’s trading strategies, operations and ultimately the risk profile of the business.
and....
http://dealbook.nytimes.com/2012/05/18/c-f-t-c-said-to-open-inquiry-into-jpmorgan-loss/
WASHINGTON — A federal investigation into JPMorgan Chase’s multibillion-dollar trading loss widened Friday as regulators pursued a new line of inquiry.
The Commodity Futures Trading Commission opened an enforcement case, people briefed on the matter said, making it the third federal agency to examine the trading loss.
The agency joins the Securities and Exchange Commission and the Federal Bureau of Investigation, which are also examining possible wrongdoing at the bank, the nation’s biggest by assets.
The various investigations are all preliminary. No one at JPMorgan has been accused of any wrongdoing.
The commodity commission’s members also voted on Friday to publicly disclose the existence of their investigation soon, an uncommon step that occurs only in the most serious cases. Last year, the agency confirmed that it was investigating the collapse of MF Global, the brokerage firm that misused customers’ money.
In the JPMorgan matter, the C.F.T.C. will potentially examine, among other things, whether the bank’s trading affected the market for credit derivatives — which lie at the heart of the bank’s trading debacle.
While the agency is not the bank’s front-line regulator, it does have jurisdiction over the derivatives industry. It started tracking the bank’s trading in April, one person said, after reports emerged that a London-based trader was taking large bets in credit derivatives that distorted the market. But it was not until recently that the agency opened a formal investigation.
The agency’s chairman, Gary Gensler, is expected to disclose the investigation when he testifies on Tuesday before the Senate Banking Committee. It is unclear whether he will offer additional insight into the scope of the case.
The S.E.C. and the F.B.I. office in New York are examining JPMorgan’s accounting practices and public disclosures surrounding the risky trades.
Both of those inquiries are likely to examine JPMorgan’s regulatory filings that mention the chief investment office, which is the internal unit that placed the trades, and recent statements from the firm’s top executives. On April 13, Jamie Dimon, the bank’s chief executive, publicly played down the concerns about the unusual trading by the “London whale,” calling them a “complete tempest in a teapot.”
On May 10, the bank disclosed that it had lost at least $2 billion in trading, blaming “errors, sloppiness and bad judgment.” A bet with credit derivatives, meant to be a hedge, was “poorly constructed and poorly monitored,” according to Mr. Dimon. The losses are now believed to have grown by at least another $1 billion.
Federal prosecutors in New York have also contacted the bank.
A spokeswoman for JPMorgan did not immediately respond to a request for comment.
and.....
http://baselinescenario.com/2012/05/17/geithner-to-dimon-resign-from-the-board-of-the-new-york-fed/
Geithner to Dimon: Resign From The Board Of the New York Fed
By Simon Johnson
In an interview Thursday on PBS NewsHour, Jeffrey Brown and Treasury Secretary Tim Geithner had the following exchange:
“JEFFREY BROWN: Do you think Jamie Dimon should be off the board [of the New York Federal Reserve Board]?TIMOTHY GEITHNER: Well, that’s a question he’ll have to make and the Fed will have to make. But again, on the basic point, which is it is very important, particularly given the damage caused by the crisis, that our system of oversight and safeguards and the enforcement authorities have not just the resources they need, but they are perceived to be above any political influence and have the independence and the ability to make sure these reforms are tough and effective so we protect the American people, again, from a crisis like this. And we’re going to, we’re going to do that.”
In the diplomatic language of Treasury communications, Mr. Geithner just told Jamie Dimon to resign from the New York Fed board (here is the current board composition). It looks bad – and it is bad – to have him on the board of this key part of the Federal Reserve System at a time when his bank is under investigation with regard to its large trading losses and the apparent failure of its risk management system. (Update: Mr. Dimon is on the Management and Budget Committee of the NY Fed board; here is the committee’s charter, which includes reviewing and endorsing “the framework for compensation of the Bank’s senior executives (Senior Vice President and above)”.)
Mr. Geithner’s call is a major and perhaps unprecedented development which can go in one of two ways.
If Mr. Dimon resigns, that is a major humiliation and recognition – at the highest levels of government – that even the country’s best connected banker has overstepped his limits. This would be a major victory for democracy and a step towards reopening the debate on financial reform, including introducing more restrictions on what global megabanks can do.
In modern American politics, symbols and substance are hard to disentangle. The big banks have won many rounds, so many times in recent years – including with the help of Mr. Geithner at key moments during the Dodd-Frank debate, in subsequent discussions over capital requirements, and with regard to design and potential implementation of the Volcker Rule (which would limit proprietary trading and other forms of excessive risk taking by big banks). If Mr. Dimon resigns, this could help open the doors to a broader reevaluation of power in the hands of Too Big To Fail banks – and how they undermine the rest of our economy.
If, as seems more likely, Mr. Dimon stays in place, that would be a great victory for the big banks – and a reminder of who is really in charge of the country. Mr. Geithner will be forced to walk back from his statement; that would not exactly inspire confidence in our officials – or help President Obama get re-elected.
Keep in mind that Mr. Dimon himself decided to transform the relevant part of JP Morgan Chase into a risk-taking operation – and it is the people he chose and the systems he put in place that have now blown up.
The entire record of recent interactions between JP Morgan Chase and the New York Federal Reserve will presumably be looked at by investigators – including the total number of meetings, the precise content, and the involvement of Mr. Dimon himself. For example, how often did Mr. Dimon meet with Bill Dudley, president of the New York Fed, over the past 12 months, either one-on-one or in a group meeting? What exactly was discussed? How did any of these interactions filter down into the supervisory process?
We need an independent investigation of the JP Morgan losses – as I argued Thursday morning on NYT.com’s Economix blog. This investigation should examine, among other things, the relationship between Mr. Dimon, his bank, and the New York Fed.
and.....
http://www.bloomberg.com/news/2012-05-17/how-jpmorgan-is-like-enron.html
Put this one in the category of the famous quote often credited to Mark Twain: "History does not repeat itself, but it does rhyme."
Last week when JPMorgan Chase & Co. warned investors about a $2 billion trading lossat its chief investment office, it also disclosed it had been using a faulty model to determine the unit's so-called value at risk. For me at least, the story conjured up memories of a similar tale at Enron Corp. more than a decade ago, the details of which I'll get to in a moment.
Initially, in its first-quarter earnings press release on April 13, JPMorgan said the average value-at-risk figure for its chief investment office was $67 million during the three months ended March 31. JPMorgan revised that to $129 million when it filed its quarterly report with regulators last week.
The figure is an estimate of the maximum "potential loss from adverse market moves in an ordinary market environment" for a single trading day "using a 95 percent confidence level," as the company describes it. JPMorgan Chief Executive Officer Jamie Dimon explained that the company had implemented a new value-at-risk model last quarter that it later realized was "inadequate." It then switched back to an older version that it had been using for several years, which showed the bigger number.
Value-at-risk measurements, which JPMorgan pioneered during the 1990s, have many shortcomings -- and critics. For example, if an airline told you it was 95 percent confident your plane wouldn't crash, you wouldn't want to get on board. (You can read more about the metric's history in this lengthy story by Joe Nocera in the New York Times magazine.)
All this reminded me of a disclosure in Enron Corp.'s 2000 annual report, when the Houston-based energy trader was still a stock-market darling. Back then, Enron reported a $59 million value-at-risk figure for its equity investments, which proved to be just a weeeee bit unreliable. Enron filed for bankruptcy in late 2001. Note the reference to JPMorgan and its trademark toward the end of the disclosure:
and.....
Enron has performed an entity-wide value at risk analysis of virtually all of Enron's financial instruments, including price risk management activities and merchant investments. Value at risk incorporates numerous variables that could impact the fair value of Enron's investments, including commodity prices, interest rates, foreign exchange rates, equity prices and associated volatilities, as well as correlation within and across these variables. Enron estimates value at risk for commodity, interest rate and foreign exchange exposures using a model based on Monte Carlo simulation of delta/gamma positions which captures a significant portion of the exposure related to option positions. The value at risk for equity exposure discussed above is based on J.P. Morgan's RiskMetrics(TM) approach. Both value at risk methods utilize a one-day holding period and a 95% confidence level. Cross-commodity correlations are used as appropriate.
All these years later, the art of expressing risk as a single, easy-to-use number is still a work in progress.
http://jessescrossroadscafe.blogspot.com/2012/05/bbc-interview-with-nassim-taleb-on.html
BBC Interview with Nassim Taleb on JPMorgan
"It is one of the serious evils of our present system of banking that it enables one class of society, and that by no means a numerous one, by its control over the currency to act injuriously upon the interests of all the others and to exercise more than its just proportion of influence in political affairs."
Andrew Jackson, Farewell Address
Rational people keep struggling with the 'why' of all this. I think the struggle is because they start with some wrong assumptions about morally rational behaviour and motives. As Rick Santelli likes to say, traders are not moral when they are trading.
I keep coming back to William K. Black's explanation for this enormous attraction to multi-trillion dollar bets at JPM
"Financial institutions such as JPMorgan love to buy derivatives because they are opaque, create fictional income that leads to real bonuses and when (not if) they suffer losses so large that they would cause the bank to fail, they will be bailed out."The more I look into this and think about it, the more that Barack Obama's 'favorite banker' looks like Enron in their heyday.
William K Black
I wonder how far the US will go to prevent the failure of their 'best bank' from spoiling the grand illusion, and how many lives of the poor and the middle class will be sacrificed to the god of greed and power.
No comments:
Post a Comment