Let’s not worry about it. My point was really that it wasn’t the government or the taxpayers taking the hit. Whether it’s JPM or JPM’s investors is the same thing in my book.
OK so far.
That’s where you lose me. How does this particular loss compare to the kinds of losses that created the meltdown in 2007/2008? What if the loss had been $5M? What if they had gotten lucky and made $2B instead of losing it?
I don’t care about the loss, itself-- that is, the $ amount. I want to understand what it is about the nature of this particular loss that ties it to the kinds of losses that occurred in 2007/2008. I’m just not seeing it in anyone’s post so far.
I don’t know that it is tied to 07/08 other than this again seems to be a case of driving up a derivative until someone is left holding the bag.
Scuttlebutt I have heard is that the JPM trades were sufficient to influence the market and by extension the derivative fund, and this was being actively and successfully done until enough other traders took opposite positions to quell the upward manipulation. Hell I don’t even have a problem with that really. The market was self correcting as it should be.
The only thing that bothers me is the multiplied exposure that these derivative funds seem to have. It seems to be easy for the firms to overlook just how exposed they are or have become, and this isn’t a good thing.
Investors in JPM are not the same as people who use JPM as a custodian of their accounts. The claim that people using JPM as custodian of their accounts could lose money from this is what I was responding to. It’s an important distinction.
Yes, I agree. If I have 401k invested in the S&P500 at JPM, I better not be affected by this. If I own JPM stock, then I’m SOL. I hadn’t noticed that he was talking about both those situations earlier.
I’ve heard this phrase many a time, and I’m not quite sure I believe, or maybe just don’t understand it. Is that “self-correcting” in the same sense as lemming population control mechanisms?
I go then to the river, to perform the Ancient Albanian Ritual of Self-abasement, accompanied by a Chorus of Bitter Virgins, intoning dirges of woe and humiliation.
In 2007 the risk management departments of banks in some way decided that the housing market would never go down nationwide. Beyond that, an article in the Times magazine about a risk evaluation tool everyone was using (which I think was developed by JPM) said that the fatal flaw was that the rules allowed the risk to be cut to 1% or something - except everyone created instruments that had 1% risk, which simple probability tells you was a guaranteed disaster. Basically the goal of everyone was not to reduce risk, but to play the tool so that they got the maximum allowable risk (and return).
In this case the risk management formula was changed in a way that reduced the risk of this investment. (I’ve seen no evidence that this was deliberate.) The Times article I mentioned before said that the Chief Investment Office brought in risk management people they were friendly with, and that New York didn’t really understand the complexity of the trades being done in London. (Which should also ring a bell.) Even when the alarm bells went off in April, with very erratic trading sessions with big gains and big losses, the amount invested increased. Dimon was busy with other problems until it was too late.
And just like 2008, this did not happen from anyone being crooked or breaking any laws. The bank of course says that its risk management is just fine - I think the results say otherwise.
So we have more or less out of control traders dealing in trades no one understands without enough supervision. That is why it is similar.
Well, yes and no. Joe Nocera’s column today discusses this. It seems that the money used as the base of this investment came from insured JPM deposits. Instead of investing these in safe loans, they decided that to get higher returns (and it doesn’t seem these returns would go to the investors) they would invest in corporate bonds. The first level hedge was basically insurance on the bonds (like what AIG sold) and the second level was a hedge on the hedge, which no one seems to really understand.
I don’t know if investing insured deposits in riskier trades to make more money for the bank is proprietary trading or not. The authors of the bill think so. But it is exactly the kind of thing Glass Steagall prevented.
Customer accounts are sooooo far down the list of things that get touched in the event of failure it’s pretty much just fear-mongering to bring it up in this context. The institution would have to essentially fail, stock go to zero, preferred stock go to zero, bond holders take a hair cut/get wiped out, SIPC insurance (which covers $500k per account) be exhausted, and then the insurance covering deposits not covered by SIPC (in the neighborhood of hundredsof millions of dollars for large institutions) would have to be burnt through. Then customers might have to be worried. Most likely another institution would purchase the customer accounts and the only thing people would notice would be a different bank’s name at the top of their monthly statement.
Nowhere did I say or claim that customer accounts were at risk. The point was whether trading using customer money but for the bank’s profit can be considered proprietary trading or not. If the customers had bought a bond fund, then it is clearly not proprietary trading, including the hedges.
In this case the first hedge is allowed. That seems pretty clear. And that is not where they lost the money. The first hedge was going down in value as the underlying investment went up. Now, if this was a pure hedge that would be expected. You can’t expect both sides to make money. But because the Chief Investment Office was a profit center, they did the second level of hedging which is where they ran into trouble. And that one seems proprietary to me.
Agreed. “How” isn’t nearly as important as the fact that this entire loss is on the shoulders of one man who doesn’t even have the decency of getting himself elected before playing recklessly with that kind of money.
I don’t follow you. All I’ve attempted to do in this thread is rebut this false statement:
[QUOTE=Hbns]
There is no secret reserve stash to replenish the funds that were traded to take this losing position. Those people with IRA’s and 401k’s in JPM administered funds are most likely who are going to cover it.
[/QUOTE]
Basically, all the pro-JPM positions I’ve seen are just saying, “Hey, the company wasn’t ruined this time.”
But what about next time? There won’t be one? Jamie Diamant said there wouldn’t be a THIS time!
