I'm all for cutting out banksters on any transactions, but the logic used in this fiasco is simply absent (unless you see it as our government working for foreign masters at our expense).
First, how many times have we been told that the Chinese have infiltrated computer systems and organizations to steal sensitive data regarding the USG, private businesses, and other information? So, "our" government's answer is to mainline Mainland China into one of our most sensitive computer systems? In addition, how is this possible even after we find out that Chinese counterfeit goods are being used in American military products for our defense?! Makes sense only if you view it as the USG working for the Chinese. Otherwise it's criminal negligence or gross stupidity.
Also, why does a foreign government that is not our ally, has actually fought against us in recent conflicts through proxies and directly, get treated better than a US citizen? It's obvious the USG and its business puppets worry more about Chinese businesses that produce goods in China for American CEOs than it does for an American worker or unemployed vet who was born in the US, educated in the US, worked in the US, but can no longer find any job in the US to survive on. That includes US companies employing joint ventures in China (because the PRC forces them to) in which US companies lose their intellectual property in a short-term attempt to sell in China. Wow, the Chinese stole my IP after we joined forces and then kicked me out and sell my own product that I created for billions of dollars in China without my help! Who could have predicted that?
So, again, who does our government work for? I don't know, but with Treasury opening a $ mainline to China, old Bill Clinton a big fan of NAFTA and involved in some dubious PRC military technology transfers back when he was boss (and still raking in $125,000 for speeches to sycophants and millions for "consulting",) USG now encouraging the offshoring of jobs until we can all work as interns for free in the US for foreign masters, we really should ask. In historical times, leaders who did this to their people would not be viewed very kindly by the populace. So why are we allowing it?
It's safe to assume someone or some organization is behind most moves nowadays. If someone out there is still watching Fox or NBC or other MSM, just precede every story by "This message is brought to you by [Mega Corporation]" and then watch the story.
Who benefits from destroying the USPS? Safe to assume FedEx and UPS want the USPS gone, then no competition and can jack up prices and force people to drive if they live too far from a distribution center (too bad if they don't have cars or cannot afford fuel).
Who benefits from the fight against well-educated students and liberal studies? Corporations that want drones and customers only. Why else would Murdoch hire the former head of NYC's schools immediately after that same individual negotiated a deal involving Murdoch's company (by the way, nice integrity - sell out education to the highest bidder and then work for a phone hacking organization).
Who benefits from unlimited campaign funding? A farmer or small business owner or solo accountant or mega-rich multinationals?
Privatizing roads? Why large corporations of course that can jack up tolls.
Privatizing Social Security? A widow living on a small monthly payment or the same banksters that don't even understand derivatives they create and lose billions on for their clients but make personal fortunes off of for whatever it is they do.
Cutting funding to schools? Corporations that want drones brought to by [fill-in-the-blank].
Fewer regulations in mines and on oil rigs? The miners and roughnecks working below ground or fifty miles off shore or the big bosses in the big offices?
Getting rid of sanctions? The troops that face Iran's IEDs or the companies that want to trade with whoever they want (Koch Bros. + Fox News - how's that "patriotism" work out for you when Stalin or the mullahs dangle some coins in front of your father or you).
Profit, profit, profit. The concept of enabling fellow human beings, fellow citizens, and making the world a better place mean nothing when it's all about comparing bank accounts. Now stop reading and thinking and get back to work in [fill-in-Chinese outsourced factory here].
of an agenda. I'm pretty convinced the motivation here is try to turn the lights out on what is happening to Americans economically.
If I was designing government statistics, we would have, mandatory, online forms, required to be filled out by everyone, but the individual details protected by privacy laws for individuals (not for businesses, corporations yet with some sort of time window to protect business activity, roadmaps and such).
I'd be building a "Facebook" of government statistics and interactivity. These cats are ridiculous. Private businesses already know how many times someone flushes the toilet. Seriously, Google assuredly knows when you visit the bathroom, cell phone companies know exactly where you are every minute of the day to the point geolocation business models have been around for about 15 years. Visa, MC? Don't even get me going on how much they know and Target knows when you're pregnant, all by AI analysis.
So, let's see, it's perfectly fine that Visa, MC and many others "profile" you by running artificial intelligence algorithms to predict your behavior from your purchases of soap, folic acid and moisturizer....yet the government cannot know what kind of business activity is going on so we can get someone accurate estimates of economic activity to estimate economic growth?
How did these people get into office and can we stop organizations like the Koch Brothers from turning this nation into a bunch of crazy people?
Funny how the Census, post offices, and so many other items were good enough for the Founding Fathers that they decided they should be mentioned in the Constitution but our current "leaders" seem to have problems with them. I guess the Founding Fathers are good enough for certain things, but not others. Let me check my readings and see if there's any mention of running a pizza chain while sexually harassing women as a qualification for President, or selling American workers out while helping build foreign nations' economies, or if there's any mention of G-8 summits where the Executive watches soccer games while the American people suffer. No, no luck. I guess it's one of those things like "random sampling" and "statistics" and "census." Only our betters in DC and boardrooms are smart enough to understand if those things are real or not, and if they say they are not, I trust them 100%.
China's biggest corporation is their military. Have you noticed? They look underfed. And the products that we import from them are sometimes dangerous. Is it because they have no pride in what they produce? Do they have scienctists developing products, or do they steal our ideas and try to recreate them cheaper with cheap labor. Be careful what you force our corporations to do.
I could not verify at the time of this post, what funds by the CIO in London were being used for these derivative trades. Felix Simon at Rueters says it is customer deposits. He's probably right and his reasoning, this is the cheapest source of funds is also right, except for the Federal Reserve lending rates.
And at JP Morgan, just like at any other bank, the cheapest cost of funds is always deposits. JP Morgan has hundreds of billions of dollars in excess deposits just because it’s too big to fail, and has an implicit government backstop. It’s bonkers that it should then be able to take the resulting ultra-low cost of funds, and turn it into eight-figure bonuses to people like Drew, all for taking that money and playing on derivatives indices in London.
There is no glass-steagall, a wall to separate customer deposits, which are FDIC insured, from "investment" portions of a bank.
Agree with him or not, Chris Whalen is always an interesting read.
My take: regulation always been captured by special interests, so it often is counter-productive. The REAL solution is to downsize the TBTF banks, but the Fed and FDIC don't want to do that. They ARE the banks!
So in that sense Whalen is correct. All you can do is ban derivatives (or something like that). But they will screw this up and allow for "certain derivatives" for Warren Buffett, Jamie Dimon and the Elites.
Don't kid yourself. This is a massively rigged game.
If you noticed we sure didn't cover it. IPOs are completely rigged games, the little guy stands to lose their shirt when shares are first offered to the public.
I don't think this made a dent in the CEO/corporate rampage of the U.S. and global economies, nation-states.
Watching the IPO, my hopes were raised. Sure, BLS will still upwardly revise the previous week's initial claims no matter what to show "improvement" in unemployment the following week. Sure, unemployment will "decrease" as the real unemployment rate continues to climb as people drop off the rolls. Sure, JPMorgan execs and Goldman Sachs execs and every other 1%er can still arrange private meetings with Geithner and the White House to make sure the wrist slapping doesn't get too hard, oh, and by the way, to make sure their close relatives never have to apply for jobs like a 99%er or have to work as hard as a 99%er does EVER in anything that might involve sweat. Sure, the Fed will "loan" money out to banksters so they can loan it out at 10%, or bet trillions on derivatives, or use it to fight litigation from foreclosing on vets homes against the law or forging mortage docs, buy new HFT machines, etc.
But something happened today. I'm sure millions of us were expecting Pets.com 2.0. We were expecting Zuckerberg, manchild of the hoody and "he's so rebellious, who would have thought of ripping off millions of people by selling a product that has no barriers to entry any clown could create it while also invading people's privacy" to become a trillionaire.
But it didn't happen. Despite the fawning press, despite CNBS and Business Insider and Fox singing his praises and worshipping wealth above all else so that even P.T. Barnum and J.P. Morgan must have been spinning in their graves, Murder Incorporated, sorry, the other syndicate, Wall Street, had to prop up their own IPO up at $38 (and yes, I wouldn't be surprised if some of our very own TARP and other money was used for this nonsense). And by all means and measures they would hold the line at $38. Now, was that the free market at $38? Nope, the banksters had to buy their own just-sold-shares to keep Zuckerberg "badass hoodie I love your information and will sell it for $$$$$" from looking like an even bigger ass.
Maybe being rich isn't the be-all-end-all. Is this madness? Am I speaking heresy? Or maybe Trump and Survivor mentalities aren't the ideal? Maybe the folks who had to COOPERATE on farms had their stuff together? Maybe thriving communities don't need, nor want, backstabbing and get rich by any means necessary mentalities?
Maybe, just maybe, we're seeing the end of the beginning or the beginning of the end. Banksters, their paid-for-cronies in DC and state capitals, CEOs and Cavuto asskissers, fake anti-banksters like the White House and AGs and DOJ, maybe we're seeing 99%ers are gaining traction. Maybe, just maybe. . .
After all, with the Eurozone collapsing, Syria in civil war, Fantasyland can only last so long through MSM propaganda. An enlightened and awakened majority of citizens (not all, but enough) is a thing to behold. I look forward to it!
Everyone in the world who has an IQ above 80 (I guess that includes some politicians and regulators) knows the risks these "people" are creating that the 99% will have to pony up for. However, do they care? Do they want to end it? Nope, no way.
Didn't Madoff get exposed repeatedly during his Ponzi scheme by whistleblowers and people who cared about their clients' getting screwed? Mary Schapiro was at FINRA and now heads the SEC. She had to be aware, and yet . . . nothing. Her testimony a few months ago was embarrassing, she honestly seemed confused - par for the course. Madoff himself was active in the NASD! If you're going to rip people off, why not work for a regulator - not like anyone would or should notice! And if they do, who would you complain to? Madoff? His buddy Schapiro?
Financial blogs reveal commodities manipulation daily (including JPMorgan, GS aluminum manipulation that Coca Cola hates), gold and silver manipulation(JP Morgan), etc.)), high-frequency trading that distorts markets DAILY, and the trillions of dollars held in derivatives outstanding by all the major TBTJail banks here and abroad, and yet no pols seem to care, no aggressive law enforcement actions like search warrants, interrogations, subpoenas, etc.
Most of these TBTJail have laundered $ for corrupt regimes and drug traffickers. The Treasury mandates FinCEN doc after doc for CTRs and SARs - so with all that paperwork and proof, why aren't pols and the Treasury and DOJ shutting these money launderers/US banks down? Because they don't want to because TBTJail is ABOVE THE LAW. But the marijuana dealers on the corner who actually hand off to an undercover - oh yeah, he's a master criminal.
Corzine and his posse were subject to rule after rule after rule under CFTC and other regs. He violated them brazenly and $1.2 billions vanished just like that. Poof! JPMorgan seemed to have received quite a bit of that cash in last second transactions. So, Dimon in jail? Corzine? In an interrogation room at all? Nope, Dimon's got Farcebook IPO coming and all that loot to make off suckers. Where are the pols. and regulators and DOJ and White House?
Glass-Steagall - which honest person honestly thinks it was wise to allow banks backed by the FDIC/taxpayers to engage in reckless bets in the billions of dollars by getting rid of it? The govt. figured that it was ridiculous 80 years ago and ended it. So dimwits on the lobbyists' take ignore wisdom and go for broke - taxpayers will pay for the result anyway, so who cares. Only honest people care, not banksters or their puppets.
THEY ALL KNOW, they just don't care. But to put a nice spin on it for people who might be swayed by talking points on MSNBS/DNC channel or CNBS or Cavuto kissing some CEO ass on Fox, they hire team after team of PR folks and appear daily on CNBS and other comedy shows. How many 99%ers well-versed in the issues and coming from the opposite side are ever allowed near a TV studio? Any law enforcement people saying how easy it is to bust all of these criminals because the paper trail is so easy Mr. Magoo could see it, while he was passed out, drunk? No, but it is.
Silly 99%ers, rules and regulations and the truth and law enforcement are quaint tools meant to oppress the 99% and to protect the 1% by making it brutally hard for anyone else to dissent.
There's not a problem if they refuse to see it at all costs. Lies are not a problem if you don't have integrity - thus, no problem for them at all.
The powers that run the show have practiced minimizing the effects throughout history, so they're good at it.
The shareholders at the JPMorgan meeting just approved Dimon's ludicrous pay, so everything's good for Davos vacations and yacht sales this year.
Obama said a few words about it to please the people who actually believe he is fighting banksters, but that will last only so long until he receives the orders to remain quiet or else lose his bankster campaign funds, at which point Obama supporters will move on as he does.
The media will continue focusing on gay marriage, or some suntanning incident gone awry, or some other issue that won't threaten the demise of entire economies.
Most of the public will pay attention only so long as the MSM does. And even when the MSM does, it looks to the banksters and pols. for explanations because the media can only read teleprompters (that's basically their job), so that's useless. And then we have London 2012 Olympics, and rehashing a dog on a roof story, Facebook pump-and-dump IPO, new Apple TV, and other ready-to-order distractions.
We have people who threatened our entire economy with LTCM in the late 1990s with highly leveraged trades now working at JPMorgan in trades, no punishment, no jail, no ban from trading ever again. All the players at the Fed and banks are all the same. All the instruments they didn't understand back in the 1990s are all the same. And the media is just as inept as the 1990s and never dares question anyone with alot of money and bankster or CEO backing. No one should be surprised this is happening again. Those with the knowledge have withdrawn as best they can (notice the withdrawals from the markets and the need for the Fed to bolster stocks since many investors have given up on this rigged game). Hunker down, it's going to get much, much uglier (for the commoners, not the noble elite).
What I'm shocked about is how the public seems shocked and not aware nothing changed. The same crap that caused the 2008 financial crisis is still going on. Beyond capital requirements and the insider club of the NY Fed, my thing are derivatives. The damn CDSes and we've pointed this out many times here, are not a 1:1 relationship. i.e. I own x, I buy insurance y to cover x. By the mathematical model, I own x yet anyone and their brother, no relation to x can buy insurance y. Of course CDSes can "blow up". How can it be allowed to even have such a faulty mathematical model, never mind bet the farm with them?
Any derivative that is based on bad math, bad computation should be outright banned, period.
Completely agree with you on every single statement man, this country is suppose to be the land of opportunity but once you attain that opportunity it just seems like you will get ***** slapped and have to start back from the ground up. The american government is a gang just like bloods and crips... people still fail to see it like that. Then you have individuals that say if you don't like this country nobodies forcing you to stay so than leave and go somewhere else to survive but I didn't choose to live here.. my parents came here and I have to work my way up with earning my own money to try and get the **** outta here... I wasn't spoon fed and everything has to be done by ME and only ME because I have no other help...but best believe once I make enough money I am OUTTA HERE.... I know theres a lot of others that are in the same situation but it's really hard.. God bless everyone in the slump
To expect 15% returns is ridiculous in a "free market," even in the best of times when everyone could hide their heads in the sand pre-1929 (or earlier, pre-tulip bubble), but to do so post-Long-Term Capital Management, post-Lehman Bros./AIG/Bear Sterns, well, that's willful blindness (and yes, I use the term deliberately because it has criminal implications). But to fail to earn those returns when receiving free money from the Fed and with the power of a banking cartel - well, that just proves how inept they are (sorry "best and brightest"). In doing what they do on a daily basis, they are endangering us all.
It's like saying, "Sorry officer, how was I supposed to know transporting this drum of liquid from the Army Testing Lab would endanger millions, I was simply told I would be paid $1 million to drive from the Lab and dump the cannister into the reservoir that supplies the nearest big city while security was absent, but never to ask what was in the cannister and to never tell anyone what I did and to wear protective gear when I dumped it or else I would die within an hour." Is that driver entitled to a bailout by taxpayers if he happens to ruin millions of lives? Will CNBS sing his praises? Will he be interviewed on NBS and meet with the President? Can he get a seat on the NY Fed's Board?
Well, we need to hold these people earning tens or hundreds of millions of dollars to the same standard, after all, don't they tell us repeatedly on TV how smart they all are? When they create trillions of dollars in derivatives that have the power to destroy entire nations' economies and crush taxpayers through FDIC and other bailouts, then they must be personally responsible under the law. After all, Buffett himself called them WMDs before he doubled-down on GSachs and JPM. If they are not, there is something very, very wrong here (I know, it's already very wrong).
And yet, and yet we see Dimon replace the CIO with Matt Zames of LONG-TERM CAPITAL MANAGEMENT! The very same LTCM that used certain tax avoidance transactions and purposely avoided certain regulatory burdens (sound familiar?). It failed (sound familiar?). And required a bailout by the NY Fed (on which Dimon now sits on the Board). Players involved in the negotiations and/or bailout included a cast we all know from more recent times: GSachs, AIG, Buffett, Morgan Stanley, Bear Sterns, Lehman, etc.
So, these people all know what they are doing and it seems they all engage in musical chairs. They all pretend to be big boys and girls. They all collect paychecks that only people who cure cancer should ever have a right claim (and yet it seems the truly great people in our societies turn such rewards down because it's unseemly and they do what they do for their fellow man). They ignore the past, they know the risks, and they know they are endangering entire nations and people's welfare. THEY DON'T CARE. At what point do we say ENOUGH? They know what they are doing and have proven time, and time, and time again they just don't care about anyone but themselves. They and their friends in the media and govt. play us for fools. We are not. Indeed, many among us are much, much smarter than they are. It's just that what we actually care about the US and other societies and we find what these people and businesses repeatedly do to be utterly despicable. When will they be held to account for their reckless, and in all likelihood, criminal actions?
So while Dimon and the rest of the banksters can pressure Bernanke to print more money in QE3, and QE4 . . . more ZIRP until 2099, and the banks can pressure the Fed to create more money that they put into their own bank accounts, "borrow" at 0% and use it to line their own wallets or bet trillions on coin flips or instruments even they don't understand, or manipulate gold or silver or aluminum prices (why do investment banks need warehouses for aluminum besides price manipulation? should hoi polloi even dare ask such questions?), we still have to deal with the real inflation that the USG ignores, the real unemployment that the USG ignores, and the real corruption and massive wealth transfer that the USG allows. We are being raped repeatedly by these bad actors and have to deal with it?
Is this democracy? Is this capitalism? Is this the best we can get in the USA? NO.
Why so much fuss over a $2 billion loss? In the context of the $360 billion portfolio that Ina Drew was given to hedge, losing $2 billion is slightly more than 0.5% of the total portfolio. That's about what JP Morgan Chase pays consumers on its long term CDs. One should expect that the annual swings in a portfolio that size should be $5 billion give or take, up or down, each year.
Even if you look at it as the $200 billion subset of the portfolio, which is what the London office of CIO was given under its head Achilles Macris, $2 billion is still a 1% loss. In his best year, Macris made $5 billion, which is a 2.5% gain, nothing remarkable. Surely, therefore, a 2.5% loss out of London wouldn't be a surprise.
So the question is, why is the bank making such a fuss over a loss that should be reasonably expected to occur from time to time? Among the possibilities:
1) The bank has asymmetric targets for the unit. It is happy to accept $2 - $5 billion in annual profits, but less than $1 billion in annual loss. This leads to distortions in hedging strategies - for example, incurring premium to buy insurance, but selling options and earning premium as an offset to the expense. This seems to be how Bruno Iksil created a hedge with asymmetric results.
2) It wasn't the amount of the loss that was unexpected, but the manner in which the position was booked or managed. There are some reports that Dimon was unhappy with the vague answers he was getting out of London when the losses began to mount. There is an investigation to see if positions or results were hidden from management.
The problem here seems to be emblematic of a bank-wide situation. JP Morgan Chase made a return on equity last year of slightly more than 10%. The return part, or net income, was $17.5 billion. The CIO was an important part of this net income picture, and it was why Jamie Dimon reorganized the unit in 2005 to become a profit center rather than just a hedging center. This was to compensate for the fact that earnings were going to be chronically, if not permanently lower, in many other parts of the bank. The mortgage business was kaput; retail banking was under pressure because the easy money in checking overdrafts was being outlawed; investment banking was weak because IPOs and mergers were down; net interest income was disappearing in an era of zero interest rates and Operation Twist, forcing two year rates down to record levels. That left trading, which is the most unpredictable business in banking. It should be no surprise, therefore, to find that CIO made about 1/4 of the bank's net income, even though it had by far the fewest amount of people of any division.
Add to this the fact that the regulators were asking for more capital, and the Volcker Rule was going to kill off trading, and the bank was looking at a serious decline in its ROE. Yet Jamie Dimon was and is fully expecting to go back to the glory days of 2006 when a 15% minimum ROE was expected for the institution. In fact, that was the internal hurdle rate for its businesses at the time; any performance less than this was considered a failure.
What to do? Dimon's solution was to push for revenue wherever he could, rather than give up on his earnings targets. He still expects his bank to earn 15% as its right and obligation; the annual report says high returns are normal for banks given the leverage involved in banking.
The opposite situation is never considered. In other words, maybe banks should have lower leverage and therefore lower returns. What is wrong with that? It was the situation from 1945 to 1982, before the Reagan era of deregulation. Banks back then had 12% equity to assets, and 6%-8% returns. In fact, a serious argument is being made by some observers that big banks should have 20% capital to assets, given the systemic risks of TBTF. That would allow for 4% returns on capital - no room left for big bonuses in that environment. With $440 billion in capital against $2.2 trillion in assets, JP Morgan Chase would not have to sweat so much over a $2 billion loss from trading/hedging.
What we are watching here is Jamie Dimon twist and squirm in response to broad economic, political, and social pressure that is pushing banking back into its 1945-1982 environment. The economy, in other words, cannot grow with highly leveraged, or poorly capitalized (it's the same thing) banks sucking up precious economic resources to cover the risks that result from bad bets made to generate outsized returns. It is the same struggle hedge funds are beginning to go through, which will ultimately decimate and transform that business.
Of course, another answer is for Jamie Dimon to shrink his assets but keep his capital levels. Sell off some divisions, reduce the investment portfolio dramatically, close down proprietary trading, and so on. He could even get his bank to a size where it would no longer be TBTF. But you won't see him doing that. TBTF is too important to these big banks, and they are not going to give it up voluntarily, not after working so hard to maneuver themselves into this position.
The big banks will just have to keep taking the big, dangerous bets and hope they continue to pay off big time.
This is the obvious script. Corzine used it for MF Global, Murdoch used it for police bribes and phone hacking on an industrial scale and to head off the FCPA charges that DOJ brought, oops, won't bring, and it's the standard script that apparently lulls complete idiots and sycophants in the press and govt. and Wall Street to sleep.
This can be used by any parasite/"elite"/1%er that needs FDIC funds and/or special taxpayer bailouts to backstop their hundred billion dollar bets on heads or tails.
Any time it goes horribly wrong and they picked heads when it turned up tails and they might see a 1% drop in their $50 million dollar salay, repeat after me:
"Mistakes were made, I forget, I blame my subordinates that I ultimately am responsible for, but I don't have any idea how they could have screwed up so badly. I am sorry, it's not my fault, I'm not responsible, unless it's good news and I can cash my check and it's bonus time, in which case I take full credit. And if you punish me, I am so ingrained in the system now, you'll only hurt yourself even more."
Rinse and repeat until the US collapses in a heap of crap caused by unbridled greed that the powers CHOOSE TO IGNORE while blaming all fault on the helpless little people who see this coming on a daily basis and have no power to stop because the wealthy psychopaths keep us locked out. Truman, "the buck stops here"? Nah, that requires a modicum of class and integrity. These people are just rich narcissists and got that way by being true psychopaths.
According to the NY Times and other reports, Ina Drew has offered to resign several times since April and has now had her resignation accepted. It sounds like Dimon dithered, since she and the CIO are ultimately his creatures, but the pressure was too great, probably from the board. Whoever they get to replace her is not going to be bringing in the revenue she did, so the 10% haircut the stock took Friday sounds warranted and permanent.
We still don't know the details of the position itself that caused this trouble. The NY Times implied that in April Ms. Drew ordered the CIO traders to hedge the risk in the European credit portfolio, and then when the hedge didn't work well, they got whacked when they tried to leg out of the hedge. Alternatively, I have read that the bank had the hedge on, and then got fancy by trying to earn premium as well through selling CDOs. This makes some sense, since there has to be some optionality in the position to cause losses to spike so dramatically and quickly. But if Ms. Drew offered to resign in early April, this suggests that something bad happened even before the losses began to mount, such as unauthorized trades being put on, or something being hidden from NY management, as well as the oversight people and auditors.
As to Mr. Dimon's role in all this, I describe the bank as a one-man show because in watching his career, and from some familiarity with his management style, he makes major decisions on the basis of his own reasoning or gut instinct. He will perhaps consult with his closest cronies in the bank, such as Charlie Scharf and others who have followed him from place to place, but he will not run such decisions by the Operating Committee. This is probably not that bad a thing normally, since delicate decisions and announcements such as closing down a business are not done by committee anyway. Still, there is something of a cult of Jamie Dimon at the bank, not of the magnitude of the Jack Welch cult at GE, but pretty strong nonetheless. It is the sort of thing where the CEO can start believing his own press, which has been hagiographic in recent years. Dimon has enough of an ego to start with that he doesn't need a lot of hero worship around him or he will get into trouble.
An example in this case of the problem here with the CEO is the dismissal of the press reports in April as a complete tempest in a teapot. Not only was that Jamie Dimon speaking, it was Jamie Dimon's conclusion of the situation without really looking into the facts (unless the facts were deliberately withheld from NY). Barring that exception, it was a one-man show decision. Nor does he admit he did anything wrong here. He says "we acted defensively" when those reports came out. Sorry - he acted arrogantly, which is a very different thing, and which happens when you have a CEO who is super-confident in his personal decision making. Again, the one-man-show phenomenon. Notice too that while he beats himself up somewhat in these press briefings, there is a still a lot of "we made mistakes" and "we will learn from this". I doubt if you are going to get any deep introspection on his part about how he is running the bank.
The issue is never what works but what works and for whom does it work. That is why conflict never ends. And the issue of whether fairness can work well enough to prevent upheavals. Up until now Amerca's contrived form of Democracy has had only one catastrophe breakdown...The Civil War. Which means our approach to turning the Middle Class into a wet blanket of revolution has a good but not totally reliable track record. Crushing the numbers in the Middle Class could very well be a warning of what's to become of all us.
Excellent Analysis, clearly laid out and financially on point. To date, this is the only article I have read anywhere over the past two days that clearly explains the situation at JPMorgan from both a holistic market perspective and the current credit default swap position situation.
One point I would like to raise (and this is only because I worked closely with JPMorgan's Senior Executives until recently and have an insider's viewpoint) is that while Jamie is an incredibly hard-working and hands-on manager, it is by no means "a one-person show" at JPMorgan. The other business unit managers definitely play a part in JPMorgan's success (and in this instance the unfortunate failures).
Having said all this, I think it is time to go back to safer banking practices and to (re)enact regulations that are meant to protect us from exactly the kind of market turbulence and ground-shaking losses that have been occurring since 2007. If I never hear the word derivative again in the financial context I will be a happy camper.
But that said, there are certain things which really give insight into the U.S. economy as a whole and on this report, there is missing data, missing from the public, that is key critical to examining the trade deficit, in part due to the many different accounting methods and data presentation formats.
Then, I take real issue with the Census gathering monthly data and no clear, thoroughly explained so people with statistical backgrounds can easily follow, methods, including formulas to show how those inputs are normalized and adjusted, eventually going into NIPA and GDP, GNP calculations. And no, massive PDFs that are barely searchable in a NIPA handbook is simply not a clear, concise, method presentation. That's a graduate course.
That's not cool folks, it should not take a rocket scientist or a day of digging around to find one data point. One should not have to "reverse engineer" a data point to figure out what kind of format that data point is presented in (simple percentage, simple annualized, annualized percentage).
The Fed ain't clear in this either. The consumer credit report looks like they are literally truncating the press release data points, and it's only if one diggs around in the historical data can one find the full values. Come on people, the std. is rounding, why are these data points presented as truncated? At least explain why, come on here. The general public shouldn't have to hand over a fiver, consult an oracle, just to follow your statistical releases.
While I'm a data nut, good at ferreting out the series from government sources, I keep running into "missing data" or missing metrics on trade especially. Yes, of course this is extremely complex, we have all sorts of crap going across the borders, some re-entering, some imports are raw materials which will become exports, some are partial products....yes, it's a MASSIVE accounting and data problem.
That said, part of this is Congress's fault, lack of funding but another part of this is hiring bad I.T., pure and simple, plus obscure, bad methods presentation. It's 2012 and the public should easily have the database tools to dig out, quickly, data details and it all should be freely accessible to the public. Methods, including actual formulas used for data presentation should be clearly and concisely stated, with all equation variables clearly defined.
For example, one thing I often have to do is actually figure out which annualization method is used. A report will claim x data is annualized, well, by what method specifically, simple continuous, constant scaled, curve fitting w.r.t. x rule, complex continuous, what?
Then, while data is marked usually by what accounting method, uh, so when one has to dig through pages of definitions and most importantly while one data point is in one accounting methods, others are presented in a different one.
How many times have we seen the press mix accounting methods, NSA, SA data and report that as "fact"? My favorite is some bencmarks are regression adjusted, others are simply "tacked on" to the last time period of data? UGH!
Case in point country data vs. crude oil/petroleum all by NAICS codes, only then can we compare say China exporting NAICS based end use products to say OPEC exporting NAICS based end products to drill further into country of origin.
Services details are almost non-existent, thank you BEA and here is where offshore outsourcing resides. How are we supposed to know the details of say I.T. "imports" from country of origin vs. "call center" imports from country of origin to know what is really going on and tying those data points to real world policy?
Perhaps it is not desired to be known, so one cannot compare the specifics of China and advanced R&D coming in as partial imports and services?
Just examples of my frustration with government statistics and yes, this is a rant!
Seriously and we haven't even touched upon the BLS and labor market lack of data points yet in this comment.
A database that takes 20 minutes plus some knowledge of java errors to even pull out one data series is simply unacceptable design.
Not publishing data series used to compute real values, and those real values clearly defined by what time index and so on is also unacceptable. Good freakin' God, there is a huge difference between CPI-U, CPI-U-RS, PCEPI, MXP et. al. That's ridiculous for "real" then has major scaling differences.
Another major issue are price indexes and deflators generally. Come on BEA specifically, you need to clearly and concisely, show the details, plus show the formulas with definitions, and the calculation steps, in mathematics, not some jumbled .txt format at least in a pdf.
Price deflators man, gez, we can do almost anything with those damn things from hide hidden real costs and intermediate inputs to over-inflate economic growth.
This ain't cool to be very specific, explain clearly, in great detail the hows and whys of price indexes, but with the mathematics additionally.
It's no wonder the press gets these economic releases so wrong, but if these Journalists cannot read this stuff, how do they expect regular people to even have a feel for what real GDP means?
We, as taxpayers, as citizens are supposed to have access to this information. While I don't expect the government statistical agencies to hold the hands of the public and explain to the level of high school math, I sure do expect details most PhDs understand to be clearly presented, at that level, and publicly available.
We'll go pick on the BLS and the USCIS, DHS, CBO and GAO for another day, but they also have their come upping's when it comes to full data releases, use of the modern world and methods for data aggregation, presentation and explanation.
I'm all for cutting out banksters on any transactions, but the logic used in this fiasco is simply absent (unless you see it as our government working for foreign masters at our expense).
First, how many times have we been told that the Chinese have infiltrated computer systems and organizations to steal sensitive data regarding the USG, private businesses, and other information? So, "our" government's answer is to mainline Mainland China into one of our most sensitive computer systems? In addition, how is this possible even after we find out that Chinese counterfeit goods are being used in American military products for our defense?! Makes sense only if you view it as the USG working for the Chinese. Otherwise it's criminal negligence or gross stupidity.
Also, why does a foreign government that is not our ally, has actually fought against us in recent conflicts through proxies and directly, get treated better than a US citizen? It's obvious the USG and its business puppets worry more about Chinese businesses that produce goods in China for American CEOs than it does for an American worker or unemployed vet who was born in the US, educated in the US, worked in the US, but can no longer find any job in the US to survive on. That includes US companies employing joint ventures in China (because the PRC forces them to) in which US companies lose their intellectual property in a short-term attempt to sell in China. Wow, the Chinese stole my IP after we joined forces and then kicked me out and sell my own product that I created for billions of dollars in China without my help! Who could have predicted that?
So, again, who does our government work for? I don't know, but with Treasury opening a $ mainline to China, old Bill Clinton a big fan of NAFTA and involved in some dubious PRC military technology transfers back when he was boss (and still raking in $125,000 for speeches to sycophants and millions for "consulting",) USG now encouraging the offshoring of jobs until we can all work as interns for free in the US for foreign masters, we really should ask. In historical times, leaders who did this to their people would not be viewed very kindly by the populace. So why are we allowing it?
It's safe to assume someone or some organization is behind most moves nowadays. If someone out there is still watching Fox or NBC or other MSM, just precede every story by "This message is brought to you by [Mega Corporation]" and then watch the story.
Who benefits from destroying the USPS? Safe to assume FedEx and UPS want the USPS gone, then no competition and can jack up prices and force people to drive if they live too far from a distribution center (too bad if they don't have cars or cannot afford fuel).
Who benefits from the fight against well-educated students and liberal studies? Corporations that want drones and customers only. Why else would Murdoch hire the former head of NYC's schools immediately after that same individual negotiated a deal involving Murdoch's company (by the way, nice integrity - sell out education to the highest bidder and then work for a phone hacking organization).
Who benefits from unlimited campaign funding? A farmer or small business owner or solo accountant or mega-rich multinationals?
Privatizing roads? Why large corporations of course that can jack up tolls.
Privatizing Social Security? A widow living on a small monthly payment or the same banksters that don't even understand derivatives they create and lose billions on for their clients but make personal fortunes off of for whatever it is they do.
Cutting funding to schools? Corporations that want drones brought to by [fill-in-the-blank].
Fewer regulations in mines and on oil rigs? The miners and roughnecks working below ground or fifty miles off shore or the big bosses in the big offices?
Getting rid of sanctions? The troops that face Iran's IEDs or the companies that want to trade with whoever they want (Koch Bros. + Fox News - how's that "patriotism" work out for you when Stalin or the mullahs dangle some coins in front of your father or you).
Profit, profit, profit. The concept of enabling fellow human beings, fellow citizens, and making the world a better place mean nothing when it's all about comparing bank accounts. Now stop reading and thinking and get back to work in [fill-in-Chinese outsourced factory here].
of an agenda. I'm pretty convinced the motivation here is try to turn the lights out on what is happening to Americans economically.
If I was designing government statistics, we would have, mandatory, online forms, required to be filled out by everyone, but the individual details protected by privacy laws for individuals (not for businesses, corporations yet with some sort of time window to protect business activity, roadmaps and such).
I'd be building a "Facebook" of government statistics and interactivity. These cats are ridiculous. Private businesses already know how many times someone flushes the toilet. Seriously, Google assuredly knows when you visit the bathroom, cell phone companies know exactly where you are every minute of the day to the point geolocation business models have been around for about 15 years. Visa, MC? Don't even get me going on how much they know and Target knows when you're pregnant, all by AI analysis.
So, let's see, it's perfectly fine that Visa, MC and many others "profile" you by running artificial intelligence algorithms to predict your behavior from your purchases of soap, folic acid and moisturizer....yet the government cannot know what kind of business activity is going on so we can get someone accurate estimates of economic activity to estimate economic growth?
How did these people get into office and can we stop organizations like the Koch Brothers from turning this nation into a bunch of crazy people?
Funny how the Census, post offices, and so many other items were good enough for the Founding Fathers that they decided they should be mentioned in the Constitution but our current "leaders" seem to have problems with them. I guess the Founding Fathers are good enough for certain things, but not others. Let me check my readings and see if there's any mention of running a pizza chain while sexually harassing women as a qualification for President, or selling American workers out while helping build foreign nations' economies, or if there's any mention of G-8 summits where the Executive watches soccer games while the American people suffer. No, no luck. I guess it's one of those things like "random sampling" and "statistics" and "census." Only our betters in DC and boardrooms are smart enough to understand if those things are real or not, and if they say they are not, I trust them 100%.
China's biggest corporation is their military. Have you noticed? They look underfed. And the products that we import from them are sometimes dangerous. Is it because they have no pride in what they produce? Do they have scienctists developing products, or do they steal our ideas and try to recreate them cheaper with cheap labor. Be careful what you force our corporations to do.
I could not verify at the time of this post, what funds by the CIO in London were being used for these derivative trades. Felix Simon at Rueters says it is customer deposits. He's probably right and his reasoning, this is the cheapest source of funds is also right, except for the Federal Reserve lending rates.
There is no glass-steagall, a wall to separate customer deposits, which are FDIC insured, from "investment" portions of a bank.
Agree with him or not, Chris Whalen is always an interesting read.
My take: regulation always been captured by special interests, so it often is counter-productive. The REAL solution is to downsize the TBTF banks, but the Fed and FDIC don't want to do that. They ARE the banks!
So in that sense Whalen is correct. All you can do is ban derivatives (or something like that). But they will screw this up and allow for "certain derivatives" for Warren Buffett, Jamie Dimon and the Elites.
Don't kid yourself. This is a massively rigged game.
If you noticed we sure didn't cover it. IPOs are completely rigged games, the little guy stands to lose their shirt when shares are first offered to the public.
I don't think this made a dent in the CEO/corporate rampage of the U.S. and global economies, nation-states.
Watching the IPO, my hopes were raised. Sure, BLS will still upwardly revise the previous week's initial claims no matter what to show "improvement" in unemployment the following week. Sure, unemployment will "decrease" as the real unemployment rate continues to climb as people drop off the rolls. Sure, JPMorgan execs and Goldman Sachs execs and every other 1%er can still arrange private meetings with Geithner and the White House to make sure the wrist slapping doesn't get too hard, oh, and by the way, to make sure their close relatives never have to apply for jobs like a 99%er or have to work as hard as a 99%er does EVER in anything that might involve sweat. Sure, the Fed will "loan" money out to banksters so they can loan it out at 10%, or bet trillions on derivatives, or use it to fight litigation from foreclosing on vets homes against the law or forging mortage docs, buy new HFT machines, etc.
But something happened today. I'm sure millions of us were expecting Pets.com 2.0. We were expecting Zuckerberg, manchild of the hoody and "he's so rebellious, who would have thought of ripping off millions of people by selling a product that has no barriers to entry any clown could create it while also invading people's privacy" to become a trillionaire.
But it didn't happen. Despite the fawning press, despite CNBS and Business Insider and Fox singing his praises and worshipping wealth above all else so that even P.T. Barnum and J.P. Morgan must have been spinning in their graves, Murder Incorporated, sorry, the other syndicate, Wall Street, had to prop up their own IPO up at $38 (and yes, I wouldn't be surprised if some of our very own TARP and other money was used for this nonsense). And by all means and measures they would hold the line at $38. Now, was that the free market at $38? Nope, the banksters had to buy their own just-sold-shares to keep Zuckerberg "badass hoodie I love your information and will sell it for $$$$$" from looking like an even bigger ass.
Maybe being rich isn't the be-all-end-all. Is this madness? Am I speaking heresy? Or maybe Trump and Survivor mentalities aren't the ideal? Maybe the folks who had to COOPERATE on farms had their stuff together? Maybe thriving communities don't need, nor want, backstabbing and get rich by any means necessary mentalities?
Maybe, just maybe, we're seeing the end of the beginning or the beginning of the end. Banksters, their paid-for-cronies in DC and state capitals, CEOs and Cavuto asskissers, fake anti-banksters like the White House and AGs and DOJ, maybe we're seeing 99%ers are gaining traction. Maybe, just maybe. . .
After all, with the Eurozone collapsing, Syria in civil war, Fantasyland can only last so long through MSM propaganda. An enlightened and awakened majority of citizens (not all, but enough) is a thing to behold. I look forward to it!
-Kurtz
Everyone in the world who has an IQ above 80 (I guess that includes some politicians and regulators) knows the risks these "people" are creating that the 99% will have to pony up for. However, do they care? Do they want to end it? Nope, no way.
Didn't Madoff get exposed repeatedly during his Ponzi scheme by whistleblowers and people who cared about their clients' getting screwed? Mary Schapiro was at FINRA and now heads the SEC. She had to be aware, and yet . . . nothing. Her testimony a few months ago was embarrassing, she honestly seemed confused - par for the course. Madoff himself was active in the NASD! If you're going to rip people off, why not work for a regulator - not like anyone would or should notice! And if they do, who would you complain to? Madoff? His buddy Schapiro?
Financial blogs reveal commodities manipulation daily (including JPMorgan, GS aluminum manipulation that Coca Cola hates), gold and silver manipulation(JP Morgan), etc.)), high-frequency trading that distorts markets DAILY, and the trillions of dollars held in derivatives outstanding by all the major TBTJail banks here and abroad, and yet no pols seem to care, no aggressive law enforcement actions like search warrants, interrogations, subpoenas, etc.
Most of these TBTJail have laundered $ for corrupt regimes and drug traffickers. The Treasury mandates FinCEN doc after doc for CTRs and SARs - so with all that paperwork and proof, why aren't pols and the Treasury and DOJ shutting these money launderers/US banks down? Because they don't want to because TBTJail is ABOVE THE LAW. But the marijuana dealers on the corner who actually hand off to an undercover - oh yeah, he's a master criminal.
Corzine and his posse were subject to rule after rule after rule under CFTC and other regs. He violated them brazenly and $1.2 billions vanished just like that. Poof! JPMorgan seemed to have received quite a bit of that cash in last second transactions. So, Dimon in jail? Corzine? In an interrogation room at all? Nope, Dimon's got Farcebook IPO coming and all that loot to make off suckers. Where are the pols. and regulators and DOJ and White House?
Glass-Steagall - which honest person honestly thinks it was wise to allow banks backed by the FDIC/taxpayers to engage in reckless bets in the billions of dollars by getting rid of it? The govt. figured that it was ridiculous 80 years ago and ended it. So dimwits on the lobbyists' take ignore wisdom and go for broke - taxpayers will pay for the result anyway, so who cares. Only honest people care, not banksters or their puppets.
THEY ALL KNOW, they just don't care. But to put a nice spin on it for people who might be swayed by talking points on MSNBS/DNC channel or CNBS or Cavuto kissing some CEO ass on Fox, they hire team after team of PR folks and appear daily on CNBS and other comedy shows. How many 99%ers well-versed in the issues and coming from the opposite side are ever allowed near a TV studio? Any law enforcement people saying how easy it is to bust all of these criminals because the paper trail is so easy Mr. Magoo could see it, while he was passed out, drunk? No, but it is.
Silly 99%ers, rules and regulations and the truth and law enforcement are quaint tools meant to oppress the 99% and to protect the 1% by making it brutally hard for anyone else to dissent.
There's not a problem if they refuse to see it at all costs. Lies are not a problem if you don't have integrity - thus, no problem for them at all.
The powers that run the show have practiced minimizing the effects throughout history, so they're good at it.
The shareholders at the JPMorgan meeting just approved Dimon's ludicrous pay, so everything's good for Davos vacations and yacht sales this year.
Obama said a few words about it to please the people who actually believe he is fighting banksters, but that will last only so long until he receives the orders to remain quiet or else lose his bankster campaign funds, at which point Obama supporters will move on as he does.
The media will continue focusing on gay marriage, or some suntanning incident gone awry, or some other issue that won't threaten the demise of entire economies.
Most of the public will pay attention only so long as the MSM does. And even when the MSM does, it looks to the banksters and pols. for explanations because the media can only read teleprompters (that's basically their job), so that's useless. And then we have London 2012 Olympics, and rehashing a dog on a roof story, Facebook pump-and-dump IPO, new Apple TV, and other ready-to-order distractions.
We have people who threatened our entire economy with LTCM in the late 1990s with highly leveraged trades now working at JPMorgan in trades, no punishment, no jail, no ban from trading ever again. All the players at the Fed and banks are all the same. All the instruments they didn't understand back in the 1990s are all the same. And the media is just as inept as the 1990s and never dares question anyone with alot of money and bankster or CEO backing. No one should be surprised this is happening again. Those with the knowledge have withdrawn as best they can (notice the withdrawals from the markets and the need for the Fed to bolster stocks since many investors have given up on this rigged game). Hunker down, it's going to get much, much uglier (for the commoners, not the noble elite).
What I'm shocked about is how the public seems shocked and not aware nothing changed. The same crap that caused the 2008 financial crisis is still going on. Beyond capital requirements and the insider club of the NY Fed, my thing are derivatives. The damn CDSes and we've pointed this out many times here, are not a 1:1 relationship. i.e. I own x, I buy insurance y to cover x. By the mathematical model, I own x yet anyone and their brother, no relation to x can buy insurance y. Of course CDSes can "blow up". How can it be allowed to even have such a faulty mathematical model, never mind bet the farm with them?
Any derivative that is based on bad math, bad computation should be outright banned, period.
Completely agree with you on every single statement man, this country is suppose to be the land of opportunity but once you attain that opportunity it just seems like you will get ***** slapped and have to start back from the ground up. The american government is a gang just like bloods and crips... people still fail to see it like that. Then you have individuals that say if you don't like this country nobodies forcing you to stay so than leave and go somewhere else to survive but I didn't choose to live here.. my parents came here and I have to work my way up with earning my own money to try and get the **** outta here... I wasn't spoon fed and everything has to be done by ME and only ME because I have no other help...but best believe once I make enough money I am OUTTA HERE.... I know theres a lot of others that are in the same situation but it's really hard.. God bless everyone in the slump
To expect 15% returns is ridiculous in a "free market," even in the best of times when everyone could hide their heads in the sand pre-1929 (or earlier, pre-tulip bubble), but to do so post-Long-Term Capital Management, post-Lehman Bros./AIG/Bear Sterns, well, that's willful blindness (and yes, I use the term deliberately because it has criminal implications). But to fail to earn those returns when receiving free money from the Fed and with the power of a banking cartel - well, that just proves how inept they are (sorry "best and brightest"). In doing what they do on a daily basis, they are endangering us all.
It's like saying, "Sorry officer, how was I supposed to know transporting this drum of liquid from the Army Testing Lab would endanger millions, I was simply told I would be paid $1 million to drive from the Lab and dump the cannister into the reservoir that supplies the nearest big city while security was absent, but never to ask what was in the cannister and to never tell anyone what I did and to wear protective gear when I dumped it or else I would die within an hour." Is that driver entitled to a bailout by taxpayers if he happens to ruin millions of lives? Will CNBS sing his praises? Will he be interviewed on NBS and meet with the President? Can he get a seat on the NY Fed's Board?
Well, we need to hold these people earning tens or hundreds of millions of dollars to the same standard, after all, don't they tell us repeatedly on TV how smart they all are? When they create trillions of dollars in derivatives that have the power to destroy entire nations' economies and crush taxpayers through FDIC and other bailouts, then they must be personally responsible under the law. After all, Buffett himself called them WMDs before he doubled-down on GSachs and JPM. If they are not, there is something very, very wrong here (I know, it's already very wrong).
And yet, and yet we see Dimon replace the CIO with Matt Zames of LONG-TERM CAPITAL MANAGEMENT! The very same LTCM that used certain tax avoidance transactions and purposely avoided certain regulatory burdens (sound familiar?). It failed (sound familiar?). And required a bailout by the NY Fed (on which Dimon now sits on the Board). Players involved in the negotiations and/or bailout included a cast we all know from more recent times: GSachs, AIG, Buffett, Morgan Stanley, Bear Sterns, Lehman, etc.
So, these people all know what they are doing and it seems they all engage in musical chairs. They all pretend to be big boys and girls. They all collect paychecks that only people who cure cancer should ever have a right claim (and yet it seems the truly great people in our societies turn such rewards down because it's unseemly and they do what they do for their fellow man). They ignore the past, they know the risks, and they know they are endangering entire nations and people's welfare. THEY DON'T CARE. At what point do we say ENOUGH? They know what they are doing and have proven time, and time, and time again they just don't care about anyone but themselves. They and their friends in the media and govt. play us for fools. We are not. Indeed, many among us are much, much smarter than they are. It's just that what we actually care about the US and other societies and we find what these people and businesses repeatedly do to be utterly despicable. When will they be held to account for their reckless, and in all likelihood, criminal actions?
So while Dimon and the rest of the banksters can pressure Bernanke to print more money in QE3, and QE4 . . . more ZIRP until 2099, and the banks can pressure the Fed to create more money that they put into their own bank accounts, "borrow" at 0% and use it to line their own wallets or bet trillions on coin flips or instruments even they don't understand, or manipulate gold or silver or aluminum prices (why do investment banks need warehouses for aluminum besides price manipulation? should hoi polloi even dare ask such questions?), we still have to deal with the real inflation that the USG ignores, the real unemployment that the USG ignores, and the real corruption and massive wealth transfer that the USG allows. We are being raped repeatedly by these bad actors and have to deal with it?
Is this democracy? Is this capitalism? Is this the best we can get in the USA? NO.
-Kurtz
Why so much fuss over a $2 billion loss? In the context of the $360 billion portfolio that Ina Drew was given to hedge, losing $2 billion is slightly more than 0.5% of the total portfolio. That's about what JP Morgan Chase pays consumers on its long term CDs. One should expect that the annual swings in a portfolio that size should be $5 billion give or take, up or down, each year.
Even if you look at it as the $200 billion subset of the portfolio, which is what the London office of CIO was given under its head Achilles Macris, $2 billion is still a 1% loss. In his best year, Macris made $5 billion, which is a 2.5% gain, nothing remarkable. Surely, therefore, a 2.5% loss out of London wouldn't be a surprise.
So the question is, why is the bank making such a fuss over a loss that should be reasonably expected to occur from time to time? Among the possibilities:
1) The bank has asymmetric targets for the unit. It is happy to accept $2 - $5 billion in annual profits, but less than $1 billion in annual loss. This leads to distortions in hedging strategies - for example, incurring premium to buy insurance, but selling options and earning premium as an offset to the expense. This seems to be how Bruno Iksil created a hedge with asymmetric results.
2) It wasn't the amount of the loss that was unexpected, but the manner in which the position was booked or managed. There are some reports that Dimon was unhappy with the vague answers he was getting out of London when the losses began to mount. There is an investigation to see if positions or results were hidden from management.
The problem here seems to be emblematic of a bank-wide situation. JP Morgan Chase made a return on equity last year of slightly more than 10%. The return part, or net income, was $17.5 billion. The CIO was an important part of this net income picture, and it was why Jamie Dimon reorganized the unit in 2005 to become a profit center rather than just a hedging center. This was to compensate for the fact that earnings were going to be chronically, if not permanently lower, in many other parts of the bank. The mortgage business was kaput; retail banking was under pressure because the easy money in checking overdrafts was being outlawed; investment banking was weak because IPOs and mergers were down; net interest income was disappearing in an era of zero interest rates and Operation Twist, forcing two year rates down to record levels. That left trading, which is the most unpredictable business in banking. It should be no surprise, therefore, to find that CIO made about 1/4 of the bank's net income, even though it had by far the fewest amount of people of any division.
Add to this the fact that the regulators were asking for more capital, and the Volcker Rule was going to kill off trading, and the bank was looking at a serious decline in its ROE. Yet Jamie Dimon was and is fully expecting to go back to the glory days of 2006 when a 15% minimum ROE was expected for the institution. In fact, that was the internal hurdle rate for its businesses at the time; any performance less than this was considered a failure.
What to do? Dimon's solution was to push for revenue wherever he could, rather than give up on his earnings targets. He still expects his bank to earn 15% as its right and obligation; the annual report says high returns are normal for banks given the leverage involved in banking.
The opposite situation is never considered. In other words, maybe banks should have lower leverage and therefore lower returns. What is wrong with that? It was the situation from 1945 to 1982, before the Reagan era of deregulation. Banks back then had 12% equity to assets, and 6%-8% returns. In fact, a serious argument is being made by some observers that big banks should have 20% capital to assets, given the systemic risks of TBTF. That would allow for 4% returns on capital - no room left for big bonuses in that environment. With $440 billion in capital against $2.2 trillion in assets, JP Morgan Chase would not have to sweat so much over a $2 billion loss from trading/hedging.
What we are watching here is Jamie Dimon twist and squirm in response to broad economic, political, and social pressure that is pushing banking back into its 1945-1982 environment. The economy, in other words, cannot grow with highly leveraged, or poorly capitalized (it's the same thing) banks sucking up precious economic resources to cover the risks that result from bad bets made to generate outsized returns. It is the same struggle hedge funds are beginning to go through, which will ultimately decimate and transform that business.
Of course, another answer is for Jamie Dimon to shrink his assets but keep his capital levels. Sell off some divisions, reduce the investment portfolio dramatically, close down proprietary trading, and so on. He could even get his bank to a size where it would no longer be TBTF. But you won't see him doing that. TBTF is too important to these big banks, and they are not going to give it up voluntarily, not after working so hard to maneuver themselves into this position.
The big banks will just have to keep taking the big, dangerous bets and hope they continue to pay off big time.
This is the obvious script. Corzine used it for MF Global, Murdoch used it for police bribes and phone hacking on an industrial scale and to head off the FCPA charges that DOJ brought, oops, won't bring, and it's the standard script that apparently lulls complete idiots and sycophants in the press and govt. and Wall Street to sleep.
This can be used by any parasite/"elite"/1%er that needs FDIC funds and/or special taxpayer bailouts to backstop their hundred billion dollar bets on heads or tails.
Any time it goes horribly wrong and they picked heads when it turned up tails and they might see a 1% drop in their $50 million dollar salay, repeat after me:
"Mistakes were made, I forget, I blame my subordinates that I ultimately am responsible for, but I don't have any idea how they could have screwed up so badly. I am sorry, it's not my fault, I'm not responsible, unless it's good news and I can cash my check and it's bonus time, in which case I take full credit. And if you punish me, I am so ingrained in the system now, you'll only hurt yourself even more."
Rinse and repeat until the US collapses in a heap of crap caused by unbridled greed that the powers CHOOSE TO IGNORE while blaming all fault on the helpless little people who see this coming on a daily basis and have no power to stop because the wealthy psychopaths keep us locked out. Truman, "the buck stops here"? Nah, that requires a modicum of class and integrity. These people are just rich narcissists and got that way by being true psychopaths.
-Kurtz
According to the NY Times and other reports, Ina Drew has offered to resign several times since April and has now had her resignation accepted. It sounds like Dimon dithered, since she and the CIO are ultimately his creatures, but the pressure was too great, probably from the board. Whoever they get to replace her is not going to be bringing in the revenue she did, so the 10% haircut the stock took Friday sounds warranted and permanent.
We still don't know the details of the position itself that caused this trouble. The NY Times implied that in April Ms. Drew ordered the CIO traders to hedge the risk in the European credit portfolio, and then when the hedge didn't work well, they got whacked when they tried to leg out of the hedge. Alternatively, I have read that the bank had the hedge on, and then got fancy by trying to earn premium as well through selling CDOs. This makes some sense, since there has to be some optionality in the position to cause losses to spike so dramatically and quickly. But if Ms. Drew offered to resign in early April, this suggests that something bad happened even before the losses began to mount, such as unauthorized trades being put on, or something being hidden from NY management, as well as the oversight people and auditors.
As to Mr. Dimon's role in all this, I describe the bank as a one-man show because in watching his career, and from some familiarity with his management style, he makes major decisions on the basis of his own reasoning or gut instinct. He will perhaps consult with his closest cronies in the bank, such as Charlie Scharf and others who have followed him from place to place, but he will not run such decisions by the Operating Committee. This is probably not that bad a thing normally, since delicate decisions and announcements such as closing down a business are not done by committee anyway. Still, there is something of a cult of Jamie Dimon at the bank, not of the magnitude of the Jack Welch cult at GE, but pretty strong nonetheless. It is the sort of thing where the CEO can start believing his own press, which has been hagiographic in recent years. Dimon has enough of an ego to start with that he doesn't need a lot of hero worship around him or he will get into trouble.
An example in this case of the problem here with the CEO is the dismissal of the press reports in April as a complete tempest in a teapot. Not only was that Jamie Dimon speaking, it was Jamie Dimon's conclusion of the situation without really looking into the facts (unless the facts were deliberately withheld from NY). Barring that exception, it was a one-man show decision. Nor does he admit he did anything wrong here. He says "we acted defensively" when those reports came out. Sorry - he acted arrogantly, which is a very different thing, and which happens when you have a CEO who is super-confident in his personal decision making. Again, the one-man-show phenomenon. Notice too that while he beats himself up somewhat in these press briefings, there is a still a lot of "we made mistakes" and "we will learn from this". I doubt if you are going to get any deep introspection on his part about how he is running the bank.
The issue is never what works but what works and for whom does it work. That is why conflict never ends. And the issue of whether fairness can work well enough to prevent upheavals. Up until now Amerca's contrived form of Democracy has had only one catastrophe breakdown...The Civil War. Which means our approach to turning the Middle Class into a wet blanket of revolution has a good but not totally reliable track record. Crushing the numbers in the Middle Class could very well be a warning of what's to become of all us.
Excellent Analysis, clearly laid out and financially on point. To date, this is the only article I have read anywhere over the past two days that clearly explains the situation at JPMorgan from both a holistic market perspective and the current credit default swap position situation.
One point I would like to raise (and this is only because I worked closely with JPMorgan's Senior Executives until recently and have an insider's viewpoint) is that while Jamie is an incredibly hard-working and hands-on manager, it is by no means "a one-person show" at JPMorgan. The other business unit managers definitely play a part in JPMorgan's success (and in this instance the unfortunate failures).
Having said all this, I think it is time to go back to safer banking practices and to (re)enact regulations that are meant to protect us from exactly the kind of market turbulence and ground-shaking losses that have been occurring since 2007. If I never hear the word derivative again in the financial context I will be a happy camper.
But that said, there are certain things which really give insight into the U.S. economy as a whole and on this report, there is missing data, missing from the public, that is key critical to examining the trade deficit, in part due to the many different accounting methods and data presentation formats.
Then, I take real issue with the Census gathering monthly data and no clear, thoroughly explained so people with statistical backgrounds can easily follow, methods, including formulas to show how those inputs are normalized and adjusted, eventually going into NIPA and GDP, GNP calculations. And no, massive PDFs that are barely searchable in a NIPA handbook is simply not a clear, concise, method presentation. That's a graduate course.
That's not cool folks, it should not take a rocket scientist or a day of digging around to find one data point. One should not have to "reverse engineer" a data point to figure out what kind of format that data point is presented in (simple percentage, simple annualized, annualized percentage).
The Fed ain't clear in this either. The consumer credit report looks like they are literally truncating the press release data points, and it's only if one diggs around in the historical data can one find the full values. Come on people, the std. is rounding, why are these data points presented as truncated? At least explain why, come on here. The general public shouldn't have to hand over a fiver, consult an oracle, just to follow your statistical releases.
While I'm a data nut, good at ferreting out the series from government sources, I keep running into "missing data" or missing metrics on trade especially. Yes, of course this is extremely complex, we have all sorts of crap going across the borders, some re-entering, some imports are raw materials which will become exports, some are partial products....yes, it's a MASSIVE accounting and data problem.
That said, part of this is Congress's fault, lack of funding but another part of this is hiring bad I.T., pure and simple, plus obscure, bad methods presentation. It's 2012 and the public should easily have the database tools to dig out, quickly, data details and it all should be freely accessible to the public. Methods, including actual formulas used for data presentation should be clearly and concisely stated, with all equation variables clearly defined.
For example, one thing I often have to do is actually figure out which annualization method is used. A report will claim x data is annualized, well, by what method specifically, simple continuous, constant scaled, curve fitting w.r.t. x rule, complex continuous, what?
Then, while data is marked usually by what accounting method, uh, so when one has to dig through pages of definitions and most importantly while one data point is in one accounting methods, others are presented in a different one.
How many times have we seen the press mix accounting methods, NSA, SA data and report that as "fact"? My favorite is some bencmarks are regression adjusted, others are simply "tacked on" to the last time period of data? UGH!
Case in point country data vs. crude oil/petroleum all by NAICS codes, only then can we compare say China exporting NAICS based end use products to say OPEC exporting NAICS based end products to drill further into country of origin.
Services details are almost non-existent, thank you BEA and here is where offshore outsourcing resides. How are we supposed to know the details of say I.T. "imports" from country of origin vs. "call center" imports from country of origin to know what is really going on and tying those data points to real world policy?
Perhaps it is not desired to be known, so one cannot compare the specifics of China and advanced R&D coming in as partial imports and services?
Just examples of my frustration with government statistics and yes, this is a rant!
Seriously and we haven't even touched upon the BLS and labor market lack of data points yet in this comment.
A database that takes 20 minutes plus some knowledge of java errors to even pull out one data series is simply unacceptable design.
Not publishing data series used to compute real values, and those real values clearly defined by what time index and so on is also unacceptable. Good freakin' God, there is a huge difference between CPI-U, CPI-U-RS, PCEPI, MXP et. al. That's ridiculous for "real" then has major scaling differences.
Another major issue are price indexes and deflators generally. Come on BEA specifically, you need to clearly and concisely, show the details, plus show the formulas with definitions, and the calculation steps, in mathematics, not some jumbled .txt format at least in a pdf.
Price deflators man, gez, we can do almost anything with those damn things from hide hidden real costs and intermediate inputs to over-inflate economic growth.
This ain't cool to be very specific, explain clearly, in great detail the hows and whys of price indexes, but with the mathematics additionally.
It's no wonder the press gets these economic releases so wrong, but if these Journalists cannot read this stuff, how do they expect regular people to even have a feel for what real GDP means?
We, as taxpayers, as citizens are supposed to have access to this information. While I don't expect the government statistical agencies to hold the hands of the public and explain to the level of high school math, I sure do expect details most PhDs understand to be clearly presented, at that level, and publicly available.
We'll go pick on the BLS and the USCIS, DHS, CBO and GAO for another day, but they also have their come upping's when it comes to full data releases, use of the modern world and methods for data aggregation, presentation and explanation.
EOM - rant off
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