Recent Items

Jamie Dimon Misrepresented “London Whale” Risks, Admits to $2+ Billion Loss Plus Risk Management Black Eye

Posted on by

As readers likely know by now, Jamie Dimon hastily arranged an after hours conference call today, in which he admitted to $2 billion in losses in the last six weeks from a trade by the “London Whale”, Bruno Michel Iksil in the bank’s Chief Investment Office, with as much as another potential $1 billion in losses in the offing. The position was a hedge involving credit default swaps, a product in which the firm has touted its expertise (a recent display occurring in a Frontline program we shredded).

Bloomberg reported on the story in early April, noting that Iskil’s postions were so large that he was driving prices. This is generally a sign of a basic failure in risk management. You never want to take a bet too large in a market if you might want or need to exit quickly, and highly leveraged firms in general are not in a great position to ride out adverse price moves, even if they believe the trade will work out in the end. This same mistake felled LTCM and Amaranth. Even more telling, Dimon made clear this trade was not a hot idea to begin with, repeatedly calling it poorly conceived, poorly executed, and not sufficiently monitored (update: Felix Salmon says he believe the trade was a cash-basis trade).

So much for JP Morgan’s vaunted risk acumen. As we’ve noted, one of the big reasons it wasn’t as badly hit in the crisis was that it took big CDS losses in 2005 on the Delphi bankruptcy (yes this is a rumor, but it is as pretty widespread rumor, and the sources are credible). The bank got cautious just as the subprime market was entering its toxic phase. So JP Morgan may have dodged the bullet at least in part by getting a wake-up call earlier than its peers.

But other issues seems even more important. First is that Dimon consistently misrepresented the seriousness of the exposures as soon as the press was onto it. Both Bloomberg and the Wall Street Journal were digging, and Dimon was dismissive, calling the concerns a “tempest in a teapot”. JPM shares are down over 5% in aftermarket trading. The CEO misled investors, but no one seems to care much about niceties like accurate and timely disclosure these days. This is the disclosure in the first quarter 10Q:

In Corporate, within the Corporate/Private Equity segment, net income (excluding Private Equity results and litigation expense) for the second quarter is currently estimated to be a loss of approximately $800 million. (Prior guidance for Corporate quarterly net income (excluding Private Equity results, litigation expense and nonrecurring significant items) was approximately $200 million.) Actual second quarter results could be substantially different from the current estimate and will depend on market levels and portfolio actions related to investments held by the Chief Investment Office (CIO), as well as other activities in Corporate during the remainder of the quarter.

Since March 31, 2012, CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed. The losses in CIO’s synthetic credit portfolio have been partially offset by realized gains from sales, predominantly of credit-related positions, in CIO’s AFS securities portfolio. As of March 31, 2012, the value of CIO’s total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value.

The Firm is currently repositioning CIO’s synthetic credit portfolio, which it is doing in conjunction with its assessment of the Firm’s overall credit exposure. As this repositioning is being effected in a manner designed to maximize economic value, CIO may hold certain of its current synthetic credit positions for the longer term.

The last comment would appear to imply that if they can’t unwind this trade at acceptable losses, they’ll move some of it into a hold to maturity book, where they aren’t required to mark to market. Charming.

Second is that, as Dimon himself volunteered, is that this failure of supervision strengthens the case for the Volcker Rule, although he also argued the strategy was Volcker rule complaint. Ahem, that says a lot about how Volcker’s prescription was translated into regulations. Banks that are backstopped by the public should not be taking proprietary trading bets, period. Hedge funds are the format for that sort of activity. And the idea that it’s too hard to figure out the difference between the two is nonsense. Traders can be required to flatten positions within a specified, short period, say three or four days at most. Although Value at Risk has a lot of shortcomings, it isn’t a bad metric for this sort of thing. Bear Stearns had a similar rule when Ace Greenberg was in charge (and remember Bear was an investment bank and a risk seeking one at that): traders we not allowed to hold positions longer than three weeks. Greenberg monitored them and required them to be closed out.

The real upside is that this may be the first real dent to Dimon’s image. The firm has gotten off scot free for dubious tactics during the Lehman and MF Global failures, and Dimon has taken to bullying central bankers and regulators (I’ve heard of incidents beyond the press reports of him browbeating Bernanke and later his Canadian analogue, Mark Carney). Dimon’s hyperaggression may simply by apparent success stoking an already overly large ego, or it may be the classic “the best defense is a good offense” strategy, of dissuading overly close scrutiny of JP Morgan’s health and practices. We’ll have a better basis for judging as the year progresses, since difficult trading markets will continue to test all the major dealers.

Print Friendly
Twitter35DiggReddit0StumbleUpon1Facebook33LinkedIn5Google+2bufferEmail

100 comments

    1. Woody in Florida

      Yes I would venture that guy needed to be reminded that only Goldman is doing “God’s work”. Hubris….Hubris everywhere!

        1. Jim A.

          “There set out, slowly, for a Different World
          At four, on winter mornings, differnt legs…
          You can’t break eggs without making an omelette
          –That’s what they tell the eggs”
          -Randall Jarrell (1914-1965)

    2. Evil

      Relax. Ben bernank will come in and buy all those CDS’ and the rest of JPM junk asset.

      Tax payers own more “stuff”…yay.

      Case close.

      1. chitown2020

        Oh yeah…the demon already said he will be committing more fraud with other peoples money and U.S. Treasuries to make up for the “losses”. We will all get handed the bill…….Someone better cuff him and Geithner now..!

  1. YesMaybe

    Yves, thanks for the timely commentary. Am I right in my impression that the loss itself is of minor importance compared to the other points you highlight (JPM being highly fallible, Dimon’s misrepresentation, regulation)? Because $2b (or even some multiple of that, which it might end up being) doesn’t seem like that much for JPM’s size.

    1. idahoSpud

      Either the Bernank or TARP will be used to make Dimon’s bonus whole again. Arrogant or not, he will still get our money.

  2. Woodrow Wilson

    “The firm has gotten off scot free for dubious tactics during the Lehman and MF Global failures” -

    This of course will continue, not just with J.P. Morgan, but all the rest as well.

    You know it, I know it.

    1. redleg

      So, what would the losses would be if JPM hadn’t essentially stolen the MFG “segregated” money?

  3. jsmith

    “The last comment would appear to imply that if they can’t unwind this trade at acceptable losses, they’ll move some of it into a hold to maturity book, where they aren’t required to mark to market. Charming.”

    Ah yes, the running out the clock/make-believe method of confronting losses, eh?

    When the elite are caught screwing the pooch – sorry, Spot – why then we – meaning the hundreds of millions of us who make up the rest of society – all just have to wait years – if then, even – before we can determine the “real” value of their f*ckups and how much it’s gonnna cost US, huh?

    Why?

    Because THEY said so, of course!

    Don’t like the MBS effluvia? Sit on it, Benny!!

    Home prices in the sh*tter? Shadow inventory!

    Iraq? About to turn a corner!

    Afghanistan? Sign the extension, Hamid, we’re sticking around!!

    Austerity not working? Green shoots!

    I guess we should just keep allowing the “conversations” and “debates” as to elite culpability to continue on all fronts because there really is no pattern or evidence that the they are playing us all for suckers on one disastrous front after another.

    Nope, we just need to cooly examine each incident separately and only when all – and I mean every last bit – of evidence is in should we be so bold as to accuse the lot of them of deliberate and coordinated malfeasance.

    Until then, let’s all sit tight and wait for the Frontline episode (2017) documenting this crime.

    Oh wait, the Onion beat us to it:

    http://www.theonion.com/articles/whaler-sandwich-not-sitting-too-good-with-area-man,987/

    Fukushima? Yeah, we’ll get to it in 2014!!

    Gulf Oil Spill? Mutated fish are charming and have more fight!

    Global warming/climate change? A comprehensive study’s due out in 2020, really!

    1. SR6719

      Watch how this story plays out as financial reporters pull false self-consciousness out of their ass, then spread it over whole pages of journalistic shitheadery.

      1. jsmith

        Indubitably.

        BTW, meant to second your recommendation on Varda’s “Gleaners” – really great stuff.

        1. chitown2020

          The guy they call the good banker can do no wrong. Dimon is already on the record saying he doesn’t even think he would have been in violation of the new Volcker Rule but, that he is in violation of his own rule. Which would be getting caught. Dimon made it clear that banks can hedge. Yes…the banksters can use your money to wipe you out with no disclosure and no accounting. They have done this to millions of Americans since 2008.

          1. chitown2020

            So the saying goes…The best way to rob a bank is to own one..I would like to add, the best way to rob a nation is to hijack one by pretending to lend them money..

    2. Fiver

      Could not agree more re the stunning degree of compliance with elite assurances that the connections between the dots are imagined.

  4. sunny129

    …’loss of approximately $800 million. (Prior guidance for Corporate quarterly net income (excluding Private Equity results, litigation expense and nonrecurring significant items) was approximately $200 million.) Actual second quarter results could be substantially different from the current estimate and will depend on market levels and portfolio actions related to investments held by the Chief Investment Office (CIO), as well as other activities in Corporate during the remainder of the quarter.

    ‘could be substantially different from the current estimate’

    Wow! When is next shoe dropping?

  5. Crazy Horse

    And to think that Mad Max (Max Keiser) only today compared Jamie Dimon to a tapeworm—-.

      1. LeonovaBalletRusse

        When will Max Keiser interview John Kay, who nailed the “no profit” banker rackets in his speech at the INET Plenary Conference in Berlin, “Paradigm Lost: Economics + Politics?”

        John Kay of FT fame: “Visting Professor, London School of Economics and Political Science” made his presentation on Saturday, April 14, 2012, during the Breakout Session I: “How Can We Create a Financial System That is Socially Useful?”

        What can John Kay tell us about “The Whale” and Jamie Dimon of the Morgue?

        1. chitown2020

          Watching an interesting exchange between Paul Volker and the Senate Banking and Housing subcommittee on C-Span 3….Volker said that the Centralizing of Banking power took off after the repeal of Glass-Steagal. He said the banks are illegally prop trading under the guise of market making and this needs to be investigated by banking regulators.

          1. chitown2020

            He forgot to mention who the banking regulators are working for. They are there to protect the banks and to allow the banks to commit fraud. They are there to make sure that no one else is allowed to do as the banks do. Like Bernie Madoff did…It is do as I say, not as I do because then you are a criminal. The banks can launder drug money to fund crimes and steal from us but, if we do that..we are felons.

  6. chitown2020

    Synthetic credit instruments=Banks investing in unsecured imaginary instruments using other peoples money….WAY TO GO…..!

    1. Jim A.

      The beauty of the system is that it only become other people’s money if they lose their bets. If they win it’s their money. Such is the magic of combining leverage with too big to fail.

  7. bob

    “Mr. Dimon calls the stratey ‘flawed,complex, poorly excuted and poorly monitored’… says he should’ve paid more attention to newspapers”.

    Yes, newspapers are how risk management is measured. Shouldn’t Sauron have a little more insight into his kingdom than an outside reporter?

    1. Defiant

      The chances for risk mgmt are long gone. Something happened, Greece? Spain? France?, that forced JP to unload their positions hard. If Jamie is making this statement it is to trash the others. Jamie is no fool.

      In other words, JP is not going down without bringing the others. Look for more fireworks here.

      1. giggs

        I tend to agree. Such public recognition is thoroughly orchastrated. Why now, why not wait until Friday after the close? This story is only 1/10 told…

        1. Bridget

          I’ve been wondering the same thing. Greece or Spain.

          Dimon needs to bring Corzine in to get this mess cleaned up ASAP.

    2. LeonovaBalletRusse

      bob, doesn’t the buck stop with Jamie, as the Top Dog of the Morgue?

      What is his compensation as Top Dog, actually?

      1. Literary Critic

        Not sure what it is in Jamie’s case, but I see $20M, $50M annual total comp in the news sometimes as being “appropriate” for the job.

        It’s just that after hearing Jamie report on the incident, I’m not sure he is CEO of JPM. If you don’t know what your band of Number 2s are doing, what is your job?

      2. bob

        His pay is probably less than the trader that took the blame. They are apparently the real “looters”, earning multiples of what the CEO’s make.

        Captain Dimon- What? The boat is on fire?

        1st mate- Yes, it seems to have something to do with all of that gasoline we were soaking it in.

        Captain Dimon- What?

        1st mate- Well, as we discussed a few months ago, asset diversification is the only risk prudent approach to safety, and oil correlated perfectly with the metrics we were looking for..

        Captin Dimon- Yes, it did make sense, and we made quite a profit on paper….but the ship is now on fire…

        1st mate- Don’t worry, we can call this a hold to maturity and we’ll be fine.

        Captin Dimon- Are you sure about that?

        1st mate- Risk management says it’s only sensible.

        Captin Dimon- Are they on this boat?

        1st mate- No, but neither are we, really….

        Captin Dimon- I forgot, call the helicpoter…

        1st mate- Already done, risk management also suggested to have a few ready….

        1. chitown2020

          They do commit their crimes by proxy. Dimon is taking the blame for this one. Most likely because he is covering up for the actual crime of robbery. By saying he gave the orders and this is all legal is creating a distraction.

        2. craazyman

          If the long run is long enough, even the dead will be resurrected. Discount that, and it’s always positive. :)

    3. Fiver

      Tell the truth. If you stumbled on a Palantir, you’d look into it, right? Well, same with Jamie. He was just curious, that’s all.

  8. SteveA

    WSJ 4/13/12:

    J.P. Morgan Chief Financial Officer Doug Braustein and Chief Executive Jamie Dimon scoffed at recent media reports about an outsized trader dubbed “the London Whale.”

    The executives didn’t deny that the London chief investment office has built up large positions, or that trader Bruno Michel Iksil has amassed a school of hedge funds betting against his positions. But they took issue with allegations that the bank is essentially disguising proprietary trading, or that Dimon himself has pushed for the unit to build profits.

    “The CIO balances our risks,” Braustein told media members on a conference call. “They hedge against downside risk, that’s the nature of protecting that balance sheet.”

    Braunstein added the bank is “very comfortable with the positions we have” and that all of the positions are “very long term in nature.”

    What changed in the last month in the positions they were so very comfortable with? If they were very long term positions, why were they sitting on the trading books? Why is Doug still employed by the bank? Is the board at all concerned that Dimon might have the Corzine nature? Way to protect the balance sheet there, boys.

  9. Defiant

    This was no “hedge” mistake. This is a mark to market hidden lie. There is much more out there. You can only do so much stealing before the effect of the theft begins to harm you.

    Money does not grow on trees. Stating that a piece of paper is worth a trillion will work as lo.g as long as you don’t have to sell the paper.

    1. chitown2020

      WAKE UP CALL…Taking depoaitors money without their knowledge and lending it or borrowing against it or, in this case, investing it in fictitious security instruments is what banks do. That is what the Beverly Hillbillies was about on a more personal level but, the same premise. You can deposit your life savings but you can never take it out because the banksters borrow and plunder it with hopes something or someone will make up the slack. Either, the banks and Wall Street are engaging in more risky behavior to try and make up for their accounting fraud……. Or…they are JUST STEALING…Either way it is typical behavior of a chronic gambling problem…a sickness.

    2. chitown2020

      How do you mark to market a fiction..? It is just criminal fraud. Where’s the cuffs…?

      1. just me

        “BuyMyShitpile.com” wasn’t it, from 2009? You submitted an asset of yours for the government to buy, just like the banks were doing, and you assigned the value you were to be paid, just like the banks. Mark to fantasy market. Gone now, but I thought it was funny:

        Use the form below to submit bad assets you’d like the government to take off your hands. And remember, when estimating the value of your 1997 limited edition Hanson single CD “MMMbop”, it’s not what you can sell these items for that matters, it’s what you think they are worth. The fact that you think they are worth more than anyone will buy them for is what makes them bad assets.

        Some examples at http://www.dailykos.com/comments/716394/27801437

        1. LeonovaBalletRusse

          YouTube Southpark mashup: One more time: – “Aaaand it’s gone!”

          And, like our jobs, “it’s not coming back.”

      2. Defiant

        Chitown,

        JP just showed us what happens when you are forced to dump the paper you’ve been lying about.

        I think that the most important thing here is not the loss itself but the impact this will have on the market. Banks are not suppose to gamble and lose depositors money, like MF.

        Confidence is what holds a market together.

  10. Conscience of a Conservative

    The point that this strengthens the case for the Volcker rule is paramount. This sort of trading is best done by Hedge Funds and not institutions that would be the subject of a future bail-out under adverse conditions. That said we’d be much better off if they brouht back Glass Stegal.

  11. Doug Terpstra

    Taxpayers now have another “investment opportunity”.

    If Dimon admitted to $2 billion, I wonder what the real number is, $10 billion, $20? These guys “mislead” and “misrepresent” for living, so there’s no doubt that he’s “lowballing” the truth. No wonder Obama has a special kinship with men like Jamie —”a very savvy businessman”.

  12. RDE

    System Administrator:
    How does one email Yves a suggestion for a post from another commentator without posting the message off topic like this?

    Suggestion for post: http://thearchdruidreport.blogspot.com/2012/05/descent-into-stasis.html

    One of the most reasoned and historically informed background analysis of our national political situation,and a welcome change from the notion that we need only overthrow a group of evil bad actors to overcome a systemic problem.

  13. run75441

    Synthetic . . . how ridiculous. This is not based in reality with safeguards, transparency, and reserves. It is a hope, a scheme, and a pnzi dream.

    1. chitown2020

      Or it could be just a robbery under the guise of risky investing. POOF..the moneys gone…! Like the stock market “crash”, the LEHMAN SCAM, the MF GLOBAL SCAM…the Patriot Act allows the banks to transfer our wealth overseas with virtually no accountability. I would be very interested in knowing where 2+ billion “went”

    2. LeonovaBalletRusse

      What they used to call “pie in the sky” when it was illegal to sell it to your trusting clients.

  14. Jim in MN

    Perhaps a nice Friday morning Federal raid of JPM’s offices, complete with real time Dimon and other corporate officers hard drives being mirrored onto the Internet for all of us to examine would add some transparency and stability to these “oh-so-important markets”.

    1. chitown2020

      They also must go audit the completely unregulated shadow bank. That is where some experts say their real dirt is hidden..and that there is $700 trillion dollars in mortgage fraud debt dumped in black pools..a total $1.2 quadrillion dollars worth of hidden derivatives debt fraud….Unsustainable debt fraud that the banks and Wall Street committed that can never be repaid. They are just stealing from all of us and pocketing our money.

      1. LeonovaBalletRusse

        Right, that’s why Michael Hudson et all from UMKC need to set up the MMT system and Printing Direct from Treasury (“eliminate the middleman”), have Steve Keen declare the Jubilee terms for the People, and then CUT_the_CORD keeping the Bankers, Shadow Bankers, and “Gretchen am Spinnrade” at the Fed, tied like a lead balloon to our Real Economy.

        “Just do it.” We can make this transition without missing a beat, leaving the 1% grifters to find their paradise on Mars, maybe mining meteorites for gold.

        1. chitown2020

          I totally agree Leonova. The theft of our wealth and our country for the massive, unsustainable debt fraud of the FED, Wall Sreet and the Big Banks has to stop. They cant pay their massive debts so they are stealing and pocketing our money because they are being allowed to get away with it by the politicians. We don’t need them…..at all. It is all a scam to steal our National Sovereignty. Show us the receipts that say they lent us any money….they cant…because they didn’t….because we are the depositors who lent them the money at the origination of every transaction. We The People are the largest institutional investors on the planet. So screw them…the crooks. I am not paying for their fraud with my home and commercial property….which is mine and my husbands retirement money…they can all eat their own fraud excriment and die…that is what they deserve. I am not about to be at the mercy of these fascist crooks when I am old.

          1. Defiant

            This is the issue with a fiat system. It’s almost impossible to understand and thereby stop the looting.

            Most people out in middle America have no clue what these CDS thingies are. It would be good if someone just said it like it is.

            The Fed allows for the creation of credit via banks, the government burrows most of the money, banks get to play withe money. All the time the currency is somewhat slowly devalued., theft, while the newly created money flows to an area of the economy, tech bubble 2000, oil and housing bubble 2007, student loan 2012.

            The longer this process goes on, the poorer the nation becomes, salaries wont move, while the cost of living goes up, because people can still purchase stocks, houses, medicine, oil, education – just not with earned money, but with credit. This is the way they loot.

    2. LeonovaBalletRusse

      Or maybe Jamie will join the exodus of financiers to Brazil? (no extradition)

  15. PQS

    Let me guess….even though Dimon didn’t know his firm was about to lose billions of dollars, he is still Valuable Talent that is Worth a Pile of Cash. Is that it?

    What do you have to do to get fired in that business? Murder?

    1. chitown2020

      They actually have already done that too. God only knows how many murders, robberies, and other crimes not to mention the suicides out of the stress, desperation and people blaming each other and themselves because of what these DECEPTIVE CRIMINALS have done..Homelessness, divorces, abandoned pets, lack of adequate medical care because they caused people to go broke and not be able to afford health insurance. People have lost everything because of what these criminals did.

  16. Capo Regime

    Well good ol Jamie was just the other day going on about how well the economy is doing. No doubt with his keen business sense he will recoup the loses in a series of brilliantly executed decisions. What now with a boom and all plenty of opportunities out there! Thats why JP (err the taxpayers) pay him the big bucks. Worth every cent!

  17. Hugh

    My question is what exactly was JPM hedging. I mean if JPM was making bets on credit spreads or on the spread between credit and CDS spreads aren’t these just bets? Where’s the hedge? To me, this seems like sending two gamblers to a casino, but instead of just saying this, you say Gambler A is a hedge for Gambler B. So again I ask what is the link between the synthetic credit instruments JPM lost $2 billion on and the original bet it was supposedly hedging?

    1. Yves Smith Post author

      Yes, precisely. This wasn’t hedging. And the head of that unit had been paid over $100 million (I’ll have to check over what time frame). You don’t pay a guy who runs hedges that kind of dough.

  18. Small.Business.Guy.1

    The folks over at ZeroHedge are busy deconstructing the entire JPM issue. The lastest thinking is that $2 bil was an ‘offer’ amount, and that the real number could easily be considerably higher as they unwind the positions.

    As in 100 to 150 percent higher….

    Let’s see who Jamie’s friends are in Congress (on both sides) who want to bail his butt out on the taxpayer’s dime. Then we’ll know exactly who we need to get rid of.

  19. MichaelC

    This is much worse than it appears and illustrates Bill Black’s Accounting control fraud thesis perfectly, and in real time. (and also just in time to seal the deal on that damned Volcker Rule)

    As you point out, and characterize as charming:

    “The Firm is currently repositioning CIO’s synthetic credit portfolio, which it is doing in conjunction with its assessment of the Firm’s overall credit exposure. As this repositioning is being effected in a manner designed to maximize economic value, CIO may hold certain of its current synthetic credit positions for the longer term.”

    The last comment would appear to imply that if they can’t unwind this trade at acceptable losses, they’ll move some of it into a hold to maturity book, where they aren’t required to mark to market. Charming.”

    But that’s only a preview to Act III in this charade.

    Act II isn’t over yet and deserves much more attention (since other large banks are doing the same thing. Volcker anticipates exactly this kind of regulatory/accounting rule arbitrage).

    JPM says:

    “Since March 31, 2012, CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed.

    The losses in CIO’s synthetic credit portfolio have been partially offset by realized gains from sales, predominantly of credit-related positions, in CIO’s AFS securities portfolio.

    As of March 31, 2012, the value of CIO’s total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value.”

    Note the reference to the beneficial offsetting effect of the AFS portfolio here. (nothing to see here , we can offset the 2b loss with 1.2b of previously unrecognized gains, and we have an additional 6.8 billion in AFS gains to spare.)

    But, available for sale (AFS)assets are sheltered from the vagaries of market effects on the banks bottom line because they are certified to be held for the long term, even though they could be sold if conditions that permitted them to be sheltered from trading account treatment (MTM hits to the bottom line) change.

    The changes in the value of this category of assets is monitored and reported as a change in the net equity of the bank, yet the variations don’t show up in the bottom line ’till they are sold.

    They would normally only be sold only if exogenous events (i.e. a market disruption) vitiated the initial intent.

    They are NOT available for sale to offset trading losses. Well, technically they are not, unless they are, as is the case here.

    Selling these appreciated assets while enjoying AFS treatment while they are held can only be justified based on exogenous events beyond the control of the institution making the AFS election for the accounting treatment to be logical. The independent accountants would be the only one’s who could certify that. Right? (ha).

    Clearly JPM was effectively treating these AFS securities as trading assets held against the CDS positions in the CIOs trading portfolio. Till now the CIO has been posting gains on the net portfolio, so no one saw any problem with the accounting treatment (sound familiar AIG auditors?)

    [PS I used the term 'certified' above to alert anyone at the SEC/DOJ who may be interested, that Jamie Dimon falsely certified the financials (for years apparently) due to his firms 'stupidity'. Institutional stupidity qualifies as a breakdown in in internal controls in my book. If you market yourselves as brilliant, yet conclude and defend yourselves by admitting you are idiots, you can't certify that your internal control systems are adequate. If the system doesn't screen for colossal stupidity its ineffective.

    This is an easier SOX case than Lehman. ]

  20. Fiver

    What is it that was so clumsy it apparently amounted to firing off a flare to begin with? Who were the “winners” on the other side of the bet? Just wondering if there was a knife involved in this somewhere along the way.

    In any case, I’m not going to bet this is just going to go away. He’s out of bounds on too many counts to just blow it off. Otherwise he’d not have made this announcement. I know it seems a stretch, but I think he’s more vulnerable than we think if honest journalists, bloggers, some in Congress etc., really go after this one.

    He’ll erupt and hang his whole class in front of a global audience if he gets hit with the right sort of questions in the right venue.

    This is the first real opportunity to even up the odds a bit in quite some time.

    Go get ‘im, Yves.

  21. Conscience of a Conservative

    My concern is that gov’t policies are promoting risk. At zero interest rates there’s no spread to take money from. So the bank can’t keep a percentage of income from depositors earnings, and there’s no spread to compensate risk in basic loans, so the banks are “forced” to either take huge principal risk(e.g. the whale cds trade) or to concoct ways to charge banking customer monthly fees instead of taking their payments off the top(e.g. monthly fees on prep-paid debit cards). The Bernanke may be creating a similar environment to what Greenspan created back in the day, by keeping rates low for too long.

    1. Defiant

      Ahhhh conscience…

      Isn’t the world an ironic place.

      The government tries to help students by subcidicing debt, it drives up costs thereby screwing students even more. Same goes for housing, medicine, etc, etc..

      You say “may” as if history has not showed us hundreds of times what happens when men attempt to control nature. LTCM, tech bubble 2000, housing, oil, education only to name a few. I suggest you read Robert Wenzel who suggested everyone at the fed went home never to come back. Let the fed clear payments and securities and nothing more.

      In short, we can say without a doubt that the fed is creating bubbles.

  22. Chris Rogers

    Not one poster currently has mentioned the great big white elephant in the room, namely, and as with the demise of AIG, this current problem with JP Morgan originated in the UK.

    With or without the lack of rules associated with Prop Trading in Dodd-Franks, US banks age going to game the system via regulatory arbitrage in other territories – be this the UK, Hong Kong or Singapore.

    So, lets plat Devil’s Advocate, I have no issue with the ‘casino banks’ undertaking any and all kinds of trades, activities or so called investments that can lead to their and the systems implosion – with one very large singular caveat – non of these institutions be allowed to operate any retail operation whatsoever or be in a sector of the community that exposes them to mundane commercial banking activities -ie, legislation and regulation more stringent than that found under Glass Steagal.

    Further, the casino banks themselves, in true Austrian-mode are free from any and all forms of regulation and that it is mandated in law that no tax payer funds or any other form of funding from the state be allowed to backstop or support these institutions in time of crisis or during normal times – i.e., no tax breaks, no special treatment – no nothing!

    The onus is then on those, knowing the full facts, who wish to conduct business with/ invest in these casino institutions.

    Retail banking operations and commercial banking operations that effect Main Street businesses should be separate from the casino banks and be more of a utility – as advocated by the likes of Laurence Kotlikoff.

    Indeed, given many Fortune 500 businesses act more like finical institutions rather than actual businesses, it may also help the real US economy – fat chance I know, but at least we can dream and advocate – just a great shame our masters do not listen.

    No doubt Obama and Romney will be getting fat cheques from Mr. Dimon!!!!

    1. LeonovaBalletRusse

      The “white elephant” has been alluded to with the phrase: “MF Global” – referring to the UK laundry connection. Hey, now that they’re going to let China set up shop in UK trading (commodities exchange, is it?), we’ll be able to call it the Chinese Laundry in the Motherland. This will set up the “Good cop – Bad cop” roles, as via the Chinese bank takeover in the Homeland Stateside.

    2. chitown2020

      I have said it along, deception is what put us all here. AIG is a key component to this. It is simply put, Insurance Fraud that they are all committing on a massive scale.

  23. Aaron Layman

    Yves,

    Your critique of the PBS frontline whitewash looks even more spot-on now with this comedic farce. The producers and editors of the series owe you one huge fat apology for even attempting to defend what they called investigative journalism. I’m betting they wish they hadn’t sent you that letter now. LOL!

    Tyler’s link to the JP Morgan Guide to Credit Derivatives is absolutely priceless.

    Thanks again for all you do Yves!

  24. Erik Fairchild

    JP Morgan was instrumental in the destruction of Iraq, if the propoganda machine didn’t fully endorse Obama for another 4 years, noise could be make about the Dimon-Corzine-Obama connection. But state secrets are state secrets.

  25. Bloodmoney Laundering

    Lord Squid announced his impartiality to homosexuality prior to Biden and Ofraud. Dimon, tragically, has failed here too.

  26. chitown2020

    Jamie Dimon stated this was a bet on the direction of the economy. He also said this fraud was committed overseas in London so it was legal. He also wants Dodd-Frank and the Volcker rule repealed. CNBC analysts suggest moving your money to a small, regional bank.

    1. Ivent

      CNBC ia a corrupt network, ignore everything they tell you – including their whorish critique of Occupy’s mic-checking of Monihayn of BOA. GE has fraudclosed on 1000s, particularly in Prince William VA. Sure they have Ratigan, that psuedo-chick, but that’s to fool you. NWO!

      1. Lord Nutbag

        MSNBC:

        “Los Angeles officials say the costs of police overtime and cleaning up local parks due to the Occupy protests have nearly doubled to $5 million, as cities across the country continue to tally the protests’ price tag.”

        1. chitown2020

          What I mean by that is, we are intelligent enough to separate info from disinfo. You have to know what the lies are to get to the truth. Don’t throw all info because there is some bad info. It doesn’t hurt to keep an open mind.

          1. LeonovaBalletRusse

            “police overtime” – OWS as profit center for the 1% Security State, I had not seen this angle before. Just one more racket to profit 1% “law and order” profiteers.

          2. chitown2020

            Rumor has it the 1% are going to try to incite violence in major cities. like what happened in Chicago in 1968 to overthrow us completely. They plan on using Occupy and the Tea Party and the Constitutionalists to do this. They will also commit a false flag to cause racial division. As nutty as it all sounds, it is probably true.

  27. Deficiency Judgment

    “Giving debt relief to people that really need it, that’s what foreclosure is.” – Dimon

    “We’re willing to bear volatility, and um, that’s life.” – Dimon

    “Just because we’re stupid doesn’t mean everybody else was.” – Dimon

  28. Deficiency Judgment

    Where in the Constitution — or in all common sense — is there a right to “free assembly” with a corresponding right by elected officials to use a militarized police force to attack protesters?

    1. enouf

      there isn’t obviously; i wrote this as a comment (to another poster, as a reply) in a youtube video concerning MayDay protests.

      —————
      ‘Let me try explaining it this way;
      Sovereign Rights are Endowed, Inherent and Unalienable, ..and when Non-Sovereign Legal Fiction (JPMorgan, Goldman Sachs, BofA, etc,etc) Corporate Police Forces (NYPD, et al) is/are used to attempt to repress dissent, …and when Injustice, Fraud, Corruption run so rampant; then Mine, Yours and All Sovereigns’ Rights are being trampled on–where’s *Our* protection? Why aren’t CEOs getting pepper-sprayed and beaten and tazed and kidnapped?
      Love”
      —————

      Love

  29. freedomny

    As an ex-Chase employee, here is what I view is an essential problem…..”Wall Street Wants To Be Sexy”.

    As a consumer, a shareholder, or an investor…do I really want my fiduciary representative to be “sexy”. No, I want them to be “boringly” out for my best interests.

    While the 2.3 billion (hah..it will be more) loss was, aparently, “Chase’s money”, who is to say that it won’t happen in the future with “our” money…like with MFG…like what happened in 08?

    I think boring is the new sexy. Being transparent is sexy. Being all about the customer is sexy. Having your customers realize that you have their best interests in mind, and that you will take care of them, and that they can trust you….THAT is the new SEXY.

  30. obesimed kullanan

    Thank you for any other magnificent post. The place else may just anyone get that kind of information in such an ideal means of writing? I have a presentation subsequent week, and I’m at the search for such information.

  31. sarastro

    Robert Reich drops a bombshell today:

    “Move on? Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.”

    robertreich.org

  32. iPhone 5

    Woah this blog is magnificent i like studying your posts. Stay up the great paintings! You know, a lot of individuals are searching around for this info, you can aid them greatly.

Comments are closed.