Occupy the SEC to Jamie Dimon: We Told You So

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By Occupy the SEC

Jamie Dimon’s plan to enfeeble the Dodd-Frank reforms, specifically the Volcker rule, has blown up spectacularly. Apparently JPM was so confident that their interpretation of the hedging exemption would prevail, that they got ahead of themselves and operated as if this loophople were in effect. But then things went horribly wrong for them. And the losses are even more damaging since the blowup is the result of activity the law was meant to curtail. Double trouble now for JPM, since it’s inconceivable that the hedging exemption they designed will make it into the final rulemaking. If it does survive, then we’ve got bigger issues with our regulators than we imagined.

In today’s New York Times, James Wyatt provides an under the radar view of how laws are gutted when the regulators involved in rule-making are heavily lobbied by the regulated. One objective of Occupy the SEC was to inject a non industry perspective in this process as a counterweight to the overwhelming industry influence. By looking for loopholes we intended to shed light on the self-serving interests of the bankers and the vulnerability of the regulators to concerted industry pressure. Wyatt describes the lobbying efforts:

Several visits over months by the bank’s well-connected chief executive, Jamie Dimon, and his top aides were aimed at persuading regulators to create a loophole in the law, known as the Volcker Rule. The rule was designed by Congress to limit the very kind of proprietary trading that JPMorgan was seeking.

“JPMorgan was the one that made the strongest arguments to allow hedging, and specifically to allow this type of portfolio hedging,” said a former Treasury official who was present during the Dodd-Frank debates.

Portfolio hedging is at the heart of the London Whale debacle.

The loophole is known as portfolio hedging, a strategy that essentially allows banks to view an investment portfolio as a whole and take actions to offset the risks of the entire portfolio. That contrasts with the traditional definition of hedging, which matches an individual security or trading position with an inversely related investment — so when one goes up, the other goes down.

Portfolio hedging “is a license to do pretty much anything,” Mr. Levin said. He and Senator Jeff Merkley, an Oregon Democrat who worked on the law with Mr.Levin, sent a letter to regulators in February, making clear that hedging on that scale was not their intention.

“There is no statutory basis to support the proposed portfolio hedging language,” they wrote, “nor is there anything in the legislative history to suggest that it should be allowed.”

We were extremely concerned about this loophole and argued against it in our comment letter to the regulators.

We are alarmed by the focus on .“portfolio hedging.” throughout the risk-mitigating hedging exemption. We interpret the intent of this exemption as relating to Delta One or central execution desks that have become ubiquitous across banking entities in recent years. Certainly these central hedging operations pose significant risks, as famously exemplified in the rogue trading scandal that caused a $2.3 billion loss in 2011.84 While it is clear that such practices necessitate increased oversight and significantly improved risk-management procedures, there are other instances of aggregated hedging that will be inappropriately included within .“portfolio hedging.” that require consideration. Even outside of central execution desks, many risks a recurrently managed on an aggregated basis, due to the numerous, and often compounding, proprietary portfolios that exist on every market making desk of every covered banking entity. With so many independent strategies at play, it is not uncommon for large exposures across a variety of assets to result when they are combined in the view of a manager. Management will often make use of a .“back book.” or .“management book.” for the dual purposes of conducting broad-line hedges against lumpy trading-desk exposures, and taking proprietary positions that fall outside of the mandate or risk-limits of an individual trader. While it is expected that such obvious proprietary exposures will diminish with the implementation of this Rule, we fail to understand the continued relevance of most management hedging operations once individual trading books pare their component exposures. We are troubled by the potential for such .“back books.” to become havens of prohibited proprietary activity after the implementation of this Rule.

A specific requirement that each type of exposure be designated as one that is hedged exclusively on an Individual or an Aggregate basis is essential. Risks should never be hedged on both an individual and aggregate basis, and most risk types are appropriately mitigated in only one of the categories. For instance, counterparty risk should always be (and in practice, typically always is) mitigated on a portfolio basis, and individual traders should not be able to make use of the hedging exemption by claiming mitigation of such a risk. These risks can be managed by a level of organization that is out of touch with the day-to-day operations of a trading desk. We propose that the Agencies consider requiring banking entities to create central .“Risk Management.” groups to perform aggregated hedges, to the extent that such groups are not already in place.

The broad allowance for aggregated hedging is troubling and its exemption is inconsistent with the intentions of this Rule. This rule mandates strict risk mitigation at a micro level, and should remove all Implicit or explicit allowances for the dangerous practice of management hedging. More generally, a banking entity.’s need for substantive aggregated hedging is indicative of a failure to appropriately mitigate risks at lower levels within an entity, and is therefore in violation of the spirit of the Rule. We acknowledge that the statute allows for aggregated hedging in Section 619(d)(1)(C),85 and we hope that the Agencies are prepared to be diligent in monitoring this activity closely to discourage abuses, which we see as a serious risk.

It’s way past time for ordinary citizens to have there voices heard in this process. We were encouraged that over 15,000 letters in support of a strong Volcker Rule were submitted to the regulators during the comment period. That was a clear signal that ordinary citizens want some checks on the power of the banks. Additionally , its encouraging that another 1,800 people petitioned the regulators to do the same.

Thanks to Jamie Dimon, perhaps the regulators will finally lend and ear to the clear message the citizens of this country are trying to get them to hear.

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  1. chitown2020


  2. chitown2020

    CORRECTION..Thomas Hoenig ….Vice Chairman of the FDIC says banks should cease all Wall Street trading operations.

        1. chitown2021

          NATO permanently foreclosed on a bunch of Libyans. Innocent, but cannon fodder. Thanks NATO/Goldman Sachs/JP Morgan!

  3. chitown2020

    CNBC reporting Dimon may offer to take no pay for this year. One commentator remarked..Well, it’s not like he’s writing a check to the Treasury. Cramer ponders if International bankers lose their minds when they go to London…? Another commentor remarked that these mortgage investments are not so valuable. Dimon claiming Chase is well capitalized. In that case, shouldn’t they be writing a check to We The People?

  4. Brooklin Bridge

    If it does survive, then we’ve got bigger issues with our regulators than we imagined.

    They loose a step today, it will be back tomorrow…

    1. chitown2020

      They are allowed to transfer our money overseas legally and invest. The electronic bank is unregulated. The biggest transfer of our wealth in history continues daily and it is legal. Bloomberg reported months ago that the FED collects trillions of dollars a month. Yet our economy is worse than ever. The FED ARE TRANSFERRING OUR WEALTH OVERSEAS and SPREADING OUR WEALTH AROUND THE GLOBE. Just like Obama said they were doing before he was elected. The alarms should have been going off a long time ago.

      1. chitown2020

        I forgot to add what the FED collects trillions of dollars per month for.. in mortgage money.

      2. Doug Terpstra

        And Obama is an accessory and co-conspirator. He appointed Ben Shalom Bernanke to do just that. It’s a necessary step to one-world government.

        1. chitown2020

          Right to Doug… People better wake up and stop paying. We are allowing the robbery by playing the game. It is the “fixes” for our robbery into bankruptcy that will use to commit their evil end game plan. That is how they will steal our freedom and our country. We will never be independently wealthy ever again. They have turned America into a fraudulently induced debt slave nation. All that they have to do now is declare America broke when we cant pay for their fraud anymore and it will be the gold backed dollar, the World Tax, the healthcare plan and the microchip implant….the permanent fraudulently induced debt enslavement.

    2. Doug Terpstra

      Newsflash to ‘Occupy’ “…we’ve got bigger issues with our regulators than we imagined.” Much bigger: JPM owns them outright. Is this a secret?

      1. chitown2020

        It is the many faces of the FED. Everything is the opposite of what they claim. It all starts with taxes and fake money lending. That is how they hijack and rob nations. Social engineering is brainwashing. No one cares to inquire where our money goes. It ALL goes overseas…the FED doles out pittances of our wealth back to us through infrastructure projects and other so called Government funding. Take the money out America. Boycott everything that you can. Esp. Their banks, credit and debit. It is all the microchip mark of the beast.

  5. Jamie Loves Military

    Why didn’t David Gregory ask President Dimon about MF Global?
    (Too close to the Obama, who must be re-appointed.)
    Dudd-Fraud, from what has been written elsewhere, is a watered down package of crap. Yet. nihilistically, the press holds it aloft as some kind of severe regulation that bad-boy of the moment, Dimon, attempted to savage. NC is fun – one day the NYT is an incapable corporate outlet, the next, careful anaylisis of just ‘what did they say’.

  6. Lord Valve

    “Thanks to Jamie Dimon, perhaps the regulators will finally lend and ear to the clear message the citizens of this country are trying to get them to hear.”

    But there are so many other banksters, New Yorkers and lawyers, and lions and tigers oh my – why does this one time close friend of Obama get to be the poster boy for financial criminality? I’d like the nooze to roll footage of good times Dimon and Obama embracing.

    1. Lord Valve

      Follow that up with US created civilian carnage in Iraq, Afghanistan. waterboarding, mercenaries. death, destruction, and then we’ll begin to see the true nature of Bankin’. Hey. we tried to pay our mortgages.

      1. chitown2020

        Sure they need to cause distractions and make us kill each other while they are busy cleaning out the remainder of our wealth by transferring it overseas.

  7. Curious Georgina

    Suddenly Liz Warren says that slaughterhouses….er…banks shouldn’t be self-regulatin’. A little birdie told me it would be cool if both Liz and Brown found themselves foreclosed, evicted, homeless and broke. “Revenge ain’t the antidote lil’birdie! ” I said. “Get ahold of yo’self!”

  8. Lambert Strether

    This is great work by Occupy the SEC. It lays the whole scenario out clearly, in such a way that those who are responsible can be held accountable.

    * * *

    Sheesh, though, a mere $2 billion? Can’t we claw that back from Jamie’s bonuses? We’re verging on petty cash territory here!

    1. Aquifer

      Women and children are always the first to go over the side …

      I suppose the idea is that they are the first ones into the lifeboats :) – except there are no lifeboats; small oversight, oh well ….

    2. craazyman

      Well it’s about time we saw a female bankster! hahaha

      They sneak around in there keeping a low profile with their well-coifed heads down, letting the pastel-shirted, cocaine-snorting, strip-club patronizing, sensible-manly-haircut-with-businessman-eyeglasses-sporting, trying-to-fool-you-that-I’m-not-a-high-end-street-hustler-with-my-business-casual-crisp-cordial-demeanor-when-I-walk-down-Park-Avenue-in-the-40s blockheads take all the heat.

      It’s about time. LOL.

      You can’t fool me, all you banksterinas and banksterrets. All you cloistered and demure debutantes. I know you’re in there. Throwing the USA on a tanning bed like a pyschotic mama-mia and lighting it up red as a boiled lobster from UV rays — “Unbelievably-corrupted Vulturation’ that is — while you walk off to Hermes to buy a $50,0000 leather saddle to keep in the bedroom that I saw for sale one evening down in the luxury retailer’s Wall Street branch when on my way to Zucotti Park like some sick benediction, the golden-lit creeping shadow of a Weimar delusion.

      God only knows what it does in there. The saddle. I will assume it holds the scarf collection and a few dozen Chanel skirts.

      Is this what an MBA gets you? Or did you figure it out for yourself? How to fleece and pillage. How to stick a blade into the ribs of Demos Americanus, Demos Anima, world soul on fire and slice off a slab of protein without visible blood.

      You, Lady MacBeth, silent queen of rapacious calculations, assassin without a sword, you have arrived for you close-up, there in the line up with the blockheads. Foisting the faux male-female dialectic, the food for fulminating fools, faceward and foreward for fifteen more seconds of stultifying sedulation.

      It cracks me up. :)

  9. patrick

    George Santayana said, “Those who cannot remember the past are condemned to repeat it”. Apparently memory loss remains the norm on Wall Street.

    First we had Nick Leeson losing Barings $1.5B in 1995. Then we had Jerome Kerviel losing Societe Generale $7B in 2008 – although the bank maybe more complicit than they have admitted. And this is to name just the more notorious single trader disasters. The really awesome cock-ups took teamwork – Bears, Lehman etc.

    All of these episodes were well documented and the lessons of poor management oversight, greed, arrogance, etc laid out for all to understand. The net result – zero learning.

    The real lesson from this latest fiasco is that you can’t trust bankers to learn even from their own mistakes. That the 99% knew already, the politicians and regulators are just proving the aptness of Santayana’s adage.

  10. Jimbo

    With the share price drop, the JPM loss is $20 Billion.
    Please excuse my one moment of pleasure at another’s misfortune..

  11. oy

    I have a pretty low opinion of banksters, but some of the comments here appear to be positively deranged.

    1. Used Against You

      That’s the tactic, let the victims fly off the handle and the expected outbursts and emotional tirades can be used against them or strengthen their signifigantly less belligerent opponents. Similar technique has been applied against the Palestianians for Isreali Apartheid for years.

  12. Mbuna

    Financial regulators are a wholly owned subsidiary of the financial industry. They are not going to bite the hand that ultimately will feed them. We are way past the point where change of direction is even possible here. Real change will require something much more catastrophic.

  13. MichaelC

    I think this piece needs a subtitle

    Occupy the Sec to Regulators-re Jamie Dimon- Are you listening now.

    One of the regulators who clearly isn’t listening to OSEC is the OCC, which regulates JPMs CIO activites.

    In case there was any doubt that the OCC is still carrying water for JPM and will continue to oppose closing the portfolio hedging loophole, there’s this report from 5/14:

    “Two key proponents of the Volcker rule, Sens. Carl Levin (D., Mich.) and Jeff Merkley (D., Ore.), say the Dodd-Frank law was intended to allow only hedges designed to reduce risks tied to specific assets or positions held by a company. They say it wasn’t meant to allow broader bets, as in the case of J.P. Morgan.

    The OCC, however, said it is “premature to conclude” whether the Volcker rule would have banned those trades. “The transactions at issue are complex and whether they would qualify for exceptions under the statute or proposed rule requires careful analysis,” the regulator said.

    Earlier in the day, Sen. Bob Corker (R., Tenn.) said in a television interview on CNBC that the OCC sees the trade in question as permitted under the so-called Volcker rule, a part of the 2010 Dodd-Frank financial overhaul that is meant to prohibit banks from making certain bets with their own money.”


    Its “premature to conclude” because the loophole the OCC supports and JPM exploited remains in the text of the current version,. It appears that the OCC intends to continue to oppose its elimination.

    Furthermore the OCC is the agency responsible for conducting the investigation of this fiasco.

    Time for an Occupy the OCC subgroup I think.

    1. Ken Standard

      Thanks. Agree, to have resistance directed at the Treasury Department would be a new national security issue. You do realize people, it is the US Government that is throwing you out of your houses, and perhaps your jobs?

    2. enouf

      Very informative post indeed, with good option at the end ;-)


      a) Please don’t quote like this;
      “Two key proponents…[…]…with their own money.”
      (one method i try to use is a leading/ending bunch of —— on their own lines;
      —start here—
      — end here—-
      kind of thing.

      Thank you kindly — it really confuddled me a bit when i was attempting to find out which dolt *actually* said –>
      “… a part of the 2010 Dodd-Frank financial overhaul that is meant to prohibit banks from making certain bets with their own money.”

      .. whoa.. what?! Whose money?!
      Banks have money?! Since when? ..and even if they did have Our money, i most certainly wouldn’t want these snake-oil pond scum sociopaths making bets with it.

      TBTF Banks (and everything even remotely attached to them) are Insolvent! I just cannot stop laughing, … the idea that TBTF Banks *have* their own money


  14. Mike Smith

    Financial regulators who have ba**s is the key. Remove the cosy relationship they have with their paymasters and give them clear guidelines to act

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