Via e-mail, some updates from Michael Crimmins, a bank compliance expert and member of Occupy the SEC, on the continuing failure of the media to portray the real significance of the JP Morgan London Whale losses: that it revealed glaring deficiencies in internal controls that warrant prosecution of Jamie Dimon under Sarbanes Oxley.
Read more...A New York Times profile of Ina Drew, the former head of the JP Morgan Chief Investment Office, almost certainly produced high fives in the bank’s corporate communications office. This piece is the best sort of PR you can get: it treats the trading losses as yesterday’s news, of interest only as point of entre into the downfall of a heretofore unknown but once hugely successful and personally appealing trading manager.
Read more...In this speech,Robert Jenkins of the Bank of England blows apart the self-serving myths that ‘old guard’ bankers and their lobbyists have been peddling since the financial crisis ripped apart the global financial system in 2007.
Read more...April Charney sent me a link to a post which had a condescending explanation of a recent piece by FICO that warrants further discussion. The FICO article attempted to justify its position that someone who enters into a short sale gets his credit score dinged as badly as for a foreclosure. Yes, you read that correctly. One of the reasons many borrowers go to the effort to arrange a short sale, as opposed to the faster and easier process of “jingle mail” is that they assume that the damage to their credit score will be lower.
Here is the rationale….
Read more...In an perverse case of synchronicity, one headline last night touted regulatory efforts to address systemic risk as another highlighted bank efforts to increase it. And the ongoing efforts of banks to expand risk creation is no accident.
Read more...By Paul Amery. Cross posted from Index Universe
The US equity market’s main risk measure is back down to the levels we saw in 2007. But declines in volatility mask substantially different behaviour from stocks than pre-crisis.
Read more...By Sell on News, a global macro analyst. Cross posted from MacroBusiness
A question that has been asked, but not nearly often enough, is why did the complex risk defrayal methods fail so completely during the global financial crisis?
Read more...Yves here. Although this VoxEU is heavier on economese than may suit the tastes of most NC readers, it’s nevertheless worth your attention. It takes issue with a popular view among economists, that one of the ways to reduce systemic risk is to reduce cyclical swings in asset prices (or more accurately, to prevent banks from all following some great new lending fad and running off a cliff tout ensemble). The wee problem with that is economists were patting themselves on the back in 2007 that they had engineered a Great Moderation and the overwhelming majority were in denial about the existence of a global credit bubble. In fairness, many are thinking about how to create automatic counter-cyclical stabilizers, since as Ian MacFarlane, the former Governor of the Reserve Bank of Australia pointed out, an asset bubble looks like increased wealth to the community, so anyone who stands in its way is going to be extremely unpopular.
This VoxEU article offers an alternate line of thinking on how to to lower systemic risk.
Read more...By Cathy O’Neil, a data scientist who lives in New York City and writes at mathbabe.org
Without naming names, I’d like to characterize problematic pseudo-mathematical behavior that I witness often enough that I’m consistently riled up.
Read more...Yet more gems from New Zealand’s Company Register: the companies that specialize in scamming Americans
Read more...So again, what did Dimon know when? Under the hot lights at the House Financial Services Committee, he repeatedly brushed off the losses on the failed Chief Investment Office trades as no biggie. Let us remind readers that the size of the CIO’s balance sheet would make it the 8th largest bank in the US and it was running half of JPM’s total risk exposures, so it’s hard to see the failure of oversight as something to be waived off. And now it turns out the losses are going to clock in at a much higher number than the $2 billion that Dimon kept repeating in the hearings.
Read more...I’m surprised it has taken this long for Someone Serious to make the argument set forth in a new article by Simon Johnson at Bloomberg, which in short form says “You are dreaming if you think a European financial crisis stays in Europe.”
Johnson somewhat undercuts the urgency and importance of his article by working from the assumption that the eurozone dissolves back into its earlier configuration of one currency per nation. Economists and analysts have discussed other scenarios, such as a exit by Greece, which has the potential to precipitate contagion in Portugal, Spain, and Italy; an exit by Germany; a split into more economically homogeneous sub-groups (most likely north v. south). And Bloomberg refrains from putting the real sizzler in the headline: Johnson considers JP Morgan to be vulnerable and explains why.
Read more...Cathy O’Neil, a quant, looks at the key question raised by a recent paper by Donald Mackenzie on the Gaussian copula model: why do flawed models become widely accepted?
Read more...In case you haven’t had enough of Congresscritters lobbing softballs at Jamie Dimon, the JP Morgan CEO is appearing before the House Financial Services Committee on Tuesday. There have been a number of suitably scathing accounts of how members of the Senate Banking Committee fawned over Dimon.
As we wrote, Dimon took what is actually an indefensible position: that any bank risk taking should be permitted, so long as it will arguably do well when there is a crisis (watch for this to be broadened to merely be a bet to improve bank profits when its regular businesses are under stress). We pointed out that this logic would justify engaging in systemically destructive activities like the Magnetar trade, and that with government backstopping behind it to boot. And that is a bigger risk than it might seem at first blush.
Read more...All eyes in finance are on Greece…
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