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…
Read more...Well, there’s nothing like seeing Jamie Dimon swinging for the fences. Dimon has taken his defense and turned it into an offense, in both senses of the word.
Read more...Whocouddanode? As more and more tidbits leak out about the activities of the JP Morgan Chief Investment Office, it increasingly appears to be a unit that was inadequately supervised. While that revelation is a dent to the reputation of self-styled ubermensch and alleged control freak Jamie Dimon, if he takes a few lumps in the press and otherwise can carry on as before, what difference will it make to him and the industry? Lloyd Blankfein took at least as much heat over a longer period, and he’s still firmly in place.
The CEO “I’m in charge and I know nothing” defense is alive and well because it has proven to be so successful.
Read more...As many readers may know, Jamie Dimon is on deck tomorrow before the Senate Banking Committee to explain how a soi disant hedge produced losses that are almost certain to exceed the $2 billion the bank has ‘fessed up to.
Read more...Yves here. While the municipal swaps fiasco may seem like old news, this piece discusses a post-crisis type of swap which is even more appalling. The old scam was to talk local and state authorities who would have been far better served with old-fashioned fixed rate financing into doing floating rate financing and entering into a series of swaps to get a fixed rate deal, with a supposed improvement in funding costs. The problem is that many of those floating rate deals were auction rate securities, and when that market failed in early 2008, the borrowers were doubly hosed. The ARS went to penalty rates. In addition, payments on the swaps often kicked up shortly thereafter (due to the slow-motion failure of monoline guarantors, which was the hidden trigger behind both events. The downgrade of the monolines de facto downgraded the municipality, which led to increased payments on the swaps).
The latest scam is more appalling. Municipal authorities would borrow fixed rate, then enter into a variable rate swap on the side. Earth to base, no responsible manager wants uncertain funding costs on a long-term capital investment. This is tantamount to the owner of a candy store borrowing money at a fixed rate from his bank to finance an expansion of his business, then betting at the racetrack to try to lower his costs. Not surprisingly, many of these swaps have proven to be costly time bombs.
By Tom Ferguson, Professor of Political Science at the University of Massachusetts, Boston. Cross posted from Alternet
Many powerful interests have jumped at the opportunity to use the crisis to eviscerate what’s left of the welfare state.
Read more...By Michael Crimmins, who has worked on risk management and Sarbanes Oxley compliance for major banks
Two former finance and political influence gods (Jon Corzine and Jamie Dimon) have tumbled back to earth. Yet, troublingly, the mythology that’s cowed the political establishment and the financial press for so long remains very much intact.
Read more...The report that John Giddens, the bankruptcy trustee in MF Global, released Monday is thorough and confirms many of the observations made in journalistic accounts of the firm’s collapse, particularly regarding inadequate risk and accounting controls, JP Morgan’s aggressive posture greatly increasing the liquidity squeeze. But a stunning revelation that comes early in the account and is central to the failure of the firm does not get the emphasis that it warrants.
Read more...As reporters keep digging into the “London Whale” story, the picture that emerges about the caliber of risk controls and management supervision at JP Morgan only look worse and worse.
Read more...By Michael Crimmins, who has worked on risk management and Sarbanes Oxley compliance for major banks
The scandal surrounding JP Morgan’s losses in its Chief Investment Office is not going away, and for good reason. Its trading book continues to lose money at an astounding rate. The most recent report estimates that the losses have increased by at least 50% more than the bank’s original loss estimates. The total damage is anyone’s guess at this point.
This fiasco is beginning to look a lot like accounting control fraud.
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