RE: How JPMorgan Lost $17.5 Billion

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DesideriScuri -> RE: How JPMorgan Lost $17.5 Billion (5/14/2012 5:37:39 PM)
quote: ORIGINAL: Musicmystery quote: The "soft landing" nonsense is destroying more lives as people don't have the means to simply ride this out. At least with a crash, there would have been a reset and we'd have been able to start digging ourselves out. However, your "reset" would have taken years. How exactly were people going to "have the means to simply ride this out" then? No it wouldn't have. How long is our "soft landing" taking? As soon as the crash started and the dust started clearing, you'd have had people rebuilding. People would have come together and helped each other. I'm not saying it wouldn't have been damn ugly. It would have been a horror not seen by the vast majority of US Citizens (only make the distinction because I don't know the financial histories of all the countries represented in CollarChat). It would have been horrible. But, it would have ended. It would have been over. We could have started rebuilding again. We are still a long way away from that.

LookieNoNookie -> RE: How JPMorgan Lost $17.5 Billion (5/14/2012 6:39:10 PM)
quote: ORIGINAL: kalikshama http://www.forbes.com/sites/petercohan/2012/05/12/how-jpmorgan-lost-17-5-billion/ JPMorgan Chase (JPM) lost $17.5 billion this week. It all springs from a bad trade that’s still going bad — to the tune of $2 billion and potentially $3 billion. But then there’s the 9.3% plunge in JPMorgan’s market capitalization — adding another $14.5 billion in shareholder losses. And of course, there’s the additional capital it may need to raise in light of S&P’s and Fitch’s concerns about its creditworthiness. In my conversations Friday with reporters from Smart Money and the Boston Globe, I could not answer a basic question: What happened? According to the May 12th New York Times, JPMorgan decided to make a bet on a very obscure corner of the derivatives market. And due to the scale of JPMorgan’s trading, hedge funds figured out its identity and placed bets against the bank that are continuing to make profits for them at JPMorgan’s expense. JPMorgan operates a Chief Investment Office (CIO) that is responsible for this bad bet. The CIO takes the portion of the bank’s $1.1 trillion in deposits that the rest of the bank does not know how to lend or invest and trades that money — with the idea of making a profit for JPMorgan. In 2009, CIO’s net income peaked at $3.7 billion — generating 147% more profit than it had earned in 2008. Back then, JPMorgan had made a lucky bet on U.S. government guaranteed mortgage-backed securities. Since then, CIO has not been as big of a profit center for JPMorgan. In the summer of 2011, it looks like it started to go further out on the risk/return frontier to earn a profit. The CIO observed that the premium to insure against a default of companies in an index of American companies was greater than what it cost to buy protection against the default of each of the individual companies in that index. So it called big Wall Street brokers to announce that it wanted to sell insurance on this index – with the memorable name, CDX IG Series 9 — that would protect buyers in the event that one of 121 big American companies – including General Mills, Alcoa, and McDonald’s – went bankrupt. If a company on the index went bankrupt, the CIO would pay a claim, otherwise it would collect the quarterly premium. JPMorgan initially made money on the position and so did a club of hedge funds ”focused on credit opportunities,” according to the Times. By January 2012, CIO’s brokers called hedge funds almost daily and they figured out that the secret seller was Bruno Iksil, JPMorgan’s London Whale. JPMorgan had two ways to win on its bet. Its cost of insuring CDX IG Series 9 would drop either if the companies in the index continued to do well or if JPMorgan sold so much insurance that the supply exceeded the demand. This January and February, hedge funds began to realize that JPMorgan’s capital limitations meant that it would eventually stop selling more insurance on this index. Moreover, according to FT Alphaville, those hedge funds concluded that the premium for insuring the index should have been above the premium for each of the 121 companies individually. The hedge funds decided to bet against JPMorgan to profit from a rise in the premium as the market corrected for this mis-pricing of the risk. With the economy apparently getting better, the hedge funds were losing money on their trade as they paid their quarterly insurance premiums. And the hedge funds were angry because they believed that The London Whale was manipulating the market and causing them to lose money on their bet. Moreover, since CDX IG Series 9 was unregulated, there were no government officials to whom they could voice their complaints. So the hedge funds leaked their suspicions to Bloomberg in early April. And this leak seems to have spooked The London Whale — along with the cost of insuring against four particularly risky companies in the CDX IG Series 9 — Radian, MBIA, Sprint Nextel, and R.R. Donnelley & Sons. Perhaps this spooking caused JPMorgan to stop selling more insurance to artificially depress the premium. In any case, by late March, people started getting antsy about the economy and the index jumped — making the hedge funds happy. According to the Times, JPMorgan’s first quarter losses were not big enough to make the bank acknowledge the criticism but thanks to media coverage, the index spiked — and so did JPMorgan’s potential insurance claims if the companies in the index went bankrupt. This matters because JPMorgan has been fighting the sort of regulation that would block such reckless gambles. Ultimately, people who deposit money in a bank want the money kept safe. And as long as the government has enough money to cover all the losses from a collapsed banking system, FDIC insurance protects depositors in the event that bets like JPMorgan’s send a bank down the tubes. But what caused JPMorgan to lose money was its highly speculative trade against hedge funds that was being made artificially profitable by using JPMorgan’s capital — your deposits — to push down the price of insurance below the so-called free market rate. Given the $23.7 trillion in cash and guarantees used to bail out financial institutions in 2008, depositors and taxpayers have good reason to question the kind of “free market” that Wall Street’s $5 billion in Washington campaign contributions and lobbying fees has bought. Perhaps deposit-only banks would be a better alternative. Okay...I was wondering where you got the 17.5 billion number....it's valid....escapism...but still valid.

Musicmystery -> RE: How JPMorgan Lost $17.5 Billion (5/14/2012 7:23:23 PM)
quote: No it wouldn't have. Yes, it would have. The same reality that left people without the resources to weather a slowdown would render them unable to build. Your harsh realities would have simply crushed them. Look at how great that worked in 1929. The "soft landing" isn't the problem--it's the credit crunch born of uncertainty from the bundling mess, making accurate assessments difficult, and leaving banks and businesses sitting on large piles of cash rather than investing. Meanwhile, productivity is climbing, along with steady growth in GDP, in lieu of adding labor.

DesideriScuri -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 5:06:03 AM)
quote: ORIGINAL: Musicmystery quote: No it wouldn't have. Yes, it would have. The same reality that left people without the resources to weather a slowdown would render them unable to build. Your harsh realities would have simply crushed them. Look at how great that worked in 1929. The "soft landing" isn't the problem--it's the credit crunch born of uncertainty from the bundling mess, making accurate assessments difficult, and leaving banks and businesses sitting on large piles of cash rather than investing. Meanwhile, productivity is climbing, along with steady growth in GDP, in lieu of adding labor. What did you expect was going to happen when Chrysler and GM were given money to update? Did you expect that they would not improve automation? That was part of the problem for them. they needed upgrading, but didn't have the available capital. They get the capital, and upgrade their automation processes. Now, they don't have to hire more to make more cars. Automation just reduced their cost of goods. Upgrading facilities is a smart move in tough times, especially when you've got the capital. But, at the other end, when it's time to return to previous production levels, it turns out that less manpower is needed. Then, there is a crying, wailing and gnashing of teeth at evil corporations and their "greediness." Government needs to pull back more. Investing comes with risk. That is the nature of that game. When there is proven cases of fraud, there need to be consequences. In cases where there have been shitty choices that didn't pan out, well, sorry, but that's how the game is played. I support penalties in cases where there is fraud, like when some firm is selling investments it is actually betting against. If JP honestly flubbed up and made some poor choices, resulting in a $2B loss, well, they just have to take their lumps and try again. People pulling their money out and/or dumping JPM stock are some lumps. If JPM invested knowing that they were going to take a big loss without informing investors, well, there needs to be penalties over and above the lumps.

kalikshama -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 5:13:19 AM)
quote: If JPM invested knowing that they were going to take a big loss without informing investors Investing with the knowledge that one is going to take a big loss kinda defeats the purpose of investing, no?

kalikshama -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 5:19:15 AM)
I learned a new phrase today - Bonus Clawbacks. I like this concept! JPMorgan Said to Weigh Bonus Clawbacks After Loss JPMorgan Chase & Co. (JPM), the biggest U.S. bank, will consider reclaiming incentive pay from employees including former Chief Investment Officer Ina Drew after her unit had a $2 billion trading loss, said two senior executives. The lender can cancel stock awards or demand they be repaid if an employee “engages in conduct that causes material financial or reputational harm,” JPMorgan said in its annual proxy statement. The company will claw back pay if it’s appropriate, said one of the executives, who asked not to be identified because no decisions have been made. The incident, which led to Drew’s retirement yesterday, may test JPMorgan’s clawback policy amid mounting investor criticism over Wall Street pay practices and as regulators investigate the trades. Chief Executive Officer Jamie Dimon said the strategy that led to the loss was “poorly executed and poorly monitored” and that it gave ammunition to proponents of stricter bank regulation. “The political environment is very sensitive right now and this couldn’t have come at a worse time,” said David Knutson, a credit analyst in Chicago with Legal & General Investment Management, which owns JPMorgan debt. “I can see how pressure from regulators could result in JPMorgan attempting to exercise a clawback.” JPMorgan is scheduled to announce the results of a shareholder vote on executive compensation today at its annual meeting in Tampa, Florida. Drew’s Compensation Drew, 55, received $14 million in compensation for 2011, including $7.1 million in restricted stock, a $4.7 million cash bonus and $750,000 salary, according to the proxy. Her pay over the past two years averaged $1.2 million a month. After three decades at the company, she was replaced yesterday by Matt Zames, co-head of global fixed income at the investment bank. Stock awards can be canceled or repaid if a member of the operating committee, which included Drew, “improperly or with gross negligence” fails to identify risk, JPMorgan said in the proxy. Committee members also can have 2012 stock awards canceled if Dimon deems their performance was “unsatisfactory for a sustained period of time,” according to the proxy. Drew didn’t respond to phone and e-mail messages seeking comment. Jennifer Zuccarelli, a bank spokeswoman, declined to comment. JPMorgan’s stock declined 9.3 percent the day after Dimon disclosed the loss on May 10, the biggest drop since August. The shares slid 3.2 percent yesterday to $35.79 in New York. The trading loss has hurt JPMorgan’s reputation, Dimon said in a conference call last week. It “puts egg on our face and we deserve any criticism we get,” he said. Shareholders Revolt More shareholders are voting to reject compensation packages for senior executives as Europe’s sovereign-debt crisis and stagnating economic growth squeeze bank profits. Citigroup Inc. shareholders last month rejected compensation for executives including CEO Vikram Pandit in a non-binding vote after the New York-based firm’s shares plunged 44 percent last year. Morgan Stanley (MS), owner of the world’s biggest brokerage, instituted clawbacks in 2009 that allow the New York-based bank to take back compensation if an employee’s conduct hurts the firm in the years after it was paid. UBS AG (UBSN) said in 2010 that its net loss a year earlier would trigger a bonus clawback for the first time, depriving bankers of 300 million Swiss francs ($321 million) of deferred pay they were due to receive. ‘Vast Contributions’ JPMorgan will have to weigh the trading loss against Drew’s tenure at the firm and any profit her unit generated before this year, said Paul Sorbera, president of executive search firm Alliance Consulting in New York. The bank’s corporate division, under which she reported, earned a peak of $3.7 billion in 2009. The bank doesn’t break out results for the chief investment office. Dimon, upon announcing Drew’s retirement, called her a “great partner” who has made “vast contributions” to the firm, according to a statement yesterday. “There are so many things she’s entitled to in the organization -- as a long-term employee, as a managing director, as woman in the organization -- they want to take care of her, they want to do the right thing by her,” Sorbera said. “The bank will be in a position where they probably could go one way or the other.”

Musicmystery -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 9:04:24 AM)
quote: What did you expect was going to happen when Chrysler and GM were given money to update? Did you expect that they would not improve automation? What did you expect was going to happen if they weren't given money to update? Did you expect they'd start hiring more people? There are more cars in the U.S. than there are drivers. This is not a growth market.

SternSkipper -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 9:35:41 AM)
quote: Yes, it would have. The same reality that left people without the resources to weather a slowdown would render them unable to build. Your harsh realities would have simply crushed them. Look at how great that worked in 1929. Did we even experience crashes that would have truly equaled AIG, BOA, and Goldman Sachs going tits up at the same time for even comparable sums? I kinda think a crash like that which the bail out stopped may have actually shut the world's economy for quite a while. Not that the great depression didn't to it's own degree. But I think you are right. I think that had we 'just gone through it' the bank runs of the 20s might have been a freaking joke and it might have taken us as much as a decade to even feel a slight up turn. And with the divisive mentality that prevails among classes and political groups. I doubt we'd all just hunker around the tube listening for hope in presidential addresses. I think there are opportunists out there that would love to turn things completely upside down in the event things got that disorganized.

DesideriScuri -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 10:48:15 AM)
quote: ORIGINAL: kalikshama quote: If JPM invested knowing that they were going to take a big loss without informing investors Investing with the knowledge that one is going to take a big loss kinda defeats the purpose of investing, no? That depends on which side you are on. If you're on the side betting against the investments, selling those investments can make you money. Look into Goldman-Sachs. If you're the investor being sold on an investment, your being shafted. Goldman allegedly made $3.9B in the scam. Had they not been caught, it was quite worthwhile investment for them. Don't misinterpret that to mean that I support their actions. This is precisely the thing that should be punished and punished harshly.

DesideriScuri -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 10:58:10 AM)
quote: ORIGINAL: Musicmystery quote: What did you expect was going to happen when Chrysler and GM were given money to update? Did you expect that they would not improve automation? What did you expect was going to happen if they weren't given money to update? Did you expect they'd start hiring more people? There are more cars in the U.S. than there are drivers. This is not a growth market. And who's fault is that? This is exactly the thing that gets everything screwed up. Had they not been bailed out, it would have been horrible. But, there would have been a fire sale and bondholders wouldn't have been left holding their dicks on the outside. The assets would have been bought up and put to use. Would Ford have taken a chance and expanded? Maybe. I don't know why Ryder (I think that's who it was) didn't end up purchasing Saturn, but that almost happened. Nothing and no one should be "too big to fail." Failure is one way business figures out efficiencies.

DesideriScuri -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 11:00:14 AM)
quote: ORIGINAL: SternSkipper And with the divisive mentality that prevails among classes and political groups. I doubt we'd all just hunker around the tube listening for hope in presidential addresses. I think there are opportunists out there that would love to turn things completely upside down in the event things got that disorganized. Which side are you on, Skipper? You sound like you are wearing a tin foil hat. Hell, you almost sound like Glenn Beck.

SternSkipper -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 1:59:55 PM)
quote: Okay...I was wondering where you got the 17.5 billion number....it's valid....escapism...but still valid. It ain't if you're a share holder and want to sell your stock or need to. The escapism comes in is when you can look a shareholder in the eye and say "you're not looking at this right" and keep a straight face[:D]

Musicmystery -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 2:11:31 PM)
quote: ORIGINAL: DesideriScuri quote: ORIGINAL: Musicmystery quote: What did you expect was going to happen when Chrysler and GM were given money to update? Did you expect that they would not improve automation? What did you expect was going to happen if they weren't given money to update? Did you expect they'd start hiring more people? There are more cars in the U.S. than there are drivers. This is not a growth market. And who's fault is that? This is exactly the thing that gets everything screwed up. Had they not been bailed out, it would have been horrible. But, there would have been a fire sale and bondholders wouldn't have been left holding their dicks on the outside. The assets would have been bought up and put to use. Would Ford have taken a chance and expanded? Maybe. I don't know why Ryder (I think that's who it was) didn't end up purchasing Saturn, but that almost happened. Nothing and no one should be "too big to fail." Failure is one way business figures out efficiencies. Do you even remember your original position? You've shifted quite a bit. Glad you seem to finally recognize the problem of the "hard" landing. Ford would have done fine--they went into this with cash.

Politesub53 -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 5:01:56 PM)
Anyone thinking that a complete bank failure wouldnt have had much effect, needs to keep an eye on Greece and watch the worlds economies when they default.

DesideriScuri -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 5:50:08 PM)
quote: ORIGINAL: Musicmystery quote: ORIGINAL: DesideriScuri quote: ORIGINAL: Musicmystery quote: What did you expect was going to happen when Chrysler and GM were given money to update? Did you expect that they would not improve automation? What did you expect was going to happen if they weren't given money to update? Did you expect they'd start hiring more people? There are more cars in the U.S. than there are drivers. This is not a growth market. And who's fault is that? This is exactly the thing that gets everything screwed up. Had they not been bailed out, it would have been horrible. But, there would have been a fire sale and bondholders wouldn't have been left holding their dicks on the outside. The assets would have been bought up and put to use. Would Ford have taken a chance and expanded? Maybe. I don't know why Ryder (I think that's who it was) didn't end up purchasing Saturn, but that almost happened. Nothing and no one should be "too big to fail." Failure is one way business figures out efficiencies. Do you even remember your original position? You've shifted quite a bit. How so? quote: Glad you seem to finally recognize the problem of the "hard" landing. Never once denied it. quote: Ford would have done fine--they went into this with cash. Because they did their work prior to the crash. They didn't do it with a loan from the Government. They did it on their own, taking their lumps the whole way. GM and Chrysler didn't. They were rewarded for their shitty business practices. Who really got the shaft in all that? The private sector bond holders. They lost their investments. That is definitely not Capitalism.

SternSkipper -> RE: How JPMorgan Lost $17.5 Billion (5/15/2012 6:20:09 PM)
quote: quote: ORIGINAL: SternSkipper And with the divisive mentality that prevails among classes and political groups. I doubt we'd all just hunker around the tube listening for hope in presidential addresses. I think there are opportunists out there that would love to turn things completely upside down in the event things got that disorganized. Which side are you on, Skipper? You sound like you are wearing a tin foil hat. Hell, you almost sound like Glenn Beck. Watch your mouth buster [8D] Allow me to clarify. Assholes like Glenn Beck and Rush are the guys saying this and pointing at the Occupy Movement. What I am saying is THEY are the ones who wish to see division in this country, and are in fact the divisive ones. But you got one part right. Anybody who listens to Rush and that asshole Beck are definitely foil heads.

DesideriScuri -> RE: How JPMorgan Lost $17.5 Billion (5/16/2012 2:18:52 AM)
quote: ORIGINAL: SternSkipper Watch your mouth buster [8D] Allow me to clarify. Assholes like Glenn Beck and Rush are the guys saying this and pointing at the Occupy Movement. What I am saying is THEY are the ones who wish to see division in this country, and are in fact the divisive ones. But you got one part right. Anybody who listens to Rush and that asshole Beck are definitely foil heads. Actually, Beck was saying this stuff before Obama was named the Democratic nominee in '08. Beck started talking about this in reference to what Bush was doing. Hell, the Tea Party hadn't even coalesced yet. They are no more divisive than those on the left. At least be honest about it. Who keeps going on and on about race? The Left. Why? Because it foments division. When there is racial injustice done to blacks by whites, it's all over the news (and rightly so) and Rev's Sharpton and Jackson are there in record time. When it's blacks doing the racial injustice, crickets. If it's Latino on black injustice, it's spun as if it's white on black. Don't blink. You'll miss the arrival of Sharpton and Jackson. Who keeps picking at the festering sores of income inequality (not that equality has ever been promised or offered by the US)? Yep. The Left. Beck, if you'd actually listen to him, is much less divisive than you credit him. Rush? Well, I'm not a big Rush (or Hannity) fan. Those two tend to spin the truth towards what ideologues on the right want to hear.

mnottertail -> RE: How JPMorgan Lost $17.5 Billion (5/16/2012 5:23:07 AM)
Beck has a nazi fetish, while simultaneously claiming one of the top spots in the race to become the ultimate drooling imbecile.

DesideriScuri -> RE: How JPMorgan Lost $17.5 Billion (5/16/2012 10:03:35 AM)
quote: ORIGINAL: mnottertail Beck has a nazi fetish, while simultaneously claiming one of the top spots in the race to become the ultimate drooling imbecile. He calls it like he sees it. There are similarities. There are also very significant differences, too. Prove him wrong on it. If all he is is a drooling imbecile, it shouldn't be all that hard to unequivocally rebut his arguments. And, I'm not going to get into a Beck's right or Beck's wrong argument with you. I haven't listened to him regularly in years.

SternSkipper -> RE: How JPMorgan Lost $17.5 Billion (5/16/2012 10:12:07 AM)
quote: Actually, Beck was saying this stuff before Obama was named the Democratic nominee in '08. Beck started talking about this in reference to what Bush was doing. Hell, the Tea Party hadn't even coalesced yet. Yep... And now he's doing it again. Are we now to debate whether the insertion you made to the thread to send us off topic is valid? Beck is simply an idiot. And not germane to the discussion.

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