Comments on: JP Morgan’s $2 billion experiment with truthiness http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/ Sat, 23 Mar 2013 13:49:31 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: TheOldSodbuster http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1453 Tue, 19 Jun 2012 05:18:32 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1453 Ah, what is three billion anymore. Seems like it is play money. The F35 fighter now runs $480 million a copy, only six have to go into the drink and we have thrown away the equivalent of Mr. Dimon’s gambling debts. I saw that many jets go down during my time in the Navy for stupid reasons. Two because they ran out of gas.

There seems to be zero connection between the little money we humans work for and the Big Money the various ‘security’ industries squander. None.

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By: ptiffany http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1451 Thu, 14 Jun 2012 19:36:39 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1451 JP Morgan Chase admitted over two weeks ago that the “losses were over THREE Billion and could be much more”.

As any banker knows who has worked around these operations, the amounts of gains and losses on such transactions are tracked to the penny and accurately recorded within seconds. So, to believe that they don’t know EXACTLY how much they lost is an exercise in gullibility at best and shear lies at worst – and very insulting. It’s well known that Jamie Dimon personally gave the okay on these transactions, so why does he get a pass? Then, they scapegoated Sallie who had the gall to say she still didn’t know the extent of the losses.

Of course, these transactions were entirely legal and represented typical gains and losses for the week. So, what’s the big deal?

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By: QuietThinker http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1450 Thu, 14 Jun 2012 12:50:55 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1450 We will have problems until Glass-Steagall is fully restored. Measures such as Dodd-Frank are too dependent on regulators stepping up to the plate and doing their job. Remember Glass-Steagall worked pretty well.

The notion of deposit institutions being allowed to gamble with other peoples money is absurd.

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By: JMayhew http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1449 Wed, 13 Jun 2012 15:54:52 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1449 It’s ironic that a journalist writing about truthiness is guilty of the same crimes he is imposing on others.

First of all, Glass-Steagall was not created to prevent commercial banks from engaging in trading activities, but to seperate the supposed conflict of interest that Congress believed was a result of a combination of banks that provided retail and underwriting services. At the time, US politicians were convinced that companies that operated both lines of business were engaged in ‘predatory selling’ by dumping junky stocks from the underwriting side to overly entusiastic retail investors. Subsequent empirical research actually refuted this claim and was a contributing factor to the repeal of Glass-Steagall with the Gramm-Leach-Bliley act. It had absolutely NOTHING to do with institutional/proprietary tading.

Second, I am suspicious of your ability to determine what exactly is a hedge in a bank as complex as JP Morgan. Do you know the exact loan portfolio of JPM and how they hedge it? The fact of the matter is that JPM has a 2 TRILLION dollar loan portfolio on its book that needs to be hedged. The media is currently turning a blind eye to the fact that lending in itself is a risky activity, and arguably inherently riskier than trading or underwriting. The CDS tranche trades JPM’s CIO office undertook were effectively a hedge against short-term credit deteroriation that would have a negative impact on their loan book.

However, buying large enough amounts of the CDS contracts JPM decided to hedge their loan portfolio with costs a lot of money and eats into a banks profits. As a result, JPM decided to offset their expected hedging losses of buying CDS tranches by simultaneously writing CDS contracts on a longer dated CDS tranche. The hedge in sum was protection against negative short-term credit conditions which was paid for by expectations of positive long-term credit improvement.

In short, JPM was conducting a necessary and extremely prudent activity by protecting themselves against the large losses that could potentially from lending activities and paid for it with an offsetting position. What really needs to be taken away from all this is that a $2 billion mark-to-market (non-cash) loss in relation to a $360 billion Chief Investment Office portfolio and a $2 trillion loan portfolio is absolute peanuts in the broad scheme of things.

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By: TimWarren http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1448 Wed, 13 Jun 2012 15:25:01 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1448 Do these people have no sense of personal honor or responsibility?

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By: mmcg http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1447 Wed, 13 Jun 2012 13:48:11 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1447 The unregulated Hedge Fund Industry calls it risk management..trading our deposits with FDIC institutions. Yes hedging is important with regards to currency, yet all the rest is creating instruments that only serve “the trade” This is not capitalism … it is gambling. Capital formation that is provided to Corporations to create products and services create jobs to the local communities which is what brought prosperity throughout the United States over the last several decades. That capitalism. The capital is all overseas and no longer serves the US. And the chatter you hear is that the Government is the problem.

It was the formation of the newfangled financial product called swaps. This is a $62 Trillion trading platform where tens of trillions of dollars are done in the dark, and we only find out later… oops, bad call. You have to separate Banks from Wall St… they should not have access to our deposits to play tidily winks … paper flipping is not capitalism.

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By: johnrxx99 http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1446 Wed, 13 Jun 2012 00:06:31 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1446 In the same way Wall Street does not fear the regulators so the regulators do not fear the public.

The power is with the 1%: the 99% are in the main uninterested and uneducated. Why should anyone worry when you are leading a mule to slaughter?

America is about money, greed and power, therefore, why should those that display a surfeit of those qualities, bankers and politicians, be thought of as anything other than ideal leaders? One suspects even the election success of the very pinnacle of greed will be seen as true a triumph by many. Then the mules will know the real meaning of “up yours”!

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By: awayneramsey http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1445 Tue, 12 Jun 2012 22:13:53 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1445 There is no loss to JP Morgan, presently. Ina Drew, a JPM Manhattan Office chief investment officer overseeing a JPM London Office, moved financial instruments (assets) from a banking division to another division of JP Morgan that manages securities. For good reason, JPM CEO, James Dimon characterized the following outcry as “a complete tempest in a teapot” since no harm came to JPM (but to some clients, e.g. Jefferson County Alabama). Although, CIO Drew has resigned, and given the increasing risks in investments, she did what was best for a banking division of JPM since the Dodd-Frank Act limits [a bank’s investments in proprietary trading] “aggregate investment in any and all hedge funds and private equity funds to no more than three percent of its Tier 1 capital.” That is, as of fiscal 2011, 3% of JPM’s proprietary trading would have been approximately $67,973,760,000. $2B is only about 9/10,000ths of JPM’s fiscal 2011 revenues.

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By: RickL http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1444 Tue, 12 Jun 2012 18:26:00 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1444 Outstanding article!

I’d like to add that the “truthiness” of what is hedging vs. speculating is manifest throughout financial market regulation.

Look at FASB 133, banking and brokerage law, rules and regulation, and in particular, the Volcker Rule, and the thousands of comment letters about that. The “truth” between hedging and speculating is fraught with “truthiness”.

On Wed at banking.senate.gov you are going to see
Truthiness in all its glory. Built on a foundation that was never very good in the first place each eye is free to see what it only wants to see.

…Yes oddly the legions of regulators are looking to JPM to help them FINALLY determine exactly where the truth lies? Is that going to be the best guiding light?

More at wiki pedia article:
2012 JPMorgan Chase trading loss

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By: Sanity-Monger http://blogs.reuters.com/david-cay-johnston/2012/06/11/jp-morgans-2-billion-experiment-with-truthiness/#comment-1443 Tue, 12 Jun 2012 17:06:06 +0000 http://blogs.reuters.com/david-cay-johnston/?p=386#comment-1443 David, have you learned what kinds of loans JPM was purportedly hedging? I am confused about the very notion that hedging has any place in the business of collateralized loans. I mean, doesn’t the collateral plus the amortization schedule constitute a hedge? In my view, the very fact that huge banks with highly diverse collateralized loan portfolios supposedly need a hedge indicates that they are well aware that their loan portfolio is crap. Have they ever been asked to explain this practice, and what justification have they given?

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