Comments on: How dumb rules can mitigate model risk http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: M11 http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38986 Mon, 14 May 2012 20:40:18 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38986 Okay, have read some more great info on it on this blog and I have made some mistakes in my previous analysis. read first before commenting :)

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By: M11 http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38985 Mon, 14 May 2012 20:14:46 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38985 My whole impression about the issue is that the desk has already made a lot of money in the past few years. And it is going to make much more in the future. JD only sees it as a pullback of their trading strategy and the reason he seems to talk so frankly about it is that he is not least worried about his chair.
I do not know how much creative accounting they are capable of, but I my guess would be that the loss was much bigger before they had to go public with it (and maybe even partly covered with money from different parts of the bank?). 2 billion sounds like a lot of money to a regular joe, but 10 would seem kinda nasty even to some closer circle and better informed shareholders or board members.
As a fact check, I have not noticed any reports of any ‘consequences’ going on. Anyone fired? No. The trading desk put under scrutiny or split? No. We are still making money, let us do our job guys.
The only real problem for them seems to be that someone might see through their game where they have a huge boring banking business serving mainly to provide them with resources and a cover-up for acting as a super big hedge fund doing proprietary trading and making the real money in a few trading desks charged with super capable people and technology.
Losing money on hedging? That is literally an oxymoron.
A good joke over glass of wine for insiders already, I bet.

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By: PerKurowski http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38953 Mon, 14 May 2012 12:53:25 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38953 It is really not so much about how dumb rules can mitigate risk, if that is what we really want (I’d happily settle for not having to pay too much taxes when banks fail) but that “smart” rules can potentiate risks by seeding confusion in a market where no one wants to admit to their peers that they do not understand one iota.

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By: martin.gale http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38914 Fri, 11 May 2012 19:27:01 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38914 The position they were supposed to be hedging simply became an excuse for them to put on the hedging trade itself. Dimon is too smart not to have known what was going on; everyone there had to be. When a hedge needs a hedge you’ve gone too far. They blew it, and they didn’t blow it because they were stupid, as Dimon is now trying to claim — they blew it because they were greedy and dishonest.

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By: Sechel http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38913 Fri, 11 May 2012 19:26:10 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38913 The best way to mitigate risk is to put it in one’s face. The answer is forcing banks to issue subordinated debt, bring back double liability common stock and by rule of law ban banks from engaging in risky activities outside of basic essential services like lines of credit, loans, check writing , currency conversion etc. There’s no model in existence that will make risky trading benign, I don’t care how you think you are hedging that risk.

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By: AngryInCali http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38906 Fri, 11 May 2012 17:04:49 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38906 I don’t think it’s nearly impossible to model model risk. First, you start with how much money a more conservative model would cost the bank.

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By: MrRFox http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38902 Fri, 11 May 2012 16:29:29 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38902 I’m with K9 – depository institutions shouldn’t be doing this kind of thing. It was a flat-out, naked prop trade masquerading as a hedge – that’s likely how it got under the radar, if it ever did except in regulatory filings.

Nobody’s ever identified the position that was allegedly being hedged by this CDS position, have they? Bet there is none except JPM’s own outstanding debts.

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By: k9quaint http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38899 Fri, 11 May 2012 16:15:45 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38899 One nitpicks:
Traders make the most bonuses. As for profit, that all depends on how much money is left in the banks pocket when the prop desk is finally shut down. Until that time, they are still betting and all that “profit” is still on the table not safe in their pocket.

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By: RZ0 http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38898 Fri, 11 May 2012 16:15:00 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38898 I posted similar thoughts at:
http://actuarialopinions.wordpress.com/2 012/05/11/morgans-mess/
. . . also noting that the $129M was the average for the quarter. At quarter end, VaR was $186M in CIO and over $200M for the whole company. I don’t recall anyone on the call asking what VaR was today, though I’m curious.
You make an excellent point about model risk. One way to mitigate it is to use more than one model. Al Roker consults multiple computer models before giving us the weather forecast. Shouldn’t Jamie Dimon do the same?

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2012/05/11/how-dumb-rules-can-mitigate-model-risk/comment-page-1/#comment-38897 Fri, 11 May 2012 16:01:22 +0000 http://blogs.reuters.com/felix-salmon/?p=13934#comment-38897 I’m waiting for Dimon to blame the $2B loss on regulators. If only they would have let JP Morgan do what they want, because they are super-smart and won’t take big risks.

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