Comments on: Why JP Morgan’s CIO found it so easy to make money http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/ 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: y2kurtus http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/comment-page-1/#comment-39180 Fri, 18 May 2012 01:35:19 +0000 http://blogs.reuters.com/felix-salmon/?p=14110#comment-39180 JPM made some complex trades. Don’t let the complexity hide the simplicity:

You CANNOT UNDER ANY CIRCUMSTANCE PROFIT FROM A HEDGE.

Hedges are insurance they help limit your losses. Hedges… ALL HEDGES…. COST MONEY.

If you want to read how stupid this coverage is copy any story into MS word and replace “hedge” with “insurance” every time it appears. If you do that the stupidty just stares you in the face.

A stand alone division designed to hedge risk would alwasys be a loss center for the bank. In many cases the hedges would be “profitable” but never moresoe than the underlying asset lost. If you have more insurance than underlying assets you don’t have a “hedge” you have a short.

Dozens of people have said this dozens of times but it’s just not getting the attention of the financial media… probably because a very well respected Jamie Dimond dosen’t have the balls to admit that it was a directional bet.

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By: MrRFox http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/comment-page-1/#comment-39137 Thu, 17 May 2012 04:48:45 +0000 http://blogs.reuters.com/felix-salmon/?p=14110#comment-39137 Maybe we need to borrow for a while from the Singapore method of bank regulation of the 80s – “everything is forbidden except that which is specifically approved”.

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By: FosterBoondog http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/comment-page-1/#comment-39125 Wed, 16 May 2012 21:32:02 +0000 http://blogs.reuters.com/felix-salmon/?p=14110#comment-39125 @Chris08 – The failures of Lehman and Bear Stearns did not involve the FDIC guarantees. Prop trading creates systemic risks that are not necessarily related to traditional bank runs by depositors. The shadow “banking” markets created by repo and derivatives requiring collateral posting are subject to runs without having explicit gov’t backing for anyone. That’s what TBTF is all about. Even without explicit guarantees, there’s the implicit guarantee that the Treasury and/or Fed will provide backstops to prevent financial meltdown, and therefore a bank’s counterparties are more willing than they otherwise would be to lend large sums to opaque organizations.

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By: Chris08 http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/comment-page-1/#comment-39123 Wed, 16 May 2012 21:09:49 +0000 http://blogs.reuters.com/felix-salmon/?p=14110#comment-39123 The simplest way to get banks back under control would be for the FDIC to remove deposit insurance protection from any bank that engages in proprietary trading. That would wipe out most of the cheap money used for this reckless speculation and do it very effectively.

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By: Chris08 http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/comment-page-1/#comment-39122 Wed, 16 May 2012 21:09:42 +0000 http://blogs.reuters.com/felix-salmon/?p=14110#comment-39122 The simplest way to get banks back under control would be for the FDIC to remove deposit insurance protection from any bank that engages in proprietary trading. That would wipe out most of the cheap money used for this reckless speculation and do it very effectively.

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By: atshank http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/comment-page-1/#comment-39116 Wed, 16 May 2012 19:43:00 +0000 http://blogs.reuters.com/felix-salmon/?p=14110#comment-39116 http://reason.com/archives/2012/05/16/jp morgan-proves-we-dont-need-more-regula

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By: atshank http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/comment-page-1/#comment-39115 Wed, 16 May 2012 19:41:56 +0000 http://blogs.reuters.com/felix-salmon/?p=14110#comment-39115 http://feedproxy.google.com/~r/reason/Ar ticles/~3/zfWqR3xT0ck/jpmorgan-proves-we -dont-need-more-regula

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By: FosterBoondog http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/comment-page-1/#comment-39114 Wed, 16 May 2012 19:24:46 +0000 http://blogs.reuters.com/felix-salmon/?p=14110#comment-39114 I think you’re conflating two issues. One is the bank’s internal accounting – how they decide, given that at the end of the year they’ve made $X profit, where it came from so they can allocated a large chunk of it to bonuses. That should be an issue purely for management and shareholders.

The other is how much risk they should be allowed to take at some level of reserves, given the taxpayer backstop for deposits. That’s where the Volcker rule matters.

I fail to see why we (the taxpayers) should care about the bank’s internal allocation of its total risk, and corresponding allocation of cost of funds.

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By: QCIC http://blogs.reuters.com/felix-salmon/2012/05/16/why-jp-morgans-cio-found-it-so-easy-to-make-money/comment-page-1/#comment-39111 Wed, 16 May 2012 18:47:54 +0000 http://blogs.reuters.com/felix-salmon/?p=14110#comment-39111 As I was saying a few weeks ago when we were skirmishing about it in the comments, these people do not actually deserve the salaries they are paid.

Their pay isn’t actually being set by a functioning market, and instead is just favors for favors. Eight figures for turning a profit with a 1% cost of funds?

90% of what the financial sector does is actively detrimental to the overall economy and it needs to be much more heavily taxed, and/or regulated. It is rent seeking perfected to a science. Encouraging the sloshing of money as much as possible so as much as possible can be skimmed out.

All for mansions on Long Island and other frivolous goods.

And I am someone who likes markets! Imagine what the communists think!

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