Comments on: Why JP Morgan’s gamblers need to be spun off http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/ 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: niveditas http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39543 Sat, 26 May 2012 23:24:45 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39543 AdamJ23, you think the Kelly betting is a “classic gambling fallacy”?

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39542 Sat, 26 May 2012 22:12:20 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39542 TFF, you said “If I were a shareholder, I would rather have $7B spent on a share repurchase than $7B spent on covering trading losses. Since I am not, it isn’t my concern.”

I had that exact thought (the second sentence) about Lehman and Bear Stearns and AIG in 2008. Yeah, they probably aren’t going to need a bailout (even if MrFox is right and their losses are far greater), but what if this is another canary in the coal mine? I just have no faith in anybody in that industry any more.

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By: TFF http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39537 Sat, 26 May 2012 20:21:34 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39537 @y2kurtus, has anybody suggested that this gamble puts JPM at risk of failing?

If I were a shareholder, I would rather have $7B spent on a share repurchase than $7B spent on covering trading losses. Since I am not, it isn’t my concern. I agree they aren’t going to need a bailout for this.

And the crappiest loans weren’t sold to the GSE, they were sold on the private securitization market. Why? Because they didn’t qualify for even the minimal GSE standards. Not sure we could have had a bubble (certainly not one that severe) if the GSE lending standards were the only game in town.

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39535 Sat, 26 May 2012 19:44:08 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39535 @MrRFox-

I guess it depends on how much of the 15 billion authorized share buyback JPM had already used prior to announcing they would suspend it after the trading loss. If for instance they had already used 5 billion and decided to keep the remaining 10 billion in capital and the loss swelled to 7 billion then where does that leave us? Looks like they might still be 3 billion ahead to me Mr.Fox!

Your point regarding WaMu, Countryide, Indymac is a good one… all made most of their money selling their crappy loans to the Goverment Agencies. Those GSE’s did like half of all mortgages pre-crisis. Today I think that number is something like 90%… problem not solved.

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By: MrRFox http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39531 Sat, 26 May 2012 16:12:21 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39531 @Y2Kurt – about this –

“Shocking as it is to read JPM is a stronger bank because of the loss.”

If the loss rises to $7Bil, will JPM be stronger still? They may have learned something from the loss and be “better” for it, but “stronger”?

Anyway, what does it matter? Neither AIG nor Bear nor Lehman nor LTCM was an insured deposit-taking institution when each of them shook the system to its roots.

WaMu, Countrywide, IndyMac and others were, and didn’t get involved in structured products at all. That didn’t count for much, did it?

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39526 Sat, 26 May 2012 12:04:16 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39526 For the most part the big banks can’t spin off their trading arms or hedge fund like units because without their big strong balancesheet and too big to fail stautus the cost of funds and collatteral requirements would eat most of the profits.

JPM made a stupid mistake. They lost 2 or 3 billion dollars. They have suspended their 15 billion dollar buyback program.

Shocking as it is to read JPM is a stronger bank because of the loss. They will probably be the first SIFI to hit the Basel III cap requirements.

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By: handleym99 http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39517 Sat, 26 May 2012 03:38:42 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39517 “I actually know Mike. We have been in casinos together and we have talked about gambling.”

I DON’T know Mike Geismar. I DO know that I’ve seen a whole lot of this sort of hagiography in my time. LTCM was run by geniuses — until it wasn’t. Jamie Dimon knew everything about what JPM was doing — until he didn’t. AIG were very carefully about balancing risks — until they weren’t.

These companies didn’t fail because their execs didn’t understand basic probability. They failed because their execs thought they had all the info they needed to build an accurate probability model — and were wrong.
The issue, in other words, is not one of knowing “how to shape the distribution”, it is one of
(a) being overconfident that you understand EVERYTHING relevant to the situation and
(b) getting a rush from winning — and thus allowing that to color your judgement.

Nothing in all these justifications for Geismar suggests that he is immune to these two flaws, on the contrary they suggest that he is precisely the sort of individual who has these flaws in massive quantities.

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By: Felagund http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39513 Sat, 26 May 2012 02:23:15 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39513 Mike Geismar has a degree in Mathematics from UVA, and is president of a quant hedge fund. Do you really think he believes this nonsense about the “law of averages,” or does that seem like something an idiot writer would say to explain a behavior he didn’t understand?

I actually know Mike. We have been in casinos together and we have talked about gambling. It is true that he likes to press his bets on wins and cut back on losses, but I am certain he doesn’t believe it changes his expectation. At most, it shapes his distribution a bit in the short term, giving him bigger wins at the expense of more frequent losses. That seems like the sort of distribution I would go for too, if I enjoyed the big wins the way Mike does.

Also, Tiny Tim’s point about relative net worth is well taken. The guy bought in for 10k. Sure that’s a lot of money, but that is nothing for Mike. Do I believe if he’d lost it he would have rebought? Yep. Maybe even twice. But would he have dropped 700 grand? There is no chance. He wants to give himself the shot at the big night, and if loses, oh well, he only risked what he could afford to lose. He is in no way analogous to an exec at a big bank making bets backstopped by the government.

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By: crocodilechuck http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39500 Fri, 25 May 2012 20:55:30 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39500 @NuprinBoy

Barry Ritholtz raises you one hundred with THIS:

http://www.ritholtz.com/blog/2012/05/sim ple-fdic-rule-change-can-end-tbtf/

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By: crocodilechuck http://blogs.reuters.com/felix-salmon/2012/05/25/why-jp-morgans-gamblers-need-to-be-spun-off/comment-page-1/#comment-39499 Fri, 25 May 2012 20:55:23 +0000 http://blogs.reuters.com/felix-salmon/?p=14398#comment-39499 @NuprinBoy

Barry Ritholtz raises you one hundred with THIS:

http://www.ritholtz.com/blog/2012/05/sim ple-fdic-rule-change-can-end-tbtf/

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