JPMorgan Chase discloses $2-billion trading loss

I can't believe nobody posted about this yet...

http://www.latimes.com/business/la-f...

"It's very unfortunate, plays right into all the hands of a bunch of pundits out there, but that's life and I'll have to deal with that," [Chief Executive Jamie Dimon] said.
[...]
The CEO said he hopes to have the situation under control by the end of the year.

Yes, it plays into all the hands of a bunch of pundits, because those pundits were goddamn right. The securities industry needs to stop going to Vegas with our economy. Chase ADMITTED that these losses were due to highly risky margin trading, exactly the kind of financial shenanigans that banks aren't supposed to be doing any more.

I'm so furious right now I can't see straight. When will these f*ckers get what's coming to them.

BadKen wrote:
When will these f*ckers get what's coming to them.

Never.

Don't worry, they'll get the money back by increasing their service fees again.

I wouldn't say never, but there's not a lot happening in the regulatory bodies to make that happen currently.

Oh, to be so rich that the biggest problem with losing $2 billion is a told-you-so from the media.

So let me guess... they invested heavily in Groupon's IPO or something? Facebook IPO is going to save all their problems and cure cancer too, right?

BadKen wrote:

I'm so furious right now I can't see straight. When will these f*ckers get what's coming to them.

I'm just waiting for the other shoe to drop and watch my Freedom Rewards card benefits go further down the toilet.

Unbelievable.

shoptroll wrote:
So let me guess... they invested heavily in Groupon's IPO or something? Facebook IPO is going to save all their problems and cure cancer too, right?

No, the big losses were racked up by the group charged with lowering the risk of widespread losses to the bank. Seriously. That's who lost all this money.

The problems at JPMorgan stem from the trading of synthetic credit products, which are derivatives whose values are tied to a portfolio of underlying bonds. The bank lost money when it was trying to unwind these exotic instruments, which were originally intended to hedge JPMorgan's credit exposure.

Sounds to me like more of the same as the mortgage stuff, a bunch of middling investments sliced and bundled together and then artificially valued at higher rates than they deserve. When you go to try to unwind and sell them no one wants your crap and you find out it was overvalued.

I wonder how much of this is real money though. Buy some derivatives for 100 million, wait a year and claim they are worth 1 billion, then sell for 200 million. Is that considered a 800 million loss or a 100 million gain? Guess depends on what your accounting department wants to say.

Funkenpants wrote:
No, the big losses were racked up by the group charged with lowering the risk of widespread losses to the bank. Seriously. That's who lost all this money.

....

IMAGE(http://fc09.deviantart.net/fs42/f/2009/093/5/9/Double_Facepalm_by_ScotlandForLife.jpg)

I think I have a new definition for "incompetence".

JP Morgan's Loss: The Explainer

A pretty solid explanation of what exactly happened.

Hypatian wrote:
JP Morgan's Loss: The Explainer

A pretty solid explanation of what exactly happened.

Marketplace wrote:
Other people in the markets - like hedge funds and other traders - thought Iksil was being ridiculously overconfident. Waiting for the giant Iksil's to fail, the anti-Iksil team took the other side of the bet. The rival traders bought credit-default swaps on the Index. They also bought protection on the underlying corporate bonds to influence the value of those as well. Their hope was that Iksil's bet would go down in value; then he would have to run to them to buy credit-default swaps to cover his rear and keep his bet even. They outsmarted Iksil. As he kept digging himself deeper into his position, he got backed into a corner and couldn't cover his losses.

Where is your Efficient Markets Hypothesis now?! Mwuhahaha!

continues rooting through trash for food

IMAGE(http://i.imgur.com/Kre7l.jpg)

Spoiler:
At the risk of being smacked down for mini-moderation: perhaps P&C is a better home? I expect this could get heated.

Is that a real sign??

I'm reminded of Bill Fleckenstein's words during the first stock market bubble, in the late 90s.... he observed that ordinary people were starting to think that the stock market was a pet kitty that coughed up $100 bills on demand, when it was actually a tiger that wanted to rip your lungs out.

This guy lost his lungs.

"Whale", by the way, is a derisive term in that industry. It means 'a monstrous sucker'.

They made almost $6B net for the quarter anyway, didn't they?

Is this money that just disappears, or does someone else get it?

Tanglebones wrote:
Is this money that just disappears, or does someone else get it?

The important thing is that since the "Chinese Wall" was removed between investment and banking the people who lost this money were the people who thought they were buying safe bond investments through 401ks, etc. Side bets like this causing instability in the market are what precipitated a run on 401ks and mutual funds when this whole thing started.

Jamie said yesterday that "while we will take losses in the CIO, no customers suffered as a result of our mistakes."

Gorilla.800.lbs wrote:
Jamie said yesterday that "while we will take losses in the CIO, no customers suffered as a result of our mistakes."

Companies never pass on losses to their customers. Also, Jamie Dimon is a trusted source of information.

Malor wrote:
"Whale", by the way, is a derisive term in that industry. It means 'a monstrous sucker'.

I knew this "whale" was used in the casino industry to mean a rich guy who'd come and lose a lot of money, but I didn't realize it was used that way in...

...Oh.

pgroce wrote:
Malor wrote:
"Whale", by the way, is a derisive term in that industry. It means 'a monstrous sucker'.

I knew this "whale" was used in the casino industry to mean a rich guy who'd come and lose a lot of money, but I didn't realize it was used that way in...

...Oh.

Whale isn't really a derisive term. It's actually a positive thing (for anyone using the term). Sucker is not the right word either, just willing to gamble a ridiculously large amount of money.

wordsmythe wrote:
They made almost $6B net for the quarter anyway, didn't they?

The way the reporter on NPR put it is that an embarassing $2B loss could be easily de-emphasized, in a company the size of JP Morgan. It would be relatively easy to bury it in the details, where most people would never bother to look. She says it's quite unusual for the CEO of the company to stand up and announce a loss like this... this just doesn't look serious enough to need a personal mea culpa from the CEO.

Because of that, she believes that the ultimate loss will be many, many more billions than what they're admitting to right now.

NM

Why should't JP Morgan continue this high risk behavior if in the end we the people will just bail them out again.

After all they are too big to ever fail, aren't they?

SixteenBlue wrote:
Is that a real sign??

What? You've never been Souht of Cleveland?

I'm going to add my voice to the chorus of folks that say that these folks will never, ever get what's coming to them. Just as folks like Dick Cheney and Paul Wolfawitz will probably die peacefully in their sleep never having suffered a moment's discomfort for having senselessly sent thousands of Americans to their death.

Moreover, they won't receive any "justice" in a fictional next life either.

Life is like that. Fairness is a human construct and unless we take it upon ourselves to make fairness happen, folks like this will always get away with it.

The article Hypatian linked indicated the group that lost the money (CIO) has $350 billion to invest which is approximately 1/6 of their overall assets. While $2 billion is a lot of money, it's only half a percent of the CIO funds and less than one tenth of one percent of their overall money. It's not ideal, and it was stupid to put $100 billion worth of eggs in a single basket, but the losses this far are not nearly crisis level.

Paleocon wrote:
I'm going to add my voice to the chorus of folks that say that these folks will never, ever get what's coming to them. Just as folks like Dick Cheney and Paul Wolfawitz will probably die peacefully in their sleep never having suffered a moment's discomfort for having senselessly sent thousands of Americans to their death.

Moreover, they won't receive any "justice" in a fictional next life either.

Life is like that. Fairness is a human construct and unless we take it upon ourselves to make fairness happen, folks like this will always get away with it.

Yup. It really is a cold, uncaring universe.

kaostheory wrote:
It's not ideal, and it was stupid to put $100 billion worth of eggs in a single basket, but the losses this far are not nearly crisis level.

Traditionally banks aren't supposed to lose lots of money on anything. This concept has been largely ignored in recent years as banks became centers of speculation, but the traditional concept of a bank is a place where money goes to be redirected as capital on low-risk deals. Loans are secured, and reserves are set aside to cover the minimal losses that occur when prudent lending standards are followed. When banks operate this way, the government can provide guarantys to depositors in case of failure. Confidence in the banking system results.

In the modern usage, a bank is a gambling machine that does a little lending on the side. That's really what's at stake in D.C. We need to split the speculators off from the bankers. Speculation is considered necessary for the financial system to function, but we don't want more bailouts of speculators who make bad bets.

By "we" I guess I mean the average folks, republicans and democrats. The Obama administration I'm not too sure about.

The Universe is basically a gigantic threshing machine, and we're all stuck on the inside, desperately trying to avoid the pointy bits. Love and fairness and justice have to come from us, because the machine doesn't care.

Looks like the NPR reporter was right:

3 Billion And Counting