Ken777
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JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 4:25 pm

There has been a lot of media stories about the $2 Billion Loss JPMorgan Chase has announced.

Now we are seeing how the banks pushed for loopholes so they could continue to play games.

Quote:

Soon after lawmakers finished work on the nation’s new financial regulatory law, a team of JPMorgan Chase lobbyists descended on Washington. Their goal was to obtain special breaks that would allow banks to make big bets in their portfolios, including some of the types of trading that led to the $2 billion loss now rocking the bank.
http://www.nytimes.com/2012/05/12/bu...-fought-rule-on-risky-trading.html
 
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Dreadnought
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 5:05 pm

Quoting Ken777 (Thread starter):
There has been a lot of media stories about the $2 Billion Loss JPMorgan Chase has announced.

Now we are seeing how the banks pushed for loopholes so they could continue to play games.

Let me get this straight - You want a law making it illegal for banks to lose money?

Supposedly, this loss stems from portfolio hedging, "a strategy that essentially allows banks to view an investment portfolio as a whole and take actions to offset the risks of the entire portfolio. That contrasts with the traditional definition of hedging, which matches an individual security or trading position with an inversely related investment — so when one goes up, the other goes down."

There is nothing wrong with the concept. What went wrong here was the execution. You cannot outlaw stupidity or incompetence. That's the job of the bank's management, BOD and shareholders. They lost money. What do you want to do - tax them on money they lost?
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Pyrex
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 6:04 pm

Quoting Dreadnought (Reply 1):

There you go again trying to explain basic finance to certain people. Don't you know it does not work?
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Flighty
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 7:14 pm

Yeh I figure Jamie Dimon is doing exactly what people were asking Bank CEOs to do. He is knocking heads. Isn't this what OWS would want? People screwed up and Jamie is telling them 'don't give me this type of crap result.' Ordinarily he would just defend the operation, so this is a change of tack. Maybe he will even fire a bunch of culpable people.

Good for him. Shows he is adaptable.

[Edited 2012-05-12 12:15:33]
 
windy95
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 7:20 pm

Quoting Dreadnought (Reply 1):
There is nothing wrong with the concept. What went wrong here was the execution

I understand it is now being linked to one trader in the London office.

http://www.telegraph.co.uk/finance/n...all-on-JP-Morgan-trading-loss.html
 
fr8mech
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 7:25 pm

Yup, and I heard old Barney Frank (D-MASS) spout that he wanted to make it illegal for financial institutions to make decisions based on their own profits. Now, I know what I heard, but I can't find a quote online, though I did find an When seconds count...the police are minutes away.
 
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Dreadnought
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 7:28 pm

Quoting fr8mech (Reply 5):
Yup, and I heard old Barney Frank (D-MASS) spout that he wanted to make it illegal for financial institutions to make decisions based on their own profits.
Forget dogs and cats - Spay and neuter your liberals.
 
fr8mech
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 7:30 pm

Not quite sure what's going on in that last post but I can't even edit it. But, here's the link to an article where Barney Frank suggests that the profit motive is of no concern to regulators. That falls in line with what I heard this mornin on the news. I'll look for a link to his most recent quote.



http://thehill.com/blogs/>http://thehill.com/blogs/
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windy95
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 7:34 pm

Quoting fr8mech (Reply 5):
Yup, and I heard old Barney Frank (D-MASS) spout that he wanted to make it illegal for financial institutions to make decisions based on their own profits. Now, I know what I heard, but I can't find a quote online, though I did find an

Yes the Dems are now pushing the Volcker rule.

http://www.marketwatch.com/story/dem...er-rule-after-jp-morgan-2012-05-11
 
einsteinboricua
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 7:36 pm

Quoting Dreadnought (Reply 1):
Let me get this straight - You want a law making it illegal for banks to lose money?

No, I don't think he wants that. However, what he (and many of us) wants is for the bank to cease making risky bets and losing money, especially if it's a bank that was bailed out by the taxpayers. Apparently the bank has yet to learn a lesson from the 2008 crisis.
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Pyrex
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 8:39 pm

As always happens every time the topic of finance comes up, the amount of economic ignorance in this thread is unbelievable. Maybe it is just a nature of this site - just like all the threads on airline operations tend to bring out the armchair CEOs, any thread on finance brings out the Monday morning risk managers.

Quoting einsteinboricua (Reply 9):
However, what he (and many of us) wants is for the bank to cease making risky bets
http://en.wikipedia.org/wiki/Hedge_(finance)
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WestJet747
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 8:57 pm

Quoting Ken777 (Thread starter):
Now we are seeing how the banks pushed for loopholes so they could continue to play games
Quoting einsteinboricua (Reply 9):
However, what he (and many of us) wants is for the bank to cease making risky bets and losing money

Guys, banks make money by investing with varying levels of risk. If they were to only buy into zero-risk, guaranteed-principle investments, they would make only a few pennies on the dollar on their best day. If that happens, you can expect bank fees charged to customers like you and me to increase hundreds of percent.
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Pyrex
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 9:28 pm

Quoting WestJet747 (Reply 11):
If they were to only buy into zero-risk, guaranteed-principle investments

Like Greek government bonds?
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mt99
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 9:32 pm

They lost more money in this trade that the amount that Dimon was complaining that JP would loose due to increased regulation.

Kinda funny . no?

J Dimon has egg on his face.
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sccutler
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 9:36 pm

If JP Morgan Chase loses money as the result of poor investments, the bank should (1) change its management, and (ultimately) (2) fail. Not interested in seeing federal money thrown at it.
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ltbewr
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RE: JPMorgan $2B Loss From Loopholes?

Sat May 12, 2012 11:22 pm

The problem is this the kind of deal, on a smaller scale, that got so many banks into trouble and needing to be bailed out in 2008 and in part ruined Lehman Brothers, MF Capital (the one with Jon Corzine) and other investment houses. This loss should not hurt consumer and business customers nor shareholders, but it should lead to some executives that were involve and 'green-lighted' this deal canned as would happen at many other companies and some of the losses covered with major compensation cuts to Diman and others.

Banks do need to hedge investments, that is good business, but risks must be carefully calculated and not lead to such serious losses. Banks and other financial companies need to know that governments should not remove all risk with massive bailouts but do need to protect depositors.

To me the lack of reinstatement of some regulations and 'loopholes' as to allowing such investment was intentional to 're-inflate the bubble', to pump up the stock market for the leading banks and other stock companies after the 2008 crash.
 
PPVRA
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 2:46 pm

Quoting ltbewr (Reply 15):
This loss should not hurt consumer and business customers nor shareholders, but it should lead to some executives that were involve and 'green-lighted' this deal canned as would happen at many other companies and some of the losses covered with major compensation cuts to Diman and others.
Quoting ltbewr (Reply 15):
Banks and other financial companies need to know that governments should not remove all risk with massive bailouts but do need to protect depositors.

Insulating anybody from risk, including depositors, is a very bad idea.

Quoting ltbewr (Reply 15):
To me the lack of reinstatement of some regulations and 'loopholes' as to allowing such investment was intentional to 're-inflate the bubble', to pump up the stock market for the leading banks and other stock companies after the 2008 crash.

"Raising asset prices" has been the Fed's goal. That's what quantitative easing does.
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fr8mech
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 2:59 pm

Quoting ltbewr (Reply 15):
Banks and other financial companies need to know that governments should not remove all risk with massive bailouts but do need to protect depositors.

That's what FDIC is for; to protect the deposits, i.e the money in savings and checking accounts. Anything else is investing or, as I like to call it, gambling.

It is disclosed when you apply for investment accounts.
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blink182
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 4:39 pm

Quoting windy95 (Reply 8):
Yes the Dems are now pushing the Volcker rule.

I can't remember the source--either CNN, NYT, WashPost etc., and Dimon even admitted that JPMorgan's loss would definitely give the pro-Volcker crowd a lot of ammo.

What I find a bit scary is that JPMorgan passed the Fed's stress tests with fairly good marks, so what do we not know about other banks that are more vulnerable?
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Mir
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 5:26 pm

Quoting Dreadnought (Reply 1):
You cannot outlaw stupidity or incompetence.

You can, in a sense. You can implement rules that, if followed, will lead people to not take certain courses of action that would be considered stupid or incompetent. The aviation world is full of such things - you shall not intentionally exceed the limitations of an airplane, you shall not descend below published weather minimums on an approach without visual reference, you shall not try and takeoff on a runway which is too short for your published takeoff distance, etc. All those are things that should be common sense, yet people did them, and some of them got themselves killed in the process. So regulations were written. This doesn't mean that someone couldn't continue to do those things if they really wanted to, but it does mean that someone will be more inclined to not do them, since there are now legal consequences in addition to the inherent dangers of those things.

Such regulations, if implemented in the banking industry, would require some sort of SEC (or perhaps Congressional) determination of what really constitutes stupidity when it comes to an investment strategy, which really means determining what is an acceptable level of risk. And that wouldn't be easy (I think it's fair to say that we can forget about Congress being able to do it). But it's not always easy to draw a line in the aviation industry either - that doesn't mean it shouldn't be looked into. What is clear, though, is that when financial institutions make stupid decisions and lose money, they can create a whole lot of collateral damage, and it's not wrong to try and limit that. If bad decisions made by banks were limited to those banks, or even to those banks and their customers, I wouldn't care so much. But when a bad decision made by one bank can throw other banks and their customers into chaos, that's when it's time to take a look at the system.

What's tricky about this from the standpoint of the pro-regulation crowd is that, as Flighty said, the CEO has been everything one would want him to be following his admission of the problem (though I am curious as to how he could give reports not too long ago that said that there were no problems - people had been suspicious of this particular account for a while). So this isn't exactly the poster child for regulation that some would want it to be.

-Mir
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Pyrex
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 5:40 pm

Quoting fr8mech (Reply 17):
investing or, as I like to call it, gambling.

Of course you do. I guess you could always entrust all your money to the U.S. government and put it all into CDs or treasury bills - after taxes and inflation you would only lose ~3-5% a year.

Quoting blink182 (Reply 18):
Dimon even admitted that JPMorgan's loss would definitely give the pro-Volcker crowd a lot of ammo.

It would only because the pro-Volcker rule people are nothing but a bunch of economically illiterate people who know nothing about finance. JP Morgan was hedging risks on their BANKING book, not their trading book - you know, the loans they extend out to people and companies, which for some reason some people think is a more "social" use of JP Morgan's capital than facilitating access to capital markets through underwriting and market-making. So yes, in essence, the risks JP Morgan was hedging were 100% proprietary, but precisely the types of risks encouraged by the Volcker rule (which seems to think that loaning $100 million to a corporation on a 5-year illiquid position is less risky than holding $20 million of that company's liquid bonds overnight in a trading book for market-making purposes). The fact is, what JP Morgan did would not be illegal under the Volcker rule (not should it be).

Quoting blink182 (Reply 18):
What I find a bit scary is that JPMorgan passed the Fed's stress tests with fairly good marks, so what do we not know about other banks that are more vulnerable?

This $2 billion mistake will cause a temporary 20 bps decline in their core tier 1 ratio, which is basically nothing. If that is not passing a stress test with flying colors I don't know what is.
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fr8mech
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 6:15 pm

Quoting Pyrex (Reply 20):
Of course you do. I guess you could always entrust all your money to the U.S. government and put it all into CDs or treasury bills - after taxes and inflation you would only lose ~3-5% a year.

My point exactly. If I wanted a nice safe 'return', all I would do is invest in CD's or other such instruments where my principle is safe. If I want to invest and actually grow my money I have to take a gamble. Very much like the folks at JP Morgan (who happen to be my bankers) did. They gambled, they lost. Let's move on.
When seconds count...the police are minutes away.
 
us330
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 7:40 pm

Quoting Dreadnought (Reply 1):
There is nothing wrong with the concept. What went wrong here was the execution

There is nothing wrong with hedging, and if it was truly a hedge, then people wouldn't necessarily be up in arms. From some of the articles I've been reading, some analysts have said that it wasnt actually serving the purpose of a hedge.

Quoting Dreadnought (Reply 1):
You cannot outlaw stupidity or incompetence.

That is true....but you can certainly impose regulations and checks to make it more difficult for people to make stupid or incompetent decisions.

Quoting Pyrex (Reply 20):
It would only because the pro-Volcker rule people are nothing but a bunch of economically illiterate people who know nothing about finance.

Disagree entirely. The reason why this issue is coming up is because JPMorgan is a SIFI--a too-big-to-fail entity--which means the failure of JP Morgan imposes a systemic risk on the entire economy--and JP Morgan knows that. JP Morgan also knows that as a SIFI the U.S. government (and by extension, taxpayers) haS an interest in it not failing and bringing the system down with it--which means that if they failed, the government would bail them out again--so there's no incentive for them to avoid taking these risks.
If these institutions weren't too-big-to-fail, and only risking the skin of their shareholders and their employees, then I'd have no problem with them taking excessive risks--but they aren't. The bottom line is that if you don't want the Volcker Rule, then the banks will have to shrink.
 
Ken777
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 10:03 pm

Quoting Dreadnought (Reply 1):
You want a law making it illegal for banks to lose money?

Maybe just go back Glass Steagall:

Quote:

The Banking Act of 1933 (Pub.L. 73-66, 48 Stat. 162, enacted June 16, 1933) was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and imposed banking reforms, several of which were intended to control speculation.[1] It is often referred to as the Glass–Steagall Act, after its Congressional sponsors, Senator Carter Glass (D) of Virginia, and Representative Henry B. Steagall (D) of Alabama.
http://en.wikipedia.org/wiki/Glass–Steagall_Act

Quoting Pyrex (Reply 2):
There you go again trying to explain basic finance to certain people.

So lesson No. 1:

The core issue to focus on is FDIC Protection that Banks really enjoy. Part of that benefit brought, as noted above, " imposed banking reforms, several of which were intended to control speculation".

That IS Lesson Number One in US Finance.

And that is the lesson we need to apply now. Bring back Glass Steagall. Of course the Conservatives will never go far when financial contributions are so leveraged against it. Maybe that should be Lesson Number One. Money talks.
 
us330
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 11:21 pm

Quoting Ken777 (Reply 23):
The core issue to focus on is FDIC Protection that Banks really enjoy. Part

FDIC is completely irrelevant here because it only pertains to commercial banking and is done to prevent bank runs. What's of more relevance is the Fed's discount window and lender of last resort access that these banks now have.
 
Flighty
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RE: JPMorgan $2B Loss From Loopholes?

Sun May 13, 2012 11:37 pm

Quoting Mir (Reply 19):
(though I am curious as to how he could give reports not too long ago that said that there were no problems - people had been suspicious of this particular account for a while). So this isn't exactly the poster child for regulation that some would want it to be.

He even owns that now. He has said yes this is completely contradictory to what I told you a few weeks ago -- his bureaucracy was scurrying to defend the situation, like companies do. But he came to Jesus suddenly, and now, he named the people responsible and is firing them! He ought to get just a little credit for that. That's unusual... maybe it represent a change?
 
Pyrex
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 1:18 am

Quoting Ken777 (Reply 23):
And that is the lesson we need to apply now. Bring back Glass Steagall.

Sigh... not this old canard again. Ok, if you are so smart, tell me ONE paragraph (just one) of the Glass Steagall Act that wouls have prevented this crisis.

Quoting Flighty (Reply 25):
He has said yes this is completely contradictory to what I told you a few weeks ago -- his bureaucracy was scurrying to defend the situation, like companies do. But he came to Jesus suddenly, and now, he named the people responsible and is firing them!

J.P. Morgan's problem was that they had a large position on a small, illiquid market, so once everybody found out about their situation people started piling against them. The last thing they could have done at that time was admit publicly they had a problem before trying to close out some positions.
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StarAC17
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 1:55 am

Quoting us330 (Reply 24):
FDIC is completely irrelevant here because it only pertains to commercial banking and is done to prevent bank runs. What's of more relevance is the Fed's discount window and lender of last resort access that these banks now have.

Yes and if I get this correctly getting rid of Glass Steagall allowed commercial banks to merge with investment banks and share funds.

This means that the every day depositor has the risk of their money being used in risky bets, which if I have a basic savings account I want that money used in low risk lending and I get a low interest rate in turn.

If people with basic accounts even think that their money is being used for high risk investments that will only increase the chances of a run on a bank.

If I want to take that risk with my money I will go to an investment bank or their investment division and take risks accordingly.

Quoting WestJet747 (Reply 11):
If that happens, you can expect bank fees charged to customers like you and me to increase hundreds of percent.

How do you think JP Morgan is going to recoup these losses, expect some fee hikes along the way.
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einsteinboricua
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 1:56 am

Quoting fr8mech (Reply 21):
Very much like the folks at JP Morgan (who happen to be my bankers) did. They gambled, they lost. Let's move on.

That's all fine and dandy until the bank cannot return money to its customers. Then what? Another bailout from the fed and keep raising the deficit? Let it go broke and tank the economy?
"You haven't seen a tree until you've seen its shadow from the sky."
 
QFA380
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 1:56 am

I honestly do not understand why there is such an uproar about this. It is much more of an internal JPMorgan issue than it is global financial crisis 2.0

Many people do not understand that much of finance, in particular derivatives, is essentially a zero sum game. However can still be mutually beneficial in the big picture. For once a bank is losing the game rather than winning the game, against the losers like manufacturers, pension funds etc and it is a pandemic that will bring the world to it's knees...

This merely shows that JP Morgan has internal risk and personnel management problems.


Quoting us330 (Reply 22):
excessive risks-

There is no such thing as excessive risk, only insufficient return to justify the risk. Look to Greece, extremely high risk hence investors are demanding an extremely high yield of ~25%, while low risk Australian bonds are at record low yields.

Quoting Mir (Reply 19):
SEC (or perhaps Congressional) determination of what really constitutes stupidity

Trust a pack of bureaucrats and politicians to determine stupidity? Neither of those institutions can effectively determine and fix their own stupidity.

Quoting Ken777 (Reply 23):

That IS Lesson Number One in US Finance.

Lesson number 1 is risk, return. People (the government, pension funds, shareholders, you) want high returns with no risk, it is not possible.
 
BMI727
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 1:58 am

Quoting QFA380 (Reply 29):
People (the government, pension funds, shareholders, you) want high returns with no risk, it is not possible.

What do you mean it isn't possible? Bernie Madoff did that for years.    And Social Security.
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Mir
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 1:59 am

Quoting Flighty (Reply 25):
He ought to get just a little credit for that.

A little, sure. I know it's human nature to try and cover things up. But then there's the fact that a properly functioning market requires open and honest information, and covering things up is extremely counterproductive to that. So I can't give him too much credit.

I'm really not interested in heads rolling in this case - I think that on the whole JP Morgan has acted pretty well. What I'm interested in is what steps, beyond the doomed-to-fail approach of hoping that people aren't stupid and irresponsible, can be taken to prevent this sort of thing from happening again.

-Mir
7 billion, one nation, imagination...it's a beautiful day
 
ltbewr
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 3:53 am

News reports late Sunday are saying at least 3 top executives involved with the big losses are resigning from JPMC. I hope more heads roll from the CEO on down and none of them get any severance payments. It is time for banks and the government regulators to get their acts together to clean up the 'Great Recession' and go back to true 'conservative' banking.
 
us330
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 3:15 pm

Quoting StarAC17 (Reply 27):
This means that the every day depositor has the risk of their money being used in risky bets, which if I have a basic savings account I want that money used in low risk lending and I get a low interest rate in turn.If people with basic accounts even think that their money is being used for high risk investments that will only increase the chances of a run on a bank.

No it won't--because of FDIC--your deposit is insured up to 250k regardless of how it's being used. This is what prevents runs on banks--because depositors know that their deposits are guaranteed up to that amount, so there's no need to withdraw the deposits if a bank is in danger of shutting down.
As the depositor, you do not get the right to tell the bank how to use your money, because they are paying you interest for the privilege of being able to use your deposit as part of their capital base to extend loans from it/investments. And if you are so opposed to the idea of a bank using your funds for high risk loans, then do your due diligence and find a bank that is more conservative in its loan portfolio, and transfer your account from your original bank to the more conservative one.

The bigger issue, as I have stated, is not that the depositor funds are being used, but its that these banks are making risky bets without bearing the full risk of a bet gone bad because they have the implicit support of the government. Depositors here bear no risk from a bank's bad bet because of FDIC.
 
mt99
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 5:07 pm

Its those evil republicans are thwarting the poor Banks!

"Sen. Bob Corker, a Tennessee Republican, was the first to call for a hearing on Friday.

"Clearly the losses posted by JPMorgan (JPM, Fortune 500) are significant, and as policy makers we should understand in detail what has transpired," Corker said in a letter to Senate Banking Committee chairman Tim Johnson, a South Dakota Democrat."

http://money.cnn.com/2012/05/14/news...organ-congress/index.htm?iid=HP_LN
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bhill
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 6:32 pm

I don't think it was the amount of money involved that is the issue, but two things bother me about this. 1) Business as usual for the investment houses, when their "poor descions" blew up in OUR faces, granted, the investments were not gamed like the AAA rated subprime mortgages, but the same type of judgement went into this investment that tanked. 2) Would this same type of investment be made when the investment "banks" know that Joe Taxpayor would not come riding to the rescue? Let's face it folks, these investment houses know damn well that they STILL have us by the short hairs....until GS is re-enacted. Why should they care? Kinda like a spoiled rich brat knowing Daddy is going to get them out of trouble. I get the "no risk no gain" part, just let me have a choice in the risk....
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tommy767
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 8:02 pm

I got a mutual fund with Chase and I'm thinking of taking my money and leaving them. I feel like Fidelity investments would be a little more responsive with investing. Every time I go to Chase they try to cover up the fact that the market is rapidly improving and the CEO expects "incredible" gains this year.


Well, dare I say WTF happened CHASE?
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Flighty
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RE: JPMorgan $2B Loss From Loopholes?

Mon May 14, 2012 8:23 pm

Quoting bhill (Reply 35):
Would this same type of investment be made when the investment "banks" know that Joe Taxpayor would not come riding to the rescue?

We should never have to ask that question. In such a huge country, we should never allow banks to become so large. That is what is unacceptable. Even a 1% market share of the USA is an absolutely huge bank with millions of customers. That is large enough.

The fact that JP Morgan engages in normal bank activities (win some, lose some) is totally fine. That would be a private personnel / investing matter. The problem is JP Morgan's existence in the first place as an oversize bank. There is no way out of that. They have to break up.

The top regulators such as Geitner say that JP Morgan and others could be unraveled in bankruptcy should their bets go rotten. I am not as smart as he is, but I highly suspect that this over-simplifies the issue and is false. The mega-banks are unacceptable structurally. The public instinctively know that (and they are analytically correct to boot).

[Edited 2012-05-14 13:25:53]
 
Ken777
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RE: JPMorgan $2B Loss From Loopholes?

Tue May 15, 2012 4:05 am

Quoting Pyrex (Reply 26):
Ok, if you are so smart, tell me ONE paragraph (just one) of the Glass Steagall Act that wouls have prevented this crisis.

Banks have FDIC protection that was established to protect depositors. When you add in the brokerage business (and related risks that banks are taking) you dramatically increase the FDIC risks. Risks that taxpayers have to cover.

We really don't need that. We certainly don't need to put up tax dollars to provide protection when the banks are pulling games like they have been.

That is why we need to go back to banks being banks. Or we need to pull FDIC protection to banks who have spread their wings to areas of risks in the markets.
 
windy95
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RE: JPMorgan $2B Loss From Loopholes?

Tue May 15, 2012 4:25 am

Quoting Ken777 (Reply 38):
We certainly don't need to put up tax dollars to provide protection when the banks are pulling games like they have been.

Yet we continue to bail out the Post office to a tune of a Billion a month.
 
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RE: JPMorgan $2B Loss From Loopholes?

Tue May 15, 2012 6:16 am

Quoting windy95 (Reply 39):

Yet we continue to bail out the Post office to a tune of a Billion a month.

Wait til he pulls the 'the post office provides an important service whose social benefits outweigh their (large) economic losses' or the other one, 'postal workers deserve real living wages even if they are not productive enough to warrant those wages'. Despite the fact that banks too provide an important service, and unlike the post office, their workers are productive enough to warrant their wages.  
 
us330
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RE: JPMorgan $2B Loss From Loopholes?

Tue May 15, 2012 12:28 pm

Quoting Ken777 (Reply 38):
Or we need to pull FDIC protection to banks who have spread their wings to areas of risks in the markets.

I have said posted this several times on this thread already--FDIC is completely irrelevant here because it only relates to deposits, and protects depositors, not the banks themselves. FDIC would not be used here to bailout JP Morgan because that's not what those funds are for. So stop bringing up FDIC. What you want is to bring back glass-stegall to prevent investment banks from engaging in commercial banking activities. In that scenario, the investment banks would not be a part of FDIC because they would no longer have depositors.

In the wake of the 2008 financial crisis, when JP Morgan, Morgan Stanley, etc. were about to go under, they transformed themselves into Bank Holding Companies, which gives them access to the Federal Reserve's discount window and lender of last resort capabilities, which gives them access to extremely low-interest loans for them to meet their obligations in case that they might become insolvent. The banks size, as systemically important financial institutions that are too big to fail means that their failure presents a systemic risk to the entire economy--and for that reason, the U.S. government would have to bail them out to prevent an economic collapse. Because of this implicit guarantee, the banks themselves do not bear the full risk of their actions or bad bets, U.S. taxpayers do, which is why these banks need to be broken up so they are no longer too big to fail.
 
Pyrex
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RE: JPMorgan $2B Loss From Loopholes?

Wed May 16, 2012 12:37 pm

The sheer amount of financial ignorance on this thread makes me really sad about the future of America.
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RE: JPMorgan $2B Loss From Loopholes?

Wed May 16, 2012 1:32 pm

Quoting einsteinboricua (Reply 9):
No, I don't think he wants that. However, what he (and many of us) wants is for the bank to cease making risky bets and losing money, especially if it's a bank that was bailed out by the taxpayers. Apparently the bank has yet to learn a lesson from the 2008 crisis.

They didn't learn because they got bailed out. I'm pretty sure that we'd start doing some pretty crazy stuff in my company if the government declared us too important to fail, implying that they would bail us out if we did anything stupid. We'd start over-leveraging, betting on unproven products, play games with our treasury funds. That's what you get for interfering in the market - you create more risky behavior.

Quoting Pyrex (Reply 42):

The sheer amount of financial ignorance on this thread makes me really sad about the future of America.

True, and that ignorance is in the Federal government as well. Obama said that this event "is exactly why we passed Wall Street Reform 3 years ago", in spite of admitting that he has no idea of exactly what happened and whether or not the new regulations would have stopped it. And, oh yeah, if that were true, the law was passed 3 years ago, why isn't it already in effect? Because they produced something so convoluted that they haven't even figured out the text yet.

And then we come to the justice department. Eric Holder, history's worst AG, is launching a criminal probe into JPMorgan for the $2 billion.

http://wallstcheatsheet.com/stocks/j...l-justice-department-inquiry.html/

Apparently making a loss in your private business is a criminal matter now. Pity he did not think of that regarding taxpayer money in Solydra, Evergreen Solar, SpectraWatt and other failed stimulus investments.
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windy95
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RE: JPMorgan $2B Loss From Loopholes?

Wed May 16, 2012 1:45 pm

Quoting Dreadnought (Reply 43):
Apparently making a loss in your private business is a criminal matter now. Pity he did not think of that regarding taxpayer money in Solydra, Evergreen Solar, SpectraWatt and other failed stimulus investments

Or fast and furious. I heard the story this morning that the FBI is investigating the loss and I really had to laugh. This administration really is a joke.
 
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RE: JPMorgan $2B Loss From Loopholes?

Wed May 16, 2012 2:19 pm

Quoting Pyrex (Reply 20):
JP Morgan was hedging risks on their BANKING book, not their trading book - you know, the loans they extend out to people and companies, which for some reason some people think is a more "social" use of JP Morgan's capital than facilitating access to capital markets through underwriting and market-making.

Such distinctions matter to you, but don't matter to us because it will be the entire JPM corporation coming to the taxpayers for a bailout.

Quoting us330 (Reply 22):
From some of the articles I've been reading, some analysts have said that it wasnt actually serving the purpose of a hedge.

I've read it was both acting as a hedge yet also speculative, which is of course contradictory, but that in itself is why the loss was so unexpected. It was positioned as a hedge, but when you look at it's operation, it was speculation.

The banks want to keep such things in place. The "Voelker Rule" is intended to disallow such things, but the bank lobbyists keep adding more loopholes to it, and keep delaying it by adding more and more loopholes to it, which require more and more analysis. They are now saying the earliest enactment of the Voelker Rule will be 2014.

Quoting Ken777 (Reply 23):
Bring back Glass Steagall. Of course the Conservatives will never go far when financial contributions are so leveraged against it.

I'm generally pro-Obama, but this case shows he is failing at financial reform. He used Great Depression rhetoric, but his corrective actions have been far short of the things FDR did post-Depression. IMHO Obama's side is just as beholden to financial interests as are conservatives.

Quoting us330 (Reply 24):
FDIC is completely irrelevant here because it only pertains to commercial banking and is done to prevent bank runs. What's of more relevance is the Fed's discount window and lender of last resort access that these banks now have.

Correct.

Quoting Flighty (Reply 25):
He has said yes this is completely contradictory to what I told you a few weeks ago -- his bureaucracy was scurrying to defend the situation, like companies do. But he came to Jesus suddenly, and now, he named the people responsible and is firing them! He ought to get just a little credit for that.

But it points out something very important: these large firms just don't have the ability to judge risks to the degree they claim to.

Note also that the London Whale took home $100M last year based on the very acts Dimon is now so sure were ill-judged.

The industry makes the rewards so huge that it's in everyone's interest to take as much risk as possible, hoping that things go in their favor, but also knowing that they get to keep their bonuses even when things do not go in their favor.

How much you want to bet the Whale writes a tell-all book and makes even more money off this fiasco?

Quoting StarAC17 (Reply 27):
Yes and if I get this correctly getting rid of Glass Steagall allowed commercial banks to merge with investment banks and share funds.

This means that the every day depositor has the risk of their money being used in risky bets, which if I have a basic savings account I want that money used in low risk lending and I get a low interest rate in turn.

If people with basic accounts even think that their money is being used for high risk investments that will only increase the chances of a run on a bank.

If I want to take that risk with my money I will go to an investment bank or their investment division and take risks accordingly.

  

Quoting QFA380 (Reply 29):
This merely shows that JP Morgan has internal risk and personnel management problems.

Merely? Their CEO was out sayking how sure he was that his bank could self-regulate, and now he has to admit he himself didn't understand what was going on within his own walls...

Quoting Pyrex (Reply 42):
The sheer amount of financial ignorance on this thread makes me really sad about the future of America.

The sheer amount of arrogance of the members of the financial community makes me really sad about the future of America.

We don't want to have to know how high finance works, but now with the move from pensions to 401(k)s we all have to, as well as having to do all the other things in our lives that makes us valuable members of society.

We're fed up with the jerks in the financial community who make money no matter what the market does, but ironically their arrogance is justified because they can and do make money no matter what, whereas the rest of us keep letting it happen.

It shows what arrogant scumbags they are: they keep warping the system to make it work more and more in their favor, and then they taunt us about it.
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ozglobal
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RE: JPMorgan $2B Loss From Loopholes?

Wed May 16, 2012 3:33 pm

Quoting Dreadnought (Reply 1):
Quoting Ken777 (Thread starter):
There has been a lot of media stories about the $2 Billion Loss JPMorgan Chase has announced.

Now we are seeing how the banks pushed for loopholes so they could continue to play games.

Let me get this straight - You want a law making it illegal for banks to lose money?


If you're wanting to get this straight, the post above is a 'fail' .

Banks are regulated, not so losses are impossible, but so as not to take UNACCEPTABLE levels of risk with OTHER PEOPLE'S money. JP Morgan agressively lobbied to get away with what the regulatory legislation explicity saw as UNACCEPTABLE risk : Portfolio Hedging rather than position hedging. Position hedging contains risk and gain in a modular manner; portfolio hedging makes broad and often unscientific assumptions about the whole shop and then seeks to hedge that. The legislation sought to forbid this because you tend to be far too exposed at onces: 2B loss ring a bell...?

[Edited 2012-05-16 08:41:05]
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Pyrex
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RE: JPMorgan $2B Loss From Loopholes?

Wed May 16, 2012 3:56 pm

Quoting Dreadnought (Reply 43):
True, and that ignorance is in the Federal government as well. Obama said that this event "is exactly why we passed Wall Street Reform 3 years ago", in spite of admitting that he has no idea of exactly what happened and whether or not the new regulations would have stopped it.

I am sure the only thing they taught him about finance in community organizing school was "banks are bad", but unfortunately the sheer ignorance and populism about finance is not limited to the left. The head-in-the-sand anti-globalization right (Ron Paul et al) is just as bad as their brethren on the left.
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RE: JPMorgan $2B Loss From Loopholes?

Wed May 16, 2012 4:10 pm

Quoting Pyrex (Reply 47):
I am sure the only thing they taught him about finance in community organizing school was "banks are bad",

That school was Harvard, a place that graduates a lot more "banks are good" people than "banks are bad" people.

Quoting Pyrex (Reply 47):
unfortunately the sheer ignorance and populism about finance is not limited to the left

As opposed to perhaps you, who feels qualified to make such statements?
Inspiration, move me brightly!
 
us330
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RE: JPMorgan $2B Loss From Loopholes?

Wed May 16, 2012 4:32 pm

Quoting Dreadnought (Reply 43):
Eric Holder, history's worst AG, is launching a criminal probe into JPMorgan for the $2 billion.

This has to be a joke. A criminal probe into this, when not a single person on wall street went to jail for actions leading to the 2008 crisis?

Quoting Pyrex (Reply 42):
The sheer amount of financial ignorance on this thread makes me really sad about the future of America.

Even though we are on the opposite sides of this argument, I have to agree with you. See the fact that people keep bringing up FDIC, when it is completely irrelevant.

Quoting Revelation (Reply 48):
That school was Harvard, a place that graduates a lot more "banks are good" people than "banks are bad" people.

Harvard Law--he probably didn't learn it there--law school can be a pretty apolitical place, and much of the theorizing has grounding in the law, in respect to how to use the law to support your arguments (which is what all lawyers are trained to do, anyway). If he was influenced by anybody with respect to his politics, it probably happened in undergrad, but even then I hate to burst everybody's perceptions, but most of these elite schools aren't "liberal-drone generating factories" that many conservative commentators would make them out to be. Students don't come to these elite schools as empty vessels--many already have already developed their own ideas or beliefs--and merely learn how to better voice or argue these opinions.

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