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Old 05-14-2012, 11:19 AM   #21
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Not sure on the last part. I suspect that the emerging loss was a significant enough event that they were probably required to disclose it under securities laws rather than wait and have an earnings surprise. Nonetheless, I agree that it was smart to get out in front of it and that Dimon's candor is refreshing compared to typical CEO babble.
yes, I would think $2B is material, even for JPM. Normally can't wait for earnings release once these are known.
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Old 05-14-2012, 12:20 PM   #22
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I saw on CNBC this morning that the loss would now be 4 billion + on what they "reasonably expect". What is missing in the defense of JP Morgan is that these trades would not be possible, that is a 100 billion dollar "hedge", without the implicit guarantee the US is giving JP Morgan Chase and other banks on all their financial transactions to provide liquidity if needed at any time. If the federal government tomorrow announced they are no longer back stopping the banks, just watch how no one would trade these derivatives. Therefore the pricing of these derivatives, since that risk is not included I believe is incorrect. The risk that no one has to worry about is if a counter party would be able to provide the cash in their side of the hedge since the ultimate backer on all these synthetic hedges becomes the governments of the world. I am all for banks making whatever transactions they want to if the governments would only let them fail. That is not the system we have today and when I see people claim the government should not regulate them I shudder because what that really means is to provide an unseen tax on all savers to recapitalize banks.

So with this guarantee and the free money provided to the banks by the government with the zero percent interest rate policy, the fact banks like JP Morgan aren't making even more is surprising.
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Old 05-14-2012, 12:25 PM   #23
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A few thoughts:

1. Will these guys ever learn?

2. Maybe bailouts are "enabling" behavior, especially if these firms think they are "too big to fail" (see #3).

3. Any business that is too big to be allowed to fail from its own bad or reckless decisions because of the potential for systemic collapse is too big to exist in its current form.

4. Repealing Glass-Steagall was a big mistake.

5. It's time to stop socializing losses and privatizing gains. That ties in with #1 and #2 -- they won't learn if we keep allowing them to keep all the profit from risky behavior while allowing them to force losses on the rest of us.
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Old 05-14-2012, 12:41 PM   #24
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Regulation can be choking to business...need to be careful how it's applied.

It is funny, however, that the phrase "too big to fail" still has not been addressed in any meaningful way.
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Old 05-14-2012, 01:01 PM   #25
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A few thoughts:

3. Any business that is too big to be allowed to fail from its own bad or reckless decisions because of the potential for systemic collapse is too big to exist in its current form.

Does that include the car companies



Also, what do you define as 'fail' As an example, the shareholders of AIG, GM and Chrysler lost most or all of their investments... and the bondholders of the auto companies lost a lot... even though they were 'bailed out', I would bet most of the investors would not see it that way... I think Citi investors took a big hit, but do not know how much...
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Old 05-14-2012, 01:02 PM   #26
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Does that include the car companies
I said "any business" and I believe the automakers are a business. I don't think I need to elaborate.
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Old 05-14-2012, 01:17 PM   #27
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I said "any business" and I believe the automakers are a business. I don't think I need to elaborate.
OK, then how are you going to break up a GM? They were deemed to big to fail and are still big enough to cause systemic risk if they failed...

Banks are easier to split... but will splitting them up actually achieve what people claim? If we had a lot of smaller banks back in 2007, would any major changes been done because we did not have any 'to big to fail' banks I do not think so... except for a few really big banks, most of the problems were with just big banks and a lot of small ones...
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Old 05-14-2012, 02:42 PM   #28
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OK, then how are you going to break up a GM? They were deemed to big to fail and are still big enough to cause systemic risk if they failed...

Banks are easier to split... but will splitting them up actually achieve what people claim? If we had a lot of smaller banks back in 2007, would any major changes been done because we did not have any 'to big to fail' banks I do not think so... except for a few really big banks, most of the problems were with just big banks and a lot of small ones...
I don't think you need to break them up, but I think they should have been left to die when they were going down the tubes.

Would this have been worse than what happened? Yes, in the short term. But 10 years later you'd probably have 5 new car companies that were much better managed.
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Old 05-14-2012, 02:58 PM   #29
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Regulation can be choking to business...need to be careful how it's applied. ....
True, but before Glass-Stegall was repealed banks were regulated and business was fine.
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Old 05-14-2012, 02:58 PM   #30
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I heard this yesterday also, I think it was on Meet the Press. I think it was Andrew Ross Sorkin who said it was $100 billion with a $2B (loss) that might grow to $3B (worst case implied).

They had taped interviews with Jamie Dimon the Monday before the $2B loss was announced and another from last Friday the day after the announcement. Whatever else you might think, Jamie Dimon is impressive IMO, smart seemingly direct comments on business and politics. And he makes no bones that they really screwed up, no excuses. I saw a news crawl this morning saying 3 execs involved with the losses were expected to "resign" today.

Probably everyone on this thread knows it but JPM will still have a profitable quarter overall, I think I heard they were estimating $4B.

And I think it was Sorkin who also pointed out that most of the too big to fail CEOs simply wouldn't have even announced this loss. They'd just have come up short on earnings for the quarter and probably provided "guidance" between now and the end of the quarter to lower earnings expectations - which was exactly what I was saying to myself before NBC made the point. Interesting stuff indeed...
Federal securities laws prohibit a company from making false or misleading statements that involve material information.

The problem for JP Morgan is that it was not silent about the impact of the derivative transactions intended to hedge its corporate bond position. In early April, there were numerous media reports about risky transactions made by the “London whale” that led other investors to try to profit at the bank’s expense.

Depending on when they knew the trades were going against them continued silence would have had even more severe negative consequences for JP Morgan.

This is what Mr Dimon apologized for on Meet the Press yesterday for his previous statement on this issue that it was a "tempest in a teapot".

Once the size of this losses are known he was now set up a scenario for JP Morgan to be sued by shareholders for negligence and misconduct. Which is why 3 senior executives walked the plank today. This is not a case of a situation being handled ably and the market just went against them, this is a situation where traders for JP Morgan did not understand what they were doing and over committed on one side of a hedge on corporate bonds and lost 4 billion doing so, and by the admission of their own CEO, JP Morgan Chase did not even properly review these trades.
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Old 05-14-2012, 03:11 PM   #31
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.....Once the size of this losses are known he was now set up a scenario for JP Morgan to be sued by shareholders for negligence and misconduct. Which is why 3 senior executives walked the plank today. This is not a case of a situation being handled ably and the market just went against them, this is a situation where traders for JP Morgan did not understand what they were doing and over committed on one side of a hedge on corporate bonds and lost 4 billion doing so, and by the admission of their own CEO, JP Morgan Chase did not even properly review these trades.
Doubtful that such a suit would be successful and besides even if it was they would just be paying themselves so only the lawyers for the plaintiff and defendant would be enriched. While perhaps they might be able to clawback some comp from some of the execs it would be chump change in the whole scheme of things.

On your assessment of what happened, I haven't seen or heard anything with sufficient details to determine exactly what happened. I think they are smartly being a bit obscure about the details so they can get out without the arbs scalping them.
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Old 05-14-2012, 03:21 PM   #32
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I don't think you need to break them up, but I think they should have been left to die when they were going down the tubes.

Would this have been worse than what happened? Yes, in the short term. But 10 years later you'd probably have 5 new car companies that were much better managed.

I do not disagree... and in fact a good number of big banks did fail... lots of small ones did also..

FDIC: Failed Bank List

Plus the various brokerage firms, which I can not find a link right away....
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Old 05-14-2012, 03:26 PM   #33
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True, but before Glass-Stegall was repealed banks were regulated and business was fine.
I wonder what you call fine.... back in the 80s there were a lot of S&Ls that went under and a good number of banks... all under Glass-Stegall...

Remember the RTC

Resolution Trust Corporation - Wikipedia, the free encyclopedia


Edit to add.... this has better info on the numbers...

www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf

The combined closings by both agencies of 1,043
institutions holding $519 billion in assets contributed
to a massive restructuring of the number of firms in
the industry.
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Old 05-14-2012, 03:43 PM   #34
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Of course I remember the RTC. The S&L was a problem where the S&Ls got stupid and there were regulatory reforms made in response.

However, the S&L crisis was a bit of a gnat compared to the 2008 fiscal crisis so I think you are comparing a grape with a grapefruit. Lehman Brothers alone was more than 20% larger than all 1,043 S&L mentioned in your post combined.
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Old 05-14-2012, 04:28 PM   #35
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Of course I remember the RTC. The S&L was a problem where the S&Ls got stupid and there were regulatory reforms made in response.

However, the S&L crisis was a bit of a gnat compared to the 2008 fiscal crisis so I think you are comparing a grape with a grapefruit. Lehman Brothers alone was more than 20% larger than all 1,043 S&L mentioned in your post combined.

Not disagreeing with you, but Lehman would not have been any different under Glass-Stegall as it was not a retail bank...
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Old 05-14-2012, 04:45 PM   #36
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A pretty good editorial from the Wall St Journal.

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On the face of it, the recent trading at Morgan might very well fall within the law's vague allowance of trades intended to hedge "aggregate positions." Certainly the bank's loan book is vulnerable to a rise in corporate defaults, so a trade meant to profit from such a trend would seem to be a hedge. And if the bank decided that a particular hedge was no longer needed, then it would seem to have an argument that the offsetting trades would also fit within Dodd-Frank's version of Volcker. Lawmakers squawking the loudest (Senator Carl Levin) about the J.P. Morgan trades are probably hoping no one takes too close a look at the law they actually wrote.
It's also worth remembering that even if Washington could write a Volcker rule, Volcker alone is not enough. Numerous banks that hardly played in the securities markets have failed because they made bad housing loans. And in a sense, virtually every asset on a bank balance sheet is a kind of proprietary trade, including loans. The bank makes a judgment that the risk of a loan is justified by its expected return.
Since the J.P. Morgan trades included derivatives, some observers have also claimed that the losses are proof that more derivatives contracts must be moved into clearinghouses that stand behind every trade. And who stands behind the clearinghouses? Taxpayers do, thanks to Dodd-Frank.
In any case, our sources say that some of the trades at issue in this case did go through clearinghouses. Thus Americans will be asked to believe that the same regulators who can already peer as deeply as they wish into the J.P. Morgan trading book and apparently saw nothing amiss have somehow been endowed with infinite wisdom whenever they are peering into the bowels of a clearinghouse.
I am hard press to think of a single financial firm that would have saved by Glass-Stegall and or the Volker rule during the crisis. CountryWide, WaMu, Wachovia, NCC big banks or saving and loans that all failed, but none of them failed for doing any fancy trading. They simply made horribly stupid loans in a reckless manner, aided by Fannie and Freddie, and encouraged by greedy Wall St firms to satisfy the needs of greedy investors.

Lehman Brothers, Bear Stearns, Merrill Lynch all investment banks who's primarily regulator was the SEC not the OCC or the Fed. They would have failed with or without Glass Stegall
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Old 05-14-2012, 04:51 PM   #37
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Federal securities laws prohibit a company from making false or misleading statements that involve material information.

The problem for JP Morgan is that it was not silent about the impact of the derivative transactions intended to hedge its corporate bond position. In early April, there were numerous media reports about risky transactions made by the “London whale” that led other investors to try to profit at the bank’s expense.
Nice post. I knew about "making false or misleading statements" of course but I thought they had just chosen to volunteer the info regarding the (then) $2B loss. I did not know they'd brought it up themselves in April, rut-row. I'd heard the "tempest in a teapot" quote later, though that was prompted by a journalist or regulator question. Thanks...

A less complimentary review of Jamie Dimon on Meet the Press http://www.latimes.com/business/mone...,6700867.story
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