JPMorgan's trading debacle: why $2 billion is just the start

CNN ^ | 05/11/12 | Stephen Gandel

[TigerLikesRooster]

JPMorgan's trading debacle: why $2 billion is just the start

By Stephen Gandel, senior editor

May 11, 2012: 2:02 PM ET

The bank's bad bet could curtail profits for years to come.

FORTUNE -- For years, JPMorgan Chase (JPM), perhaps the riskiest bank in the world, got a pass. Sure there were minor hiccups along the way. But basically investors had the attitude with the bank run by Jamie Dimon that they were going to be hands off. Sub-prime mortgage loans: You've proved you can handle them. Foreclosure problems: We're sure you've got your best people on it. A derivative portfolio roughly the size of the GDP of India: We trust that you have covered your bets.

In fact, despite its huge size and complexity and risk, investors have allowed Dimon and JPMorgan to skate by on one of the smallest capital cushions, which is how much equity you have to protect against losses, on Wall Street. When you sort JPMorgan's loans and investments by riskiness, a dubious calculation, but used by Wall Street nonetheless, the bank holds an equivalent of just 10% of that as capital. That compares to 13% at Citigroup (C) and 15% at Goldman Sachs (GS).

[TigerLikesRooster]

P!

[SatinDoll]

I’m sure glad we paid off our Chase mortgage two months ago!

[Fee]

A month ago, JPM and four other large Wall Street banks met with the Fed Reserve in a secret meeting. Rumors were amiss that time that the banks were facing losses possibly from the derivative market on EU bonds. MF Global was the canary in the Wall Street mine. JPM is the first to release its initial losses to see public reaction. The other US Wall Street banks have similar losses which will be exposed in the future. Problem in a nutshell, JPM (and maybe other US banks) thought they had a well thought out computer program to leverage money in derivatives on EU sovereign debt. Problem is the EU crisis was more volatile then one predicted thus JPM (and maybe other US banks) now own the derivatives that are losing value each day, and worst there is no private buyer in the derivative exchange for it. Everyone is too scare to buy derivatives on EU debt no matter how low the prices go. In other words JPM (and the other US banks) maybe stuck with these devaluing derivatives and are facing severe losses. They may have gone to the Fed with the threat of financial meltdown. Problem is the Fed and US Treasury is out of options to bail them out in an election year. 2012 is going to be a mess. We will see how the markets react on Monday.

[TigerLikesRooster]

I am wondering what outrageous moves they make to avert the meltdown for another half a year or a year. Seems that kicking the can down the road is becoming harder to do.

[pepsionice]

The real problem here...if you think about this....is that the banks all have vast sums of money invested in Europe. If the Greece business really does go down the tubes, then there could be a huge significant loss coming for the banks. All JP Morgan was doing...was getting themselves into some “bets” and ensuring some marginal profits to balance their books. They guessed wrong, and they are still in line for the Greek failure.

If you note the currency exchange rate over the past month...it’s been showing a weaker Euro. Let’s say in six weeks that the Euro weakens another ten percent. That will really bring US investments down. It also makes European products cheaper to buy for the American public. American products will cost a heck of alot more.

All in all...I’d say by November that another economic recession will have been launched and it’s to have nothing to do with the American sector...just a reaction to the European sector.

[LS]

I think that is an accurate assessment. (Think of how the Chinese feel holding dollars).

[ronnie raygun]

Sounds like they got the memo from zero and his crime syndicate, make up a loss so we can come in with new harder regulations on everyone except you, you will get a pass like many have gotten with zerocare. Chase like GE, AARP and many others have teamed up with the Chicago cosa nostra to solidify thier position with the syndicate and push and destroy all others. Nationalsation at it’s best

[Neidermeyer]

I’m sure glad we paid off our Chase mortgage two months ago!
****************************************************
It’s not paid off until you get a satisfaction filed at the county... just because they aren’t asking for a monthly payment doesn’t mean that you’re free and clear .. GET THE SATISFACTION.

[Neidermeyer]

I’m sure glad we paid off our Chase mortgage two months ago!
*****************************************
Almost forgot ... You need to demand the return of the “wet ink” note also... otherwise ANYONE can claim ownership and foreclose... happens everyday.

[MichaelP]

It could cascade into a world wide bankruptcy and then depression. It'll start with the Euro countries throwing in the towel, one by one. The people in these countries say FU to their Governments and vote populist/socialist leaders into power. But that won't matter (look at California), Banks around the world will start to fail, like dominos. The world's currency system will be obliterated. Governments will have to wipe the slate clean and their citizens will lose everything except their physical posessions... Therein lies the pretext for martial law!

Mike

[Freedom4US]

I thought the banks destroyed all those? The whole thing is one big mess right now, and will remain so for many years.

[Wolfie]

I watched a Frontline documentary on the 2008 financial crisis, and why things hadn’t changed very much since then. The experts agreed...it wasn’t bad enough. Only a total collapse will bring the regulation needed. Oh, I forgot, regulation is bad. Never mind.

[arthurus]

Te can is getting rapidly heavier and is breaking into pieces.

[LS]

Disagree Mike. This is the first step toward healing. It would occur far faster than you think. Consider the U.S. Civil War: the South's currency was ZERO. It sucked. Yet within five years, large portions of the South were already being rebuilt; within 15 years (!!!!!) more than 10% of all land in the South (!!!!!) was owned by former slaves.

That statistic alone is stupifying. It says that whatever the condition, capitalism recovers astoundingly quickly to right the ship. Germany's slate was "wiped clean," and within five years (no, not thanks to the Marshall Plan) Germany's stores were again filling up, people had rebuilt buildings, and in 10 years, Germany was already becoming a new European power again, all because it had a capitalist Finance Minister and Chancellor.

Now, if you and Glenn Beck want to have a gloom and doom pity party, feel free. I shall not participate.

[Travis McGee]

[DH]

Do you live here in the U.S.?

Back in the days that the empire state building was made, it took only 11 months from the day it was started to the day the last tile in the bathroom was finished.

Today, with all of the Federal, State and local regulations along with the EPA, impact studies and constant inspection hurdles, it would take 5 years to do.

Here in the U.S. we live in a world of bureaucratic webs that inter-tangle with an unbelievable and staggering amount of other inter-tangling bureaucratic webs. The same thing applies to our banking.

The government cannot cure the problem simply because it is the problem.

I just thought there was a possibility that you either don’t live here in the U.S. or are totally blind to the fact that we cannot ever save ourselves until (1) we revolt and take the country back to original constitutional laws as written or (2) we revolt and physically throw out our current government and replace it.

There a no other options. Big Banks/Business feeds Congress. Congress reciprocates and feeds Big Banks/Business. The common people pay for all of it.

[Travis McGee]

[GBA]

Here we go again. We still haven't figured out the cause of our problems, so we'll have yet another opportunity to figure it out.

If you thought the last few shakes were attention getters, you're gonna love what comes next.

[spokeshave]

Almost forgot ... You need to demand the return of the “wet ink” note also... otherwise ANYONE can claim ownership and foreclose... happens everyday.

So you ask for the original loan documents to be returned...?

Spokeshave and family paid off our Chase mortgage early this year ....and received confirmation from the county recorder.