It sounds like it was an "investment" in a derivative of derivatives. Nest that notion a few more times and we're really getting somewhere.
In the last 20 years Wall Street has moved away from an investment-led model, to a gambling-led model.
But if Conservatives want to play along with Barney Frank, perhaps these billion dollar profits can be turned into trillions of dollar losses.
And a trader who blows more than a million dollars gets barred from ever working for a financial institution again, either directly or indirectly.
“This is just a preview of coming attractions.”
One simple observation that adds a lot of heft to this is that a few billion here or there to JP Morgan would NOT have pushed them to a public mea culpa.
A good way to describe the derivatives market is the “elementary schoolyard” model.
During morning recess, the schoolboys took to betting their lunch money while pitching pennies. Some would win, and some would lose, but the payoffs were immediate.
Then one schoolboy, tired of losing his lunch money over and over again, tries the “double or nothing” gamut. He bets today’s lunch money, and *tomorrow’s* lunch money. And he wins the bet. So the other boys double down again, betting 4x lunch money. And he redoubles that to 8x lunch money.
Being in elementary school, they are soon betting tens and hundreds of thousands, then millions and billions and trillions of dollars (eventually they get to ‘infinity dollars’ and ‘infinity +1’ dollars, which turns it into a farce). Of course, none of them have that money, because their bets are based on previous bets only.
And this is a good description of the derivatives markets, excepting the ‘infinity’ plus bets (as well as laughing when they hit the sextillion dollars bets).
Because, in the final analysis, their derivative gambles are so utterly disconnected from reality that they are just dares and double dares. Yet, the zinger is, they actually expect *somebody* to make their bets “good”.
So at some point they try to ‘backtrack’ their money to reconnect it with real things of value. In the schoolyard this might amount to billion dollar marbles, but that breaks down quickly because marbles just can’t be worth that much.
The only real solution is for the ‘teacher’, in this case governments, to intervene and say that all such bets are null and void. Of course this will result in some derivatives trader bitterly throwing a tantrum and complaining that it is “not fair, because he owes me a billion, trillion, quadrillion dollars, and I want *my* money!!!”
“Tough”, the teacher has to say.
What's the net exposure?
Money laundering
In my simple mind and humble opinion:
The derivatives market should collapse.
We will all suffer though for the sins and profit of the few.
Derivatives produce nothing. The market has all become about gambling and not about value So much business has become about smoke and mirrors and much much less about adding value through manufacturing or invention or technology applications.
When a 38 year old can amass 3.8 billion after leaving a failed Enron by simply trading paper and taking a risk doing that... nothing is gained by anyone but him. Sure, he may have made people money along the way. I’ll bet though that most of the time he was on both sides of the trade and profited either way.
NO VALUE WAS PRODUCED. This is the business equivalent of spilling your seed on the ground.
Many of those derivatives offset each other. I agree the notational value is too large but absolute exposure is far lower.
Another point in the article about the SEC (and FINRA,unmentioned) sleeping. They were no doubt. Without question. Now they have the sharp knives out and will attempt to blow up the smallest infraction. They are measuring success there now by fines and jail terms and not a lack of scandal.
In a vanilla Interest Rate Swap, the 2 parties involved in a transaction are only exchanging fixed interest payments for floating interest payments on an agreed-upon notional. For example: 2 parties may engage in a Swap transaction on a $100million notional amount. They are not exchanging the entire $100million. They are only exchanging interest payments on that $100 million on a monthly, quarterly, semi-annual or annual basis (whatever they agree to), so the true exposure is nowhere near the $100 million notional amount of the swap.
Additionally; If JPM does one side of a swap with Bank "A" and the other side of a swap with Bank "B", with both swaps having a notional amount of $100 million each, the net exposure is essentially "0" since the swaps offset one another. However; these transactions will be reported in the media as "$200 million in outstanding derivatives exposure".
Let's not become like our enemies on the left. They would love nothing more than to use this mark-to-market, paper loss (not a realized loss) as an excuse to let the government run wild and take control of the entire banking industry "for our own good".
Besides - is it the job of the government to ensure that investment banks don't incur trading losses? As long as the banks don't come back looking for a bailout after such a loss, this is simply a consequence of being in a business were risk is taken.
The outrage at banks being bailed out should be directed towards the government who authorizes the bailouts. You make a big bet and it goes against you? Eat the loss.
But that figure is not as important as this breaking report:
JPMorgan Chase Manipulation Scandal Raises Specter Of Enron !
Isn't Jamie D Mr. 0's favorite banker ___ ?
LOL !
This is the new Washington DC. Corruption corruption corruption and still no prosecutions. Just bonuses. More $$$$$$$ Millions in payoffs for profiteering criminals . . . .