FWIW
“It was the second week of October 2006. William King, then J.P. Morgan’s chief of securitized products, was vacationing in Rwanda, visiting remote coffee plantations he was helping to finance. One evening CEO Jamie Dimon tracked him down to fire a red alert. “Billy, I really want you to watch out for subprime!” Dimon’s voice crackled over King’s hotel phone. “We need to sell a lot of our positions. I’ve seen it before. This stuff could go up in smoke!”
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“But what about the CDO’s the bank still held? Weren’t they all AAA rated?
“Yes, they were, but the price of credit default swaps on even AAA-rated CDO’s told a different story:
“Winters and Black [investment bank co-heads] saw that once they bought credit default swaps to hedge the AAA CDO paper J.P. Morgan would have to hold, the fees from creating CDOs would vanish. “We saw no profit, and lots of risk, in holding subprime paper on our balance sheet,” says Winters.
“The combined weight of that data triggered Dimon’s call to King in Africa. “It was Jamie who saw all the pieces,” says Winters.
“Not only did Dimon instruct the bank to start selling its CDO’s (including more than $12-billion subprime mortgages that JP Morgan had originated), he took action across the entire institution. Trading desks were ordered to dump loans on their books, and to stop making markets in subprime loans for customers. The private bank, that manages money for wealthy clients, started advising them to sell. The corporate treasury department started hedging and placing bets that credit spreads would widen (profiting by hundreds of millions of dollars when that turned out to be precisely the case).
http://www.adamsmithesq.com/archives/2008/09/lessons_from_jp_morgan_ch.html