Basically, a company which engages as an intermediary in trading activity has to have a sterling credit rating or else traders will begin to doubt whether the intermediary (counter-party is the correct term when dealing with derivatives) will be able to enforce the terms of the contract when it comes due.
While JP Morgan has more financial strength than Enron, continued balance sheet weakness will drive traders away from it to other, more reliable, counterparties. Its major competitor is Morgan Stanley, which is also forecasting earning difficulties.
A worst-case scenario would be for all major players to lose their balance sheet luster, and the market for derivatives could dry up completely, which is what happened in the commodity markets after the 1970s. An alternative scenario would be for new counterparties or counterparty markets to develop to take away the lucrative business from these major banks. Either way, the derivatives market bears watching and the major counterparty players such as Morgan and Chase could well see a cascading collapse as traders flee them for safer options (forgive the pun).
Good post. The internet guys who keep screaming about JP Morgan are confusing the collapse of JP Morgan from a scenario similar to the above one with the notion that JP Morgan is somehow exposed to these trillions of laibilities and that a worsening financial performance by JP Morgan will mean that somehow all these outstanding derivatives contracts will cocme due with JP Morgan liable for, but unable to pay.