JPMorgan Loses $2B on Synthetic Credit Securities

I said we don't have nationalized businesses in this country, and we don't put limits on the size of businesses out of concern for the public good. You just jumped to something that assumes JP Morgan can't make good on its deposits. What you posted leaps to a different place.

JP Morgan has deposits of approximately $1.1 trillion -- roughly the economic output of Australia. We are talking about a proprietary trading loss of $2 to $3 billion, from what they have said (assuming there is not more to this).

When are you sitting on that much cash, it hard to put it to work -- to earn money for your business; they are in business to earn money! I know, it offends a lot of people. But given that, they couldn't simply buy that $1.1 trillion worth of debt. It would be an impossibility. So apparently they put the money into credit market indexes -- synthetic products. Then to try to insure against the borrowers defaulting, they bought credit default swaps as insurance. Whatever it was they were doing didn't work. They lost a lot of money.

But we are talking about proprietary trading losses that are $2 or $3 billion, according to what we know so far -- for a company sitting $1.1 trillion, more than enough presumably to make good on its obligations.

If you know something I don't, about JP Morgan not being able to make good on its deposits, what you posted makes sense. But we are talking about something that will only affect the company's profits -- anyone on here who doesn't own shares, has no regulatory interest in it.

 

I don't know if you are joking, because I can never tell with you.

But we have created this insane web of crony capitalism. The banks spend gazillions trying to water down this labyrinth of regulations (thousands and thousands of pages) and huge bureaucracies that opportunistic politicians throw out there as populist red meat. Our legislators get it both ways. They use the banks as punching bags and then feast off their money. It is total corruption. The banks, some of them run VERY ineptly (not not all), pay a fortune for all kinds of favors nobody else gets -- for example, just the overnight lending rate from the Fed, gives them loans at a profit before they ever even put the money to use. And that is the least insidious thing going on.

And all the bureaucracy and hamhanded legislation does is hurt people. The thing about Dodd-Frank that has affected people most so far, is the disappearance of bank branches in low-income and middle class neighborhoods, as it has become unprofitable due to the red tape to offer anything except services to high net worth individuals.

Your idea should make sense to people. Get out of their way. Don't let them buy their way out of mistakes. Don't put road blocks in their way that make them buy all kinds of convoluted things from the politicians in their pockets that create messed up incentives and services that are more costly for all of us. No TARPS!

Without the web of mess, they either compete successfully, offering services that are profitable, or they don't. If they set up proprietary trading arms because they are sitting on more cash than they know what to do with, they either show good judgment or they throw their business onto the scrap heap. It's the same for anyone. I'm not sitting on more than a trillion dollars, but I do sometimes trade financial instruments that are so leveraged that a small move can wipe me out. I have had my share of heart attacks watching a trading screen. But if I am so stupid as to overleverage myself to the point that I can't afford my losses, I don't expect anyone to 1) really be all up in my business about it, 2) try to regulate my right to do what I want with my money, 3) give a shit, and 4) bail me out for my stupidity.

 

Of course it is something to think about (with regard to JP Morgan at least; I haven't said a word about the Tribune -- and don't really know their business that well or what is going on there).

IF IF IF IF IF JP Morgan ever committed fraud, it would obviously be doing something illegal.

Is that at issue here?

Bruno Iksil (the trader responsible for all of this) certainly has the ability to commit fraud. All it takes to commit fraud is a boat load of money and access to markets.

But the preliminary evidence that that isn't true is 1) When you commit fraud, usually it is to your benefit (a la Bernie Madoff), and then you get caught after some kind of scheme collapses around you, and 2) It looks like JP Morgan came clean in regulatory filings right away. Usually when trading losses lead to fraud or theft (a la MF Global), there is a pattern of trying to hide the losses and then crossing the line to illegal coverups before it catches up with you.

 

Exactly.

And "affect me" is not, and should not, be a standard for business regulation. Lots of things around me "affect" me.

If the local take out joint goes out of business it affects my neighbor who orders from them every night. If Wal-Mart goes out of business it affects a lot of people who shop there every week. If JP Morgan Chase goes out of business it affects a lot of people.

The POSITIVE affects of a free society are why we live the way we do and should strive for more competition (which is a hallmark of that freedom), rather than looking for ways to limit it or control everything (which takes away the benefits of competition). Competition breeds innovation and excellence. I wish people saw more clearly how that creates the best standard of living possible.