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 May 11, 2012  Posted by at 9:36 pm Finance
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JPMorgan announced a $2 billion loss yesterday. When compared to its market cap and other indicators, that goes Ouch!, but not much more. However, there’s more going on. The bank has refused to state where in its operations the loss was incurred. For good reason perhaps: the positions that caused the loss are still rumored to be open.

The main problem JPMorgan may be facing, and the 8% loss in pre-market trading may be a sign players are on to this, is that we probably already know where the loss is. A few weeks ago, the financial sphere was full of stories about the London Whale, a JPM trader in London named Bruno Michel Iksil, who had taken such massive – synthetic – derivative (gambling) positions in a 125 company index that they were moving the market itself.

Back then, some hedge funds took counter positions just for the sheer fact that he had bet so much; they figured he couldn't last forever on all trades. The underlying notion was he was long a bunch of companies; well, not a lot has gone well in the markets lately. And if you have overweight derivative positions in one direction (in this case credit default swaps) , you can make a killing or you can get punished fast and furious. He did the latter.

And since the bank allegedly – for now – can’t close the positions (they would move the market against JPM's positions, so JPM's doomed if they do and damned if they don't), there may be a whole lot more to come. A wounded whale oozing blood, and with sharks circling all around it. Given the above, the final tally may be many times higher than the $2 billion announced today. After all, everybody knows where the harpoon entered the whale.

Jamie Dimon may have to sweet talk like he's never done before, and he may have to pay some considerable sums here and there as well just to keep the sharks at bay.

Then again, Jamie Dimon knows that JPMorgan is too big to fail, and will be bailed out, so how worried does he really need to be?

Well, perhaps for his own job. Large investors like gamblers that win; they have no patience with losers. It’s a shark eat shark world in the end. Hard to see how Dimon can get out of this with his carefully groomed profile intact, even if the loss is limited.

 

Illustration: St. Brendan the Navigator conducts mass on a whale

Home Forums JPMorgan: A Tale of Whales and Sharks

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May 11, 2012 at 9:36 pm #8535

Raúl Ilargi Meijer

JPMorgan announced a $2 billion loss yesterday. When compared to its market cap and other indicators, that goes Ouch!, but not much more. However, the
[See the full post at: JPMorgan: A Tale of Whales and Sharks]

May 12, 2012 at 3:18 am #3191

Reverse Engineer

Jamie Dimon looks like he may be the next Dick Fuld, and like Lehman, a TBTF that became the property of the rest of the TBTF.

Sadly, Jamie will join John Thain and no longer be on the A-List for a Davos Invitation. With such unbearable shame, I suggest an immediate Seppuku.

RE

http://www.doomsteaddiner.com

May 12, 2012 at 3:41 am #3193

Porkpie

seppuku is a Japanese word, and that man is wearing the flag of Korea.

May 12, 2012 at 3:42 am #3194

sangell

As enjoyable as this debacle is I am curious because it doesn’t fit the pattern of previous bank errors where it is all blamed on a trader, rogue or otherwise. Nick Gleeson, Jerome Kerviel, Fab whatever at Goldman Sachs etc. Here Dimon is taking the fall. That’s not to say that Iksil or Ina Drew or someone else won’t get fired but why did Dimon accept responsibility? The CEO’s at Bear Stearns, Lehman, WAMU, Wachovia or any other bank I am aware of never held a conference call to admit they screwed up.
Is Dimon that much of a stand up guy or is there something else going on?

You

May 12, 2012 at 4:04 am #3195

Reverse Engineer

Porkpie post=2806 wrote: seppuku is a Japanese word, and that man is wearing the flag of Korea.

You don’t have to be Japanese to commit Seppuku. So there is no impediment to White Anglo-Amerikan Banksters doing it, or Teutonic Banksters either.

RE

May 12, 2012 at 4:49 am #3197

skipbreakfast

Interesting point, sangell. I wonder if this decision for Dimon to wear the debacle is simply a ncecessity rather than identifying a trader, which would in turn identify the trade itself, which would precipitate an attack on that position before JPM can unwind it and save themselves from even more losses. Although that then begs the question of why JPM had to make the announcement in the first place. Someone who understands that marketplace better could probably elucidate the reasons. How would this loss show up if Dimon had NOT come out with a press conference admission? Would this loss have been immediately apparent to all? If not, then why the front-running damage control? Seems like it may be preparing us for something much bigger, no? And doesn’t everyone already know which trader is making said trade, making any obfuscation by Dimon needless? Unless we’re wrong, and it’s something else. Otherwise, might as well name the trader, if it’s so deductively obvious to everyone. Something smells fishy.

May 12, 2012 at 5:09 am #3198

Reverse Engineer

skipbreakfast post=2810 wrote: Interesting point, sangell. I wonder if this decision for Dimon to wear the debacle is simply a ncecessity rather than identifying a trader, which would in turn identify the trade itself, which would precipitate an attack on that position before JPM can unwind it and save themselves from even more losses. Although that then begs the question of why JPM had to make the announcement in the first place. Someone who understands that marketplace better could probably elucidate the reasons. How would this loss show up if Dimon had NOT come out with a press conference admission? Would this loss have been immediately apparent to all? If not, then why the front-running damage control? Seems like it may be preparing us for something much bigger, no? And doesn’t everyone already know which trader is making said trade, making any objuscation by Dimon needless? Unless we’re wrong, and it’s something else. Otherwise, might as well name the trader, if it’s so deductively obvious to everyone. Something smells fishy.

I speculated on some possible reason JPMC was forced to acknowledge the losses last night in my “Whales Sniffing Glue” article on the Diner Blog.

http://www.doomsteaddiner.org/blog/2012/05/10/whales-sniffing-glue-at-jpmc/

RE wrote: The real problem is all the rehypothecation and counter party risk attached to this $3B, which itself is just concocted up funny money to begin with. Why were they forced to mark it to market, when nobody has been doing that with any asset since the Dinosaurs walked the Earth? On a THURSDAY no less, not after hours on Friday!

The answer likely would be that with all the shenanigans going on over in Eurotrashland, one of JPMC counterparties needs to liquidate, and some of what they are wanting to liquidate is paper JPMC wrote. If nobody else in the Shadow Banking underbelly will buy this paper at its par “value”, its going to get marked to market so JPMC has no choice anymore and can’t fake it.

So here is the deal. It is not really the $3B the London Whale lost at the Poker Table that is the Elephant in the Room (yes I know, Whales are Bigger than Elephants and I am mixing metaphors, but just fly with me on this one, OK?) its probably $300B of rehypothecated stuff pledged as collateral with a whole lot of Eurotrash Banksters looking to call in Markers from JPMC to cover their own losses and Margin Calls….

May 12, 2012 at 6:05 am #3202

jal

… there may be a whole lot more to come.

Quite true.

Your speculation should also include the fact that someone(s) planned all of this.

That is probably why Dimon had to make the announcement and blame it on incompetence. In other words, foreseen that they were being set up and prevented it from happening.

The initial attack was planned and cost them $2B.

May 12, 2012 at 6:11 am #3203

Golden Oxen

Dimon probably came forward because the lawyers told him too. This must mean they fear legal reprisals against him. You can bet there is much more to come from this story. If it were contained and not spreading they would have fired some clerk in the London Office, named him as a rogue trader, and continued on with their swine’s game of rigging all the markets with the public”s purse. It is the goody goody boy act of “I came clean as soon as i was made aware of it.” Expect the worst from this unfolding financial porn story, you won’t be disappointed.

May 12, 2012 at 6:34 am #3206

bluebird

@jal – I said something similar on another forum appx 8pm…

Could JPMorgan/Bruno have planned this?
Think back to MF Global and Corzine. It is said that wild speculations resulted using money in customer accounts. And that $1.2 billion ‘vaporized’ to supposedly JPMorgan. And no one went to jail. See how easy that was.

So now there is JPMorgan/Bruno also engaged in wild speculations. Where did the money come from for that $2 Billion ‘loss’… customer saving accounts? Perhaps it too ‘vaporized’ to ???

Does anyone else think our money is openly being stolen from us for the elites pockets? And one of these days, we will wake up and find all our money is gone because the elites have stolen it all, and then the system crashes.

May 12, 2012 at 7:11 am #3207

Reverse Engineer

This is not about a $2B loss. If it was just $2B, it could be swept under the rug here with all the $Trillions being shuffled about.

The answer has to be that JPMC is under ATTACK, mainly because they BLUNDERED at the Chess Game and their couterparties sense a WEAKNESS here. JPMC is a FABULOUS prize for the other Sharks in the water to Cannibalize.

Jamie went Public as a defensive rear-guard action, but JPMC is still under ATTACK. He’s been witness to how John Thain and Dick Fuld got eaten up, and he is trying a different tactic here.

He is going to be hard pressed to stop a run on the stock and a run on the Bank itself now. If YOU had $1B invested with JPMC now, knowing what happenned with MF Global and Corzine, would YOU keep that money invested with them?

Its not the Regulators Jamie has to worry about now, it’s his fellow Pigmen. They sense WEAKNESS, they WITNESSED the mistakes made by the London Whale. Now they are going in for the KILL. It makes it into the MSM because his OPPONENTS have access to the Fiancial Reporters also, and they are making furious phone calls to get a run going on JPMC.

Guaranteed, Lloyd Blankfein smells the Blood in the Water already. Goldman will SWOOP in to buy JPMC assets for pennies on the dollar.

RE

May 12, 2012 at 7:23 am #3208

skipbreakfast

That’s an interesting addition to the hypothesis, RE–that JPM is trying to defend against the attacks from other banks.

And it would only underline how truly voracious the players within the system really are. Rather than all sitting together colluding on a global take-over conspiracy, each of them will happily eat the other, until only one man is standing.

The ponziworld article that RE references in his Diner post is just excellent, albeit chilling. I think it supports everythign TAE has been arguing for over the years too.

http://ponziworld.blogspot.ca/2012/05/this-time-will-be-different.html

May 12, 2012 at 8:33 am #3209

YesMaybe

skipbreakfast

I think if they’re eating each other it’s not because they don’t want to get together and collude, but rather because the situation has gotten so bad that it’s no longer possible and someone _has_ to be pushed overboard.

May 12, 2012 at 8:47 am #3210

skipbreakfast

I agree YesMaybe…except it’s precisely why grand conspiracy theories (versus good old fashioned, never say die greed) fail to persuade me.

Keep in mind I’m distinguishing between an undeniable interest of the top .1% to keep what they have and get more versus a cabal of geniuses working in perfect lock-step to mastermind the entire bull market, collapse, sub-prime fiasco, Lehman collapse, foreclosure crisis and gold price suppression. That’s the grand conspiracy that seems to suggest the top .1% has been planning the run-up and collapse for years and years, and it simply requires far too much cooperation, secrecy and collusion than these sharks are capable of. I mean, who would be at the top of this conspiracy pyramid. Right, right, the elusive illuminati or faceless Rockefellers…who are really just The Architect from the Matrix, and not really even human beings. Apparently it’s NOT Jamie Dimon though!

Anyhow, we digress. What’s most interesting really is that something is rotten in Denmark, and it has us nervously refreshing Zero Hedge, doesn’t it?

May 12, 2012 at 9:04 am #3212

YesMaybe

Yeah, I tend to think more in terms of ordinary (often non-explicit) collusion rather than some kind of master plan. But really I just want to vent about how awful ZH is, both tyler and the commenters. I really wish there was a site like that but minus the dishonesty, immaturity, and unthinking cheerleading.

May 12, 2012 at 9:12 am #3213

skipbreakfast

Don’t you find the ZH articles interesting? Tyler is incredibly smart. He ultimately has a hyper-inflationist POV, which diverges from TAE, but otherwise, I get a lot of insight from his articles.

Now, the comments section on ZH is deplorable, I agree. While I’ve always found the comments on TAE to be extremely informative, in the ZH comments there’s just so much vitriole, racism, anti-semitism sexism, homophobia and moronism to be worth any time at all. With all the -isms in their comments, they hardly talk about finance at all.

May 12, 2012 at 9:15 am #3214

Reverse Engineer

skipbreakfast post=2821 wrote: That’s an interesting addition to the hypothesis, RE–that JPM is trying to defend against the attacks from other banks.

And it would only underline how truly voracious the players within the system really are. Rather than all sitting together colluding on a global take-over conspiracy, each of them will happily eat the other, until only one man is standing.

The ponziworld article that RE references in his Diner post is just excellent, albeit chilling. I think it supports everythign TAE has been arguing for over the years too.

http://ponziworld.blogspot.ca/2012/05/this-time-will-be-different.html

Credit that reference to p01 not me. I read it after he posted it up inside the Diner.

Collusion and Competition work in synergy here, there is not uniformity at the top of the Illuminati Pyramid. This is a Mergers & Acqusitions game on the grand scale now, and while mostly the Big Players Collude to swallow the Minnows in the game, every so foten the Sharks ATTACK each other. That is why Merrill and John Thain got eaten up and why Lehman and Dick Fuld got swallowed. Wasn’t Da Goobermint or Regulators that got them, it was their fellow Pigmen.

Somebody is poisitoning to be the Winner Take All Bank, and Leader of the Pack there is the Squid, aka Goldman Sacks the Taxpayer. However, even Goldman is vulnerable, a close friend of mine (roommate from my Ivy League years) was a Systems Engineer recruited to write trading algos back in the late 70s. Goldman has the best systems, but they are all flawed because of value assumptions made in them. When they go wrong, they go badly wrong. You know the aphorism of course, “to Err is Human, but to REALLY Fuck Up, it takes a Computer.

Let me try to explain Value assumptions briefly. Every model has to assume some values will track according to an algorithm based on past performance. You assume correlations between the variables. Algorithms run into big problems when the correlations break down, aka de-coupling. Goldman and every lesser player in this game maintains a staff of Ph.Ds and Systems Engineers that constantly tweak the algos to represent new realities, but as the realities more rapidly change, you simply cannot rewrite all the algos all the time without making MISTAKES. Eventually, this will bite Goldman in the ass. When Goldman goes down, it will be at the Speed of Light, slowed only barely by the slowing through the Fiber Optic cables.

All sorts of asumptions on risk variables are placed into the models, and for the most part they are catastrophically WRONG now. Sovereign Debt is still considered a relatively risk free asset, and this is so WRONG it is not even funny now. The Algo though won’t see this until somebody changes it, so it will move BILLIONS in nano seconds into such a “low risk” investment during a “risk off” market reaction. What happens when an Algo moves Billions or even Trillions into such an asset class and then THAT asset class collapses in a Black Swan event? You guessed it, a whole lot of digibits VAPORIZE instantaneously, at the Speed of Light.

Goldman has the very best of all the TBTF Banks running their systems, but they have a whole lot of hubris also. They WILL get caught with their pants down here at some point, and when that occurs, the resultant crash will be magnificent.

Until then though, Goldman still is the Great White Shark in the water, the biggest and the fastest on the trigger. The Squid is the best positioned to be the last Bank left standing until their Algos blow holy hell on them. Then they will go down at the Speed of Light.

RE

May 12, 2012 at 9:51 am #3215

YesMaybe

skipbreakfast

I can’t deny tyler is smart, and I have no problem with his hyperinflation views, though I don’t agree with them. And some of the stuff there is good reading, which is why I do peruse it. What bothers me is (a) his dishonesty and (b) his ‘eat the poor’ worldview.

Here is an example of the two working together:
“Instead, the Democrats favor the Buffett rule, which seeks to further widen the class divide by making the wealthy pay progressively more.”
Cause everyone knows ‘class divide’ means ‘progressive taxation’?

You see it in how often he dwells on the percentage of Americans who ‘pay no taxes’, his saying that austerity is actually good but simply hasn’t been tried, his endorsement of the ‘lazy greeks’ myth, etc. He seems to realize that dimon and all don’t deserve their wealth, but to think that poor people deserve to be poor. I don’t know what he thinks of rich people in general, but since he’s all about ‘free markets’ I’m sure it’s something awful and detached from reality.

May 12, 2012 at 10:02 pm #3228

sangell

Well the NYT’s is out with JPM version of events as told to Andrew Ross Sorkin yesterday after he finished his CNBC show. CDX IG9 is what is what had a meltdown and could melt yet further. Not that I understand this stuff but it seems Dimon has gotten his bank into an AIG type position where they own one side of a bet. Not only does he have to worry about the real macro situation causing the bet to detonate, he also has to appeal to the other players to not raise the stakes. The mea culpa is probably related to this. “I’m whipped so please don’t hit me anymore” the onetime Wall St. bully was more or less whining.

Not long ago BONY was being squeezed for its role as the trustee in all those MBS pools. Investors wanted them to require the issuers to take back loans that did not meet the warranties made. Interestingly, BONY had applied to be part of the CDS cartel at that time too but since the same banks that operate the CDS market also issued most of the defective loans in those MBS pools BONY couldn’t very well put back all those billions in crap mortgage loans the banks had off loaded to investors and expect to be granted its request. Mirabile dictu a universal settlement with the states attorney generals that relieved the pressure to put back crap loans onto the banks balance sheets was cobbled together by the banks and US government. What will happen to BONY’s request I have no idea but they are no longer behind the eight ball now.

I mention this because, obviously, the US government cannot have a repeat of AIG or even have to re-TARP a TBTF bank with an election coming up so some ‘solution’ will be found to JPM’s problem that will require the other players to pull in their claws and cooperate ‘if you know what’s good for you’.

May 15, 2012 at 12:18 am #3310

natureisnature

in “Ashvin’s article, Planet Earth – F.U.B.A.R., MONDAY, MAY 14, 2012 1:26 PM “, this phrasing exists as “Europe will be F.U.B.A.R., that’s what. Capital exodus, financial contagion, hyperinflation, social unrest, civil war… “

“hyperinflation”? what “hyperinflation”? apparently “Ashvin’s” perspective contradicts “Automatic Earth’s” consistent perspective of “a severe deflation would come imminently”.
why such a contradiction? why? editors should discuss this conflict in mentality extensively…

“OMG”! hard to believe such situation exists.

explain to viewers and reader why “hyperinflation” is imminent, Please, “Ashvin”!

i demand “Ashvin’s” complete honesty to explaining why “hyperinflation” is imminent.

May 15, 2012 at 5:12 am #3322

Reverse Engineer

natureisnature post=2924 wrote: in “Ashvin’s article, Planet Earth – F.U.B.A.R., MONDAY, MAY 14, 2012 1:26 PM “, this phrasing exists as “Europe will be F.U.B.A.R., that’s what. Capital exodus, financial contagion, hyperinflation, social unrest, civil war… “

“hyperinflation”? what “hyperinflation”? apparently “Ashvin’s” perspective contradicts “Automatic Earth’s” consistent perspective of “a severe deflation would come imminently”.
why such a contradiction? why? editors should discuss this conflict in mentality extensively…

“OMG”! hard to believe such situation exists.

explain to viewers and reader why “hyperinflation” is imminent, Please, “Ashvin”!

i demand “Ashvin’s” complete honesty to explaining why “hyperinflation” is imminent.

I’ll reply to this one.

HI is possible with the Euro because there are multiple other currency options for Eurotrash to flock to, notably the Dollar but also the Swissie and Pound also.

HI is also possible because the currency was structured so poorly to begin with. They can’t do the Circle Jerk with Treasury that Da Fed and the BoE do.

RE

May 15, 2012 at 6:43 am #3324

einhverfr

A second point is that central bankers can use hyperinflation (by drastically increasing the money supply) to keep banks’ balance sheets positive when housing prices are shrinking in terms of real income.

Consider this: artificial hyperinflation can be used to inflate away deflating housing markets which themselves threaten the existence of the banking system. In other words, if housing prices shrink 90% on average in real income terms, but you see the dollar lose 95% of its value in the same period, there is no insolvency in the banks when folks strategically default and declare bankruptcy. This allows us to pretend that debts are still collectable while using inflation as a form of essentially debt forgiveness which doesn’t harm balance sheets.

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