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Thread: JPMorgan Loses $2 Billion in Chief Investment Office

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    JPMorgan Loses $2 Billion in Chief Investment Office

    Jamie Dimon, CEO of JPMorgan is one of the chief opponents of financial reform, and in particular the Volcker rule. Prohibit banks from trading on their own accounts? Absurd! What could go wrong? We'll all be happy to bail them out again, right?

    JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said the firm lost about $2 billion on synthetic credit securities after an “egregious’” failure in its chief investment office, which the bank says focuses on hedging.
    “This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the New York-based company said today in a quarterly securities filing. JPMorgan declined 5.5 percent to $38.50 in extended trading at 5:55 p.m. in New York.
    The irony is that the losses came from the desk that's supposed to be hedging AGAINST these sorts of losses. Looks like Dimon's really earning that $23 million salary.
    "The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. ... It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

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    Re: JPMorgan Loses $2 Billion in Chief Investment Office

    Quote Originally Posted by AdamT View Post
    Jamie Dimon, CEO of JPMorgan is one of the chief opponents of financial reform, and in particular the Volcker rule. Prohibit banks from trading on their own accounts? Absurd! What could go wrong? We'll all be happy to bail them out again, right?



    The irony is that the losses came from the desk that's supposed to be hedging AGAINST these sorts of losses. Looks like Dimon's really earning his $23 million salary.
    Awww ****, someone needs a bailout stat!
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    Re: JPMorgan Loses $2 Billion in Chief Investment Office

    Hedges can be ineffective, due to design or portfolio maintenance flaws when risk is reasonably understood. They can be ineffective due to poor understanding of risk. Sometimes, they can morph into speculation.

    Right now, I'm not sure what situation applies to JPMorgan. However, I believe that the Fed should ignore calls to ease recent regulations on the financial sector. The failed hedging strategy at JPMorgan suggests that there is sufficient risk to justify regulation and non-regulatory approaches to risk management e.g., hedging, may not adequately address that risk. In fact, risk management as a whole proved remarkably bad leading up to and during the recent financial crisis. I have not seen empirical evidence that suggests that risk management has qualitatively improved since then.

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    Re: JPMorgan Loses $2 Billion in Chief Investment Office

    Quote Originally Posted by donsutherland1 View Post
    Hedges can be ineffective, due to design or portfolio maintenance flaws when risk is reasonably understood. They can be ineffective due to poor understanding of risk. Sometimes, they can morph into speculation.

    Right now, I'm not sure what situation applies to JPMorgan. However, I believe that the Fed should ignore calls to ease recent regulations on the financial sector. The failed hedging strategy at JPMorgan suggests that there is sufficient risk to justify regulation and non-regulatory approaches to risk management e.g., hedging, may not adequately address that risk. In fact, risk management as a whole proved remarkably bad leading up to and during the recent financial crisis. I have not seen empirical evidence that suggests that risk management has qualitatively improved since then.
    Not only should the existing rules NOT be weakened ... they should be greatly strengthened, or preferably scrapped altogether and replaced with a modern version of Glass Steagall that reestablishes the distinction between traditional banks and investment banks. Otherwise we will surely see a repeat of the Great Recession some time in the next 10-20 years.
    "The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. ... It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

    -- Adam Smith

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    Re: JPMorgan Loses $2 Billion in Chief Investment Office

    Quote Originally Posted by AdamT View Post
    Not only should the existing rules NOT be weakened ... they should be greatly strengthened, or preferably scrapped altogether and replaced with a modern version of Glass Steagall that reestablishes the distinction between traditional banks and investment banks. Otherwise we will surely see a repeat of the Great Recession some time in the next 10-20 years.
    Well that's just it. Another repeat is sure to come as the very systemic problems that allowed for this crisis to occur have not been resolved and don't look like they are ever going to get resolved.
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    Re: JPMorgan Loses $2 Billion in Chief Investment Office

    Quote Originally Posted by Mr. Invisible View Post
    Well that's just it. Another repeat is sure to come as the very systemic problems that allowed for this crisis to occur have not been resolved and don't look like they are ever going to get resolved.
    Sadly, I agree, though there's a chance it will be corrected if Obama is reelected. If Romney wins -- no chance at all.
    "The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. ... It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

    -- Adam Smith

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    Re: JPMorgan Loses $2 Billion in Chief Investment Office

    Once upon a time, bankers had a well deserved reputation for being conservative in matters of finance. All that has gone out the window and now we have debacles like this and the 2008 meltdown.

    We badly need strong and serious reform with responsible oversight and regulation of the entire financial industry.
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    Re: JPMorgan Loses $2 Billion in Chief Investment Office

    I wonder how much the CEO made in bonus ? ...thats alot of money to lose...I guess they will have to raise interest rates to and fees on the mass's here to get it back...

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    Re: JPMorgan Loses $2 Billion in Chief Investment Office

    What is amazing about this case is that a department that is designed to hedge risk took what amounts to a massive singular position. What is even more insane is that the trader utilized CDS in essentially a naked way.

    What tops the cake is that the managers were okay with this. I don't see how regulation can fix this. You can't fix dumb.
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    Re: JPMorgan Loses $2 Billion in Chief Investment Office

    Quote Originally Posted by haymarket View Post
    Once upon a time, bankers had a well deserved reputation for being conservative in matters of finance. All that has gone out the window and now we have debacles like this and the 2008 meltdown.

    We badly need strong and serious reform with responsible oversight and regulation of the entire financial industry.
    While you get some of a pass because you have never been in business do you and the other knuckleheads in this thread understand what a bunch of horsesh** you are spewing. While this was a bad piece of business it is important for you and others to recognize that JPM earns 4-5 billion EACH QUARTER. So even with this loss they will probably make money for the quarter and the year. The world is not about to end. Can you or any other chicken little in this thread point to anything that remotely put JP Morgan or the financial system at risk?

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