• This is a political forum that is non-biased/non-partisan and treats every person's position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

JPMorgan Loses $2 Billion in Chief Investment Office

Ease up on the name calling, there, Chief. JPM is no different than the other too-big-to-fail firms in the sense that they all have the potential to implode and they are all big enough that the taxpayers would have to pick up the pieces. JPM has been one of the better firms, but let's not forget that they needed a $25 BILLION bailout just a few years ago. Yeah, the took over Bear, but did you forget that the federal government guaranteed Bear's liabilities to the tune of $30? You think they could have taken the firm over without that guarantee? Not on this planet. That's a $25 BILLION bailout + $30 BILLION guarantee = $55 BILLION in government assistance. Awesome. No changes needed, right?

JPM didn't need the $25 billion, they were forced to take it. The $30 billion guarantee came from the Federal Reserve, not the taxpayer. That can hardly be considered government assistance to JPM; the Feds proposed it in order to allow Bear Stearns to avoid bankruptcy.

As for the $2 Billion trading loss, the new Systemically Important Financial Institutions agency is already supervising JP Morgan and completely missed it. Even if the Volcker rule was already implemented, it probably wouldn't have even applied to these trades in the first place since they were carried on JP Morgan's books as hedges against bank positions.
 
JPM didn't need the $25 billion, they were forced to take it. The $30 billion guarantee came from the Federal Reserve, not the taxpayer. That can hardly be considered government assistance to JPM; the Feds proposed it in order to allow Bear Stearns to avoid bankruptcy.
Ultimately the federal reserve is giving away the taxpayer's money. It may not be in the traditional sense, but when you create more money to pay the banks, the subsequent devaluation of the dollar through inflation is the most vicious of all taxes.

JP Morgan got a hell of a deal absorbing Bear Sterns, a deal propped up by government, regardless of how you look at it.
 
Was that an order? I tell you what, hommie, you address my post and I'll address yours.


don't like your tone. will refrain from dealing with you in the future.
 
JPM didn't need the $25 billion, they were forced to take it.

How were they forced to take it? I don't remember seeing Paulson driving a tank to the steps of JPM and threatening to blow them up if they didn't take $25 billion in taxpayer money.

As for the $2 Billion trading loss, the new Systemically Important Financial Institutions agency is already supervising JP Morgan and completely missed it. Even if the Volcker rule was already implemented, it probably wouldn't have even applied to these trades in the first place since they were carried on JP Morgan's books as hedges against bank positions.

If JPM wasn't trading on its own account it wouldn't need these massive hedges. What we have here is a gigantic, too-big-to-fail bank making huges bets on derivatives futures, with management encouraging more risk, but oblivious to the extent of the risk being undertaken. Basically it's Long Term Capital Management all over again, albeit it on a smaller scale, and it indicates that the problem has not been fixed. The CEO, Dimon, said that he didn't know it was going on, didn't know the extent of the losses, and didn't even know if his bank had broken any laws.
 
Last edited:
Yes, she said it all and he has to go.

Elizabeth Warren called on JPMorgan Chase CEO Jamie Dimon to resign from his post on the Federal Reserve Bank of New York's board, citing the need for "responsibility and accountability" in the financial industry.

"We need to stop the cycle of bankers taking on risky activities, getting bailed out by the taxpayers, then using their army of lobbyists to water down regulations," Warren said. "We need a tough cop on the beat so that no one steals your purse on Main Street or your pension on Wall Street."

Elizabeth Warren: Jamie Dimon Should Resign From New York Fed Board
 
Last edited:
Ultimately the federal reserve is giving away the taxpayer's money. It may not be in the traditional sense, but when you create more money to pay the banks, the subsequent devaluation of the dollar through inflation is the most vicious of all taxes.

JP Morgan got a hell of a deal absorbing Bear Sterns, a deal propped up by government, regardless of how you look at it.

There is no doubt JP got a hell of a deal. However, given that the dollar increased roughly 15% in 2008, I don't see how the Fed's guarantee of Bear's assets represents a tax. A clear distinction must be made between actions of the Federal Reserve and the U.S. government. You can't conflate the two to try and make a point as AdamT did.

How were they forced to take it? I don't remember seeing Paulson driving a tank to the steps of JPM and threatening to blow them up if they didn't take $25 billion in taxpayer money.

A number of large financial institutions were forced to accept bailout money in order prevent the market from exerting pressure on under-capitalized banks. JPM repaid the full $25 billion with an additional $795 million in dividends within six months of receiving the bailout.

If JPM wasn't trading on its own account it wouldn't need these massive hedges. What we have here is a gigantic, too-big-to-fail bank making huges bets on derivatives futures, with management encouraging more risk, but oblivious to the extent of the risk being undertaken. Basically it's Long Term Capital Management all over again, albeit it on a smaller scale, and it indicates that the problem has not been fixed. The CEO, Dimon, said that he didn't know it was going on, didn't know the extent of the losses, and didn't even know if his bank had broken any laws.

The CIO office wasn't hedging JPM's proprietary trading accounts. The hedges were designed to hedge JPM's corporate bond and loan portfolio. The reason why regulators are having trouble implementing the Volcker rule is because it is very difficult for them to make the distinction between proprietary trading and hedging/market-making activities. There is little evidence that the Volcker rule would have prevented the $2 billion loss and "too-big-to-fail" regulation was already implemented through the Systemically Important Financial Institutions agency at the Federal Reserve.
 
The Onion did an interesting little article about this.

My favorite line:

black_man.jpg

"Double or nothing, Jamie! Otherwise, you'd better slink off to equities with all the other ******s."

Richard Danziger
Hedge Fund Manager
 
There is no doubt JP got a hell of a deal. However, given that the dollar increased roughly 15% in 2008, I don't see how the Fed's guarantee of Bear's assets represents a tax. A clear distinction must be made between actions of the Federal Reserve and the U.S. government. You can't conflate the two to try and make a point as AdamT did.

Government loan guarantees have a monetary value -- they are governmet assistance any way you cut it. Or would you say that, e.g. Solyndra didn't get any government assistence?

A number of large financial institutions were forced to accept bailout money

Yeah, that's what you said before. I asked how they were "forced" to take the money....

The CIO office wasn't hedging JPM's proprietary trading accounts. The hedges were designed to hedge JPM's corporate bond and loan portfolio. The reason why regulators are having trouble implementing the Volcker rule is because it is very difficult for them to make the distinction between proprietary trading and hedging/market-making activities. There is little evidence that the Volcker rule would have prevented the $2 billion loss and "too-big-to-fail" regulation was already implemented through the Systemically Important Financial Institutions agency at the Federal Reserve.

Let's cut the bull**** -- it appears that they weren't hedging anything. These so-called hedges WERE proprietary derivatives trades that were so large they were moving the market.
 
Yeah, that's what you said before. I asked how they were "forced" to take the money....

I know it sounds ridiculous, and in fact, it is, but it did happen that way. Then Secretary of the Treasury Henry Paulson essentially strong-armed the 9 largest banks to accept the bailouts. He took them into a room and told them that it wasn't an option.

Episode 2 of the PBS Money, Power and Wallstreet miniseries covers this in great detail
Money, Power and Wall Street | FRONTLINE | PBS

How Paulson forced bail-out on the banks | Business | guardian.co.uk
 
Government loan guarantees have a monetary value -- they are governmet assistance any way you cut it. Or would you say that, e.g. Solyndra didn't get any government assistence?

Comparing the Bear Stearns deal with Solyndra highlights your ignorance on the subject. Do you understand the difference between the Federal Reserve and the UST?

Let's cut the bull**** -- it appears that they weren't hedging anything. These so-called hedges WERE proprietary derivatives trades that were so large they were moving the market.

Of course they were hedging something. Have you read anything on the situation? In retrospect, the botched trade could be described as proprietary since their position became net long corporate credit instead of market neutral. The point being made is that the CIO office would still have existed under a Volcker rule and there would have been very little regulators could do to prevent the loss. My last post was in response to your claim:

If JPM wasn't trading on its own account it wouldn't need these massive hedges.

Which is quite obviously false if you had read anything on what happened.
 
I know it sounds ridiculous, and in fact, it is, but it did happen that way. Then Secretary of the Treasury Henry Paulson essentially strong-armed the 9 largest banks to accept the bailouts. He took them into a room and told them that it wasn't an option.

Episode 2 of the PBS Money, Power and Wallstreet miniseries covers this in great detail
Money, Power and Wall Street | FRONTLINE | PBS

How Paulson forced bail-out on the banks | Business | guardian.co.uk

I know that this has been stated over and over -- that they were "forced" to take the funds -- but I have yet to see a credible explanation of HOW that force was applied. Paulson didn't have the legal authority to force JPM to take the money. He may have pressured them, but ultimately Dimon could have told him to go pound sand.
 
I know that this has been stated over and over -- that they were "forced" to take the funds -- but I have yet to see a credible explanation of HOW that force was applied. Paulson didn't have the legal authority to force JPM to take the money. He may have pressured them, but ultimately Dimon could have told him to go pound sand.

Check Mach's post above, there's an excerpt from one of the documents presented to the CEOs. It clearly states: "it's in your best interest, but if you resist, your regulator will do it anyway."
 
Comparing the Bear Stearns deal with Solyndra highlights your ignorance on the subject. Do you understand the difference between the Federal Reserve and the UST?

The source is irrelevant, as the question is whether a loan guarantee constitutes publica assistance.

Of course they were hedging something. Have you read anything on the situation? In retrospect, the botched trade could be described as proprietary since their position became net long corporate credit instead of market neutral. The point being made is that the CIO office would still have existed under a Volcker rule and there would have been very little regulators could do to prevent the loss. My last post was in response to your claim:

What I have read is that there is insufficient information to say exactly what they were up to, but that the SEC and other regulators are looking into it. JPM itself has not been particularly forthcoming -- probably because they are still trying figure out WTF happened themselves. You are pretending that you know something that no one outside of JPM and the regulators' offices knows.
 
Check Mach's post above, there's an excerpt from one of the documents presented to the CEOs. It clearly states: "it's in your best interest, but if you resist, your regulator will do it anyway."

Right, I understand that that's what Paulson told them. The question is, was it a bluff or did the regulators actually have that power? We'll probably never know, because Dimon didn't call Paulson's bluff.
 
Sadly, I agree, though there's a chance it will be corrected if Obama is reelected. If Romney wins -- no chance at all.

Sadly, I don't think Obama will do it either, nor any other mainstream candidate.


Don't bite the hand that feeds...


I agree with your other post, though.
 
Right, I understand that that's what Paulson told them. The question is, was it a bluff or did the regulators actually have that power? We'll probably never know, because Dimon didn't call Paulson's bluff.

The regulators have whatever power they decide they have. As long as the regulators pitch their actions as "what's best for the american people", the american people will sit there and watch it happen, and a few citizens will even be so bold as to defend the regulators' actions on political debate sites.

FDR imprisoned american citizens based on their race, which he shouldn't have had the power to do, but he pitched it as for the greater good, and, that's how the history books are written.

Having been blackmailed by an arm of the government myself, I've experienced first hand the fact that the government believes that it is above the law.
 
Last edited:
What I have read is that there is insufficient information to say exactly what they were up to, but that the SEC and other regulators are looking into it. JPM itself has not been particularly forthcoming -- probably because they are still trying figure out WTF happened themselves. You are pretending that you know something that no one outside of JPM and the regulators' offices knows.

I stand corrected. Although I was right that the CIO office would still exist under the Volcker rule, apparently in the original draft of the Volcker rule, portfolio hedging would have been disallowed as it's trading parameters were too vague. The hedging allowed under the original Volcker rule was position specific hedges. However, the rule that was officially passed in the summer of 2010 had changed this provision to allow banks the ability to hedge on a portfolio basis. Under the Volcker rule that was passed, the losing trade would have been allowed.

There is quite a bit of good information out there. Although the exact details of the trade haven't been released, a lot is known about what went wrong. See the following links:

Understanding J.P. Morgan's Loss
The Bet That Blew Up for JPMorgan Chase - NYTimes.com
FT Alphaville » Too Big To Hedge
FT Alphaville » Two billion dollar ‘hedge’
Irony 101 Or How The Fed Blew Up JPMorgan's 'Hedge' In 22 Tweets | ZeroHedge (take all ZH with a grain of salt)

Dealbook said:
The bank’s problems may have started with its bond portfolio, worth $379 billion at the end of March. JPMorgan had just 30 percent of its portfolio investment in securities guaranteed by the federal government or its agencies, generally considered some of the safest bonds. It was a shift from the end of 2010, when those types of bonds amounted to 42 percent.

At either level, JPMorgan looks like an outlier. By comparison, Bank of America had 87 percent of its bond portfolio, worth $293 billion, invested in such high-quality bonds in March.

With the growing risk in its bond portfolio, JPMorgan may have wanted to be more ambitious with its hedges. In hedging, the JPMorgan unit made heavy use of derivatives instruments whose prices are linked to the value of corporate bonds
 
I agree that this 2 Billion loss is really a drop in the bucket for JP Morgan, albeit a fairly large drop. However, I do think that this story highlights the fact that JP Morgan is continuing to participate in risky speculation. As more details of the trade emerge it seems to many people that this trade was less of a hedge and more of a bet. I personally have a big problem with JP Morgan that has probably billions of dollars in federally guaranteed bank accounts taking speculative bets like this. I think this news story underlines the need to reenact glass-steagall.
 
I agree that this 2 Billion loss is really a drop in the bucket for JP Morgan, albeit a fairly large drop. However, I do think that this story highlights the fact that JP Morgan is continuing to participate in risky speculation. As more details of the trade emerge it seems to many people that this trade was less of a hedge and more of a bet. I personally have a big problem with JP Morgan that has probably billions of dollars in federally guaranteed bank accounts taking speculative bets like this. I think this news story underlines the need to reenact glass-steagall.

Gee, ya think?

The Chief Investment Officer at JPMorgan Chase is out, to be replaced by Matt Zames.

According to CNN Zames was "formerly a senior trader at Long-Term Capital Management, the failed hedge fund that placed massive bets on the trajectory of interest rates and required a $3.6 billion bailout from the Fed in 1998."
 
Is $9 billion loss a drop in the bucket too?
 
Is $9 billion loss a drop in the bucket too?

It is ... compared to the loss resulting from the stock tanking as a result of the trade.
 
Back
Top Bottom