Saturday, May 12, 2012

Morgan's $2 Billion Loss and No one Gets Fired

Trying to catch up on this weeks news.

The interesting thing is that even though things are changing some things just don't change.
And it just keeps going and going and going and going.....

JP Morgan Loses $2 Billion On Risky Trade After Lobbying To Weaken Trading Restrictions
By Travis Waldron posted from ThinkProgress Economy on May 11, 2012 at 3:20 pm

JPMorgan Chase CEO Jamie Dimon announced on a conference call yesterday that the bank suffered $2 billion in losses from a risky trade that turned sour. The trade dents Dimon’s case that Wall Street can responsibly manage itself and yet again proves the need for a strong Volcker Rule, which could largely ban such risky trades at federally-insured institutions.

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said the firm suffered a $2 billion trading loss after an “egregious” failure in a unit managing risks, jeopardizing Wall Street banks’ efforts to loosen a federal ban on bets with their own money.

The firm’s chief investment office, run by Ina Drew, 55, took flawed positions on synthetic credit securities that remain volatile and may cost an additional $1 billion this quarter or next, Dimon told analysts yesterday. Losses mounted as JPMorgan tried to mitigate transactions designed to hedge credit exposure.

More than three years after the financial industry almost collapsed, the colossal misfire was cited as proof that big banks still do not understand the threats posed by their own speculation.

"It just shows they can't manage risk -- and if JPMorgan can't, no one can," Simon Johnson, the former chief economist for the International Monetary Fund, said Friday.

JPMorgan is the largest bank in the United States and was the only major bank to remain profitable during the 2008 financial crisis. That lent credibility to its tough-talking CEO, Jamie Dimon, as he opposed stricter regulation in the aftermath.

Tim Ryan, president of the Securities Industry and Financial Markets Association, a trade group, said it was impossible to legislate or regulate risk out of the financial system.

"My hope is that this is viewed as bona fide hedging, but it went wrong," he said in an interview. "A mistake was made. Money is going to be lost. It's not customer money. It's not government money. It's JPMorgan's money, the shareholders of JPMorgan."

JPMorgan's trades show that the derivatives market remains too opaque for regulators to oversee effectively, said Rep. Barney Frank, D-Mass., one of the law's namesakes.

"When a supposedly responsible, well-run organization could make such an enormous mistake with derivatives, that really blows up the argument, 'Oh, leave us alone, we don't need you to regulate us,'" he said.

Criticism of the bank did not stop with its traditional chorus of detractors. It also came from Sen. Bob Corker, R-Tenn., a prominent member of the Senate Banking Committee who has received $10,000 since January 2011 from JPMorgan's political action committee, the most any candidate has received.

Corker, a leader of a failed effort last year to block a Federal Reserve rule that slashed bank profits from debit cards, called for a hearing "as expeditiously as possible" into the events surrounding JPMorgan's loss.

But the Volcker rule that passed Congress bears little resemblance to the Volcker rule that is slowly taking effect. All kinds of loopholes, particularly for hedging, have been blown into it. And the JPM case is a textbook example of why that, for this reason, the Volcker rule has been rendered useless. If you allow loopholes like this, hedges and actual bets for the purposes of speculation tend to look pretty much the same. Maybe at this point JPM can cover the $2 billion loss. But there’s going to be a time where somebody can’t, and they’re going to come hat in hand to the government looking for help. Basically nothing has changed on Wall Street as far as mindset, and now we learn that very little has constrained them after Dodd-Frank. The casino remains open.

‘Bunch of Pundits’
Yesterday, he said the timing of the trading blunders “plays right into the hands of a bunch of pundits out there” who are pushing for a strict version of the proprietary trading ban named for former Federal Reserve Chairman Paul Volcker.

Given Dimon’s resistance to the ban and new regulations, “he’s got a lot of egg on his face right now,” said Craig Pirrong, a finance professor at the University of Houston. “Any chance they had of getting a relative loosening of Volcker rule, anything of that nature, that’s out the window.”

Q. What happened at JPMorgan Chase?
A. A series of trades in their Chief Investment Office went terribly bad, costing the bank about $2 billion.

Q. Will the loss require a government bailout?
A. No. JPMorgan should still earn about twice that -- $4 billion -- this quarter, CEO Jamie Dimon says.

While no one has been fired yet, Dimon told analysts he will take “corrective actions.” The bank is keeping employees involved on hand while it deals with the transactions, and some are likely to lose their jobs afterward, said an executive with knowledge of the situation. The bank is also reevaluating its risk-monitoring team within the chief investment office, the person said.

7,141 Occupiers Arrested for waking up America
ZERO banksters arrested for destroying the US economy.

MAY – Is Move your Money Month
That includes stocks, bonds and mutual funds – duh!

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