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What Jamie Dimon Doesn’t Know Is Plain Scary

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posted on May, 13 2012 @ 01:17 AM
This is an interesting article from Bloomberg on Jamie Dimon. But the small snippet of the article that piques my interest and curiosity is below....


Could Jamie Dimon really be as clueless as he sounded on the phone yesterday?

Last month, after Bloomberg News broke the story that JPMorgan Chase & Co. (JPM)’s chief investment office had, in essence, become a ticking time bomb, Dimon, the bank’s chief executive officer, called the press coverage “a complete tempest in a teapot.” That explanation no longer works.

Yesterday, Dimon changed tacks. Losses on the investment office’s “synthetic credit portfolio” had reached $2 billion so far this quarter, though he refused to give any meaningful details on how that had happened. Presumably, these are derivatives of some sort, but even that basic fact was too much for the bank to specify.

What Dimon lacked in information, he more than made up for in assigning blame -- to himself and JPMorgan employees. “There are many errors, sloppiness and bad judgment,” he said, as JPMorgan’s stock sank in after-hours trading. “These were egregious mistakes. They were self-inflicted.” He called himself and his colleagues “stupid.”

But there is more to it than that. Either Dimon misled the public about the gravity of the festering trades during his company’s first-quarter earnings call last month. Or he didn’t know what was happening inside the bowels of his own company. History tells us the latter is the norm for Wall Street bosses, though it’s hard to say which is worse.

Don’t bother asking JPMorgan how it accumulated all these losses. That information is proprietary, as if the taxpayers who bailed out the bank in 2008 don’t have any business knowing. Here’s an idea for a new rule: If a too-big-to-fail bank can’t disclose what its trading desk is doing for fear of blowing itself up, then the bank shouldn’t be allowed to do it.

It’s not often that a huge company calls an emergency teleconference on short notice to discuss an intra-quarter trading loss that’s equivalent to only 1 percent of shareholder equity. So when a Deutsche Bank AG stock analyst named Matt O’Connor asked Dimon why the company had disclosed it at all, the answer was bound to be revealing.

“It could get worse, and it’s going to go on for a little bit unfortunately,” Dimon replied. The meaning was clear. Worse could mean disastrous.

It begs the question, how much worse and how much further is this debacle going to roll out? And what of Bloomberg interpreting this statement to mean it could be potentially disastrous?

ETA that I didn't notice the part I have now emphasized about the teleconference convened at short notice on a relative small loss, because of the potential it is going to get worse. So there it is, this is not a discrete event, and it could well be far from over yet.

Further, looking at the following statement suggests a very risky credit environment out there...

Here’s what little Dimon said of the trades in question: “The synthetic credit portfolio was a strategy to hedge the firm’s overall credit exposure, which is our largest risk overall in this stressed credit environment. We’re reducing that hedge. But in hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored. The portfolio has proven to be riskier, more volatile and less effective as an economic hedge than we thought.”

There is a tantalizing clue in this language. Read the statement carefully and you can see this wasn’t a bona fide hedge. That means it probably was no different, in substance, than a speculative wager. The definition of an “economic hedge,” literally, is an investment that doesn’t qualify for hedge accounting, meaning its effectiveness at offsetting a given risk isn’t sufficiently reliable. Otherwise the wiggle word “economic” wouldn’t be needed. It’s also conceivable that Dimon didn’t understand the details of the trades, and simply declined to discuss them rather than admit this.

So here the financial world was stunned by news of a $2 billion dollar loss by JP Morgan Chase which could continue on with further losses mounting. Could it be the beginnings of another global financial crisis? Personally I got no idea, only that I read what commentators and people say on forums.

The following article from The Economic Collapse Blog advises not to make too much of a fuss about the loss. The author argues it is only a preview of what the coming collapse of the derivatives market will be.

I find this all interesting because I suspect something is going to give in a big way sooner or later. I read an interesting analogy of the global financial system based on a movie where promoters had sold 15, 000 tickets for a 100 seat theater. Everyone of those ticket holders understood they had purchased a seat in the theater. Takes very little imagination to foresee the coming catastrophe, as it is with the global financial system at present.

The 2 Billion Dollar Loss By JP Morgan Is Just A Preview Of The Coming Collapse Of The Derivatives Market

edit on 13-5-2012 by surrealist because: (no reason given)

posted on May, 13 2012 @ 01:24 AM

Everyone of those ticket holders understood they had purchased a seat in the theater.
reply to post by surrealist

just gets worse eh..never heard of JD

posted on May, 13 2012 @ 08:04 PM
reply to post by surrealist

This one was soft pedaled in the States so far, thanks for the heads-up!
If there was any previous knowledge by Jamie there were problems, you
KNOW we'd be the last to know as the subsidizers.

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