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Thread: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' loss

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    Default weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' loss

    ... of which they have been forced to 'book' 800 million this quarter ! From


    (snip)"Out of nowehere, JPM announced [ last night - sic ] that it would hold an unscheduled 5pm call to coincide with the release of its 10-Q. Rumors were swirling as to why. The reason is as follows:

    •JPMORGAN SAYS CIO UNIT HAS SIGNIFICANT MARK-TO-MARKET LOSSES - "Fortress balance sheet" at least until Bruno Iskil gets done with it.

    •JPMORGAN SAYS LOSSES ARE IN SYNTHETIC CREDIT PORTFOLIO - but, but, net is NEVER, EVER Gross.

    •JPM WOULD NEED $971M ADDED COLLATERAL IF RATINGS CUT ONE-NOTCH

    •JPM WOULD NEED $1.7B ADDED COLLATERAL IF RATINGS CUT 2 NOTCHES - how about three notches?

    •JPMORGAN: MAY HOLD SOME SYNTHETIC CREDIT POSITIONS LONG TERM - "Level 3 CDS FTW"

    •"As of March 31, 2012, the value of CIO's total AFS securities portfolio exceeded its cost by approximately $8 billion"

    As a reminder, the CIO unit is where Bruno Iksil was making $200 billion-sized bets. Basically JPM has suffered massive losses at its CIO group most likely due to its IG/HY positions held by Iksil.

    In Corporate, within the Corporate/Private Equity segment, net income (excluding Private Equity results and litigation expense) for the second quarter is currently estimated to be a loss of approximately $800 million. (Prior guidance for Corporate quarterly net income (excluding Private Equity results, litigation expense and nonrecurring significant items) was approximately $200 million.) Actual second quarter results could be substantially different from the current estimate and will depend on market levels and portfolio actions related to investments held by the Chief Investment Office (CIO), as well as other activities in Corporate during the remainder of the quarter.

    Since March 31, 2012, CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed. The losses in CIO's synthetic credit portfolio have been partially offset by realized gains from sales, predominantly of credit-related positions, in CIO's AFS securities portfolio. As of March 31, 2012, the value of CIO's total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value.

    The Firm is currently repositioning CIO's synthetic credit portfolio, which it is doing in conjunction with its assessment of the Firm's overall credit exposure. As this repositioning is being effected in a manner designed to maximize economic value, CIO may hold certain of its current synthetic credit positions for the longer term.

    Accordingly, net income in Corporate likely will be more volatile in future periods than it has been in the past.

    The Firm faces a variety of exposures resulting from repurchase demands and litigation arising out of its various roles as issuer and/or underwriter of mortgage-backed securities (“MBS”) offerings in private-label securitizations. It is possible that these matters will take a number of years to resolve and their ultimate resolution is currently uncertain. Reserves for such matters may need to be increased in the future; however, with the additional litigation reserves taken in the first quarter of 2012, absent any materially adverse developments that could change management’s current views, JPMorgan Chase does not currently anticipate further material additions to its litigation reserves for mortgage-backed securities-related matters over the remainder of the year.

    All of this is coming form the just filed 10-Q.(snip)
    Last edited by Melonie; 05-11-2012 at 05:07 AM.

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    more ... from


    (snip)(Reuters) - JPMorgan Chase & Co, the biggest U.S. bank by assets, said it suffered a trading loss of at least $2 billion from a failed hedging strategy, a shock disclosure that hit financial stocks and the reputation of the bank and its CEO, Jamie Dimon.

    For a bank viewed as a strong risk manager that went through the financial crisis without reporting a loss, the errors are embarrassing, especially given Dimon's public criticism of the so-called Volcker rule to ban proprietary trading by big banks.

    "This puts egg on our face," Dimon said, apologizing on a hastily called conference call with stock analysts. He conceded the losses were linked to a Wall Street Journal report last month about a trader, nicknamed the 'London Whale', who, the report said, amassed an outsized position which hedge funds bet against.(snip)

    (snip)"The April Wall Street Journal report said Bruno Iksil, a London-based trader in JPMorgan's Chief Investment Office, nicknamed the 'London Whale', had amassed an outsized position that prompted hedge funds to bet against it. On an earnings conference call last month, Dimon called the concern "a complete tempest in a teapot." On Thursday, however, he said the bank's loss had "a bit to do with the article in the press." He added: "I also think we acted a little too defensively to that."

    The Chief Investment Office is an arm of the bank that JPMorgan has said is used to make broad bets to hedge its portfolios of individual holdings, such as loans to speculative-grade companies.

    The failed hedge likely involved a bet on the flattening of a credit derivative curve, part of the CDX family of investment grade credit indices, said two sources with knowledge of the industry, but not directly involved in the matter. JPMorgan was then caught by sharp moves at the long end of the bet, they said. The CDX index gives traders exposure to credit risk across a range of assets, and gets its value from a basket of individual credit derivatives.

    Two financial industry sources in Asia said they heard the JPMorgan trader took a position that a credit derivative curve, part of the CDX family of investment grade credit indices, would flatten, but was caught out by sharp moves at the long end. The CDX index gives traders exposure to credit risk across a range of assets, and gets its value from a basket of individual credit derivatives.

    "It's a pretty stunning admission for a company that prides itself on its risk management systems and the strength of its balance sheet," said Sterne Agee analyst Todd Hagerman. "The timing couldn't be worse for the industry. It will have ramifications across the broker-dealer community"(snip)


    Lee Adler of Wall Street Examiner had the following comment ...

    (snip)"By the time the market closed on Thursday, even before Jamie The Demon got on the phone, the charts were sending little signals that things were about to get worse. Cycle alignments had said that the period of greatest vulnerability would last through next Monday. Now, suddenly we have a black and blue swan to spook traders.(snip)

    Source:


    And Reggie Middleton has this to say ... from




    (snip)Cute graphic above, eh? There is plenty of this in the public preview. When considering the staggering level of derivatives employed by JPM, it is frightening to even consider the fact that the quality of JPM's derivative exposure is even worse than Bear Stearns and Lehman‘s derivative portfolio just prior to their fall. Total net derivative exposure rated below BBB and below for JP Morgan currently stands at 35.4% while the same stood at 17.0% for Bear Stearns (February 2008 ) and 9.2% for Lehman (May 2008 ). We all know what happened to Bear Stearns and Lehman Brothers, don't we??? I warned all about Bear Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008 ) and Lehman ("Is Lehman really a lemming in disguise?": On February 20th, 2008 ) months before their collapse by taking a close, unbiased look at their balance sheet. Both of these companies were rated investment grade at the time, just like "you know who". Now, I am not saying JPM is about to collapse, since it is one of the anointed ones chosen by the government and guaranteed not to fail - unlike Bear Stearns and Lehman Brothers, and it is (after all) investment grade rated. Who would you put your faith in, the big ratings agencies or your favorite blogger? Then again, if it acts like a duck, walks like a duck, and quacks like a duck, is it a chicken???(snip)



    I guess that the major take-away from this JP Morgan disclosure is that 'too big to fail' may indeed also mean 'too big to bail' this time around !!!

    Also, a major 'speculation' involves the potential utilization of J P Morgan's loss situation as an excuse for the FED to unleash QE3 !!!

    Stay tuned ...
    Last edited by Melonie; 05-11-2012 at 05:23 AM.

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    Lol...... The best and brightest at it again...... Masters of the Universe.
    The country has been looted.

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    the tip of the proverbial iceberg ... from


    (snip)"Fallout from JP Morgan trading losses, which led to rater Fitch downgrading their debt yesterday, aren’t the only financial worries the banking behemoth is facing. Nestled in that shocking 10-Q filed Thursday is an admission that their regulator, the Securities and Exchange Commission, thinks some of the details that lead to the explosive Ambac mortgage security fraud suit against the naughty stepchild of JPM, Bear Stearns/EMC, are worthy of an enforcement action. Yep- the SEC is giving or finally gave them a Wells Notice, which means according to their 10-Q (and their 10-K) in January 2012 the SEC’s investigation into the sins of Bear’s Mortgage team run by Tom Morano, Jeff Verschleiser, Mike Nierenberg and the subsequent cover up by JPM was worthy of a civil suit along with some penalties.

    JPM’s 10-Q states “In January 2012, the Firm was advised by SEC staff that they are considering recommending to the Commission that civil or administrative actions be pursued arising out of two separate investigations they have been conducting… In both investigations, the Firm has submitted responses to the proposed actions.”

    We see JP Morgan admit one of the Wells notices relates to the fraud actions first brought forward in the Ambac suit with this line from the 10-Q, “The second involves potential claims against Bear Stearns entities, JPMorgan Chase & Co. and J.P. Morgan Securities LLC relating to settlements of claims against originators involving loans included in a number of Bear Stearns securitizations.”

    They are talking about a phrase I first coined called the ‘double dipping scheme’.

    It’s black letter law that Wells submissions to the SEC are discoverable in civil litigation. So lawyers in the monoline suits against JPM/BEAR will surely be trying to get a copy of the wells notice via discovery.

    I first reported the SEC started an investigation into these alleged securities violations (and possible criminal actions) after I saw the securities regulator approach the lawyers and whistleblowers in my Bear Stearns investigative report at The Atlantic the day after the story came out. Now a year later it appears all the ‘shitty deal’ emails, internal Bear Stearns documents, and over thirty whistleblowers who’ve come forward in the monoline suits lead by the New York office of law firm PBWT was enough to get the SEC to stand up to JPM and hopefully say ‘what you did violated securities laws and harmed investors’. Talk about another wave that could lead to tsunami style damage to Jamie Dimon’s ‘fortress balance sheet’.

    How many billions in damages JP Morgan will have to pay out is not yet determined but inside their Mortgage-Backed Securities and Repurchase Litigation note on the 10-Q the bank tells us “There are currently pending and tolled investor and monoline claims involving approximately $120 billion of such securities.”

    WOW that means investors think there was a heck of a lot of very bad mortgage securities that were packaged and sold and they want their money back along with some fines and are willing to spend a few million to pay expensive lawyers to sue for it. When I first reported on the Ambac case and went on RT’s The Keiser Report to explain what kind of financial trouble JPM could be in the damages in the monoline suits against Bear were only around $1.2bn. I told Max Keiser if fraud claims survived the suit that means punitive damages get lobbed on and who knows many billions JPM will have to pay out because allegedly emails showed Bear mortgage traders stole billions from their own damn clients. I threw out a number, $10bn, that JPM could be looking to pay. Now according to JPM’s latest SEC filings there are now “seven pending actions commenced by bond insurers that guaranteed payments of principal and interest on approximately $5 billion of certain classes of 21 different MBS offerings.”

    The face value amount of securities tied to the monoline suits against JPM are significant because there was a recent ruling in a Countrywide RMBS suit that ruled if plaintiffs can prove there were miss-representations in the bonds then the entire amount of the bond has to be bought back…not just the amount that defaulted or caused a loss. Reuters legal columnist Alison Frankel explains the judge’s decision and impact here. It has a lot to do with the way insurance laws are structured in New York State, which is where all the monolines suing have headquarters.

    So far we haven’t seen JPM settle any of these mortgage putback suits including the government’s housing regulator’s whopper of a suit filed this winter against a bunch of banks including JPM. The government’s outside counsel who filed the FHFA suit literally copied the fraud and breach of contract claims Ambac had laid out against JPM and since then we’ve seen a multiple of big boy institutional investors file similar suits. Thus the alarming $120bn number of possible rmbs repurchase litigation damages JPM was forced to detail in their recent 10-Q. A number which accompanies a series of motions their expensive lawyers at Sullivan & Cromwell and Greenberg Traurig have filed to slow down discovery and deny, deny, deny these aggressive fraud claims in the triple digit billions.

    And now that the SEC is about to come out and stamp a ton of merit to these civil investor lawsuits via an enforcement action that hopefully says – you guys broke the law, abused free markets, and seriously broke investor trust — then it’s looking harder and harder for JPM not to settle these investor lawsuits in the mega billions. Just think if Ambac actually got to trial and a main street jury who’s pissed very few bankers have gone to jail for the financial crisis heard some of the whistleblower testimony about senior Bear executives telling underlings to make up mortgage info for the raters. Or the third-party due diligence reports Bear got them to fudge – reports investors relied on as due diligence rubber stamping the quality of the rmbs securities. I’d image punitive damages up the yin-yang would be awarded.

    But the most telling sign JPM will have to payout big time is that HUGE jump in litigation reserves they snuck in this week. In the bank’s first quarter earnings press release, filed on April 13th, JPM told investors they were adding $2.5bn to existing litigation reserves for mortgage-related suits. And then three weeks later while all my jurno peers are focused on writing stories about what JPM’s trading screw up means to their reputation, their master public relations spin machine figures lets thrown in all the bad news we can cause we know the market will punish our stock. So they added on another $1.7bn in litigation reserves for a total hit to income of $4.2bn. That’s more than 4 times the net amount ($800 million) they claim they lost on their bad corporate bond trade."(snip)

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    Where are the show trials?
    The country has been looted.

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    Yeah, this is my mortgage company. Nice to know how they are using my money and any BS fees that they collect for 'late payments', etc.

    My insurance company spends their money more wisely:

    Boston insurance company Liberty Mutual paid $4.5 million in the fall of 2011 to renovate chief executive David Long's office...

    http://www.bizjournals.com/boston/bl...avid-long.html

    It's time to make banks be banks again and prevent them from trading in derivatives which aren't much better than just going to Vegas... Banks received bailout money but won't loan it out because they can make more "investing" in other areas than loaning for mortgages.

    Sorry, didn't mean to hijack.. end of rant...

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    The Real Questions to ask are (if your intention is to make money)

    i) What kind of mental degeneration must one have to read, let alone believe what zerohedge writes? (Does no one see the obvious logical flaws, sheeple mentality and all around stupidity in their articles?)

    ii) If Goldbugs all around the world (the investing class, not the uneducated poor Indians and Chinese who get easily fooled by the 'shiny' metal and can't understand assets) actually believe zerohedge tales, then there is nothing more sure than reality catching up to Gold, thus making it a sure shot short

    iii) On a day when the biggest bank implodes (well according to zerohedge idiots anyway), and the Gold market says 'meh', then Gold surely must have topped, no?

    iv) is Gold 2012 = Real Estate 2006 or Real Estate 2005?

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    A few things to remember ; Despite these losses, JP Morgan still has plenty of capital and assets. They are NOT in trouble.
    Unlike Lehman, Bear Stearns and certainly Merrill Lynch, JP Morgan has been pretty open and up front about what happened given the nebulous world of derivatives and credit default swaps ; they are STILL private transactions in private markets.
    More importantly, the markets are punishing them for their mistakes : Their stock price went down and their borrowing costs went up.
    As it should be.
    Last edited by Eric Stoner; 05-16-2012 at 07:08 AM.

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    Quote Originally Posted by xanfiles1 View Post
    The Real Questions to ask are (if your intention is to make money)

    i) What kind of mental degeneration must one have to read, let alone believe what zerohedge writes? (Does no one see the obvious logical flaws, sheeple mentality and all around stupidity in their articles?)

    ii) If Goldbugs all around the world (the investing class, not the uneducated poor Indians and Chinese who get easily fooled by the 'shiny' metal and can't understand assets) actually believe zerohedge tales, then there is nothing more sure than reality catching up to Gold, thus making it a sure shot short

    iii) On a day when the biggest bank implodes (well according to zerohedge idiots anyway), and the Gold market says 'meh', then Gold surely must have topped, no?

    iv) is Gold 2012 = Real Estate 2006 or Real Estate 2005?
    Gold and other commodities are having long overdue corrections. A 10 % correction only takes gold to about $1450 an ounce. 20% still leaves it trading just below $1300.
    Look for it to find a bottom and then watch a LOT of smart money start buying on the big dip. Probably BEFORE it goes below $1400 an ounce.

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    Chris Street's take on the next logical progression ...from


    (snip)"If there was an Academy of Motion Picture Arts and Sciences Award for the best acting performance by a CEO, Jamie Dimon of J.P. Morgan Bank would surely win the Oscar for his dismissal of a $2 billion off-shore derivative loss as “a complete tempest in a teapot.” Dimon tried to use all his theatrical skills to distract the American public from discovering that the U.S. Federal Reserve’s policy of loaning money to banks at zero-interest-rates has made derivative trading wildly profitable, but made lending to American businesses less profitable. As fallout from the J.P. Morgan fiasco exposes the bloated derivative activities of major banks, the Federal Reserve will be forced to terminate the zero interest rate policy and let rates rise to retard bank speculative actions. Higher interest rates will stimulate banks to make more commercial and industrial loans, resulting in higher U.S. economic growth.

    Achilles Macris, J.P. Morgan’s CIO in their London office, began using the bank’s access to cheap capital from the Fed to amass a huge over-the-counter derivative gamble that high yield and sovereign debt interest rates would fall, after MF Global suffered a $1.2 billion loss on similar bets and was forced to file for bankruptcy last October 30th. Morgan’s gamble became very profitable after December 21 when the European Central Bank (ECB) began making $640 billion of three year loans at 1% interest, referred to as “Long Term Refinancing Operations” (LTROs), available to the banks of Portugal, Ireland, Italy, Greece and Spain (PIIGS). By the end of December, J.P. Morgan’s total derivative exposure was $70.2 trillion on just $1.8 trillion of bank assets, according to the U. S. Controller of the Currency. Morgan is reported to have continued heavy derivative buying in January and February. Its profits soared again when the ECB announced LTRO2 as another $714 billion in three year low-interest loans to PIIGS banks.

    The stock of J.P. Morgan vaulted from $29 per share in December to $45 a share in March as rumors swirled that Achilles Macris and his London team of 6 had already made $2-3 billion as high yield and sovereign debt interest rates continued to fall. A jubilant Jamie Dimon announced that J.P. Morgan would increase its dividend and buy back $15 billion of its stock.

    Everything seemed rainbows and unicorns for J.P. Morgan until two weeks ago, when France and Greece elected hardcore leftist candidates who want to abandon austerity spending cuts and increase social welfare spending. Interest rates on the PIIGS sovereign debt shot back up and J.P. Morgan appears to have suffered a $4-5 billion loss. It also appears the bank has been unable to limit its losses to $2 billion by selling out of their enormous derivative positions.

    Jamie Dimon tried to dismiss the losses by promising heads will roll, but Congressional hearings will soon illuminate to American taxpayers that the Fed has provided the capital that has allowed America’s three largest banks to engage in $173 trillion in leveraged derivative speculation:

    Derivative Positions & Assets (in trillions of $)

    Bank

    JP Morgan Chase
    Citibank
    Bank of America

    Derivative Position

    $70.152
    $52.102
    $50.102

    Total Assets

    $1.811
    $1.288
    $1.452

    Leverage Ratio
    38.5
    40.3
    33.4

    The derivative exposure of these three banks alone exceeds 11 times the American economy and 2.7 times the economies of all the nations on earth. On December 30th, the derivatives leverage ratio of these three banks stood at 37 times. Menacingly, this leverage ratio exceeds the average leverage ratio of 32 times assets for Lehman Brothers, Bear Stearns and Merrill Lynch, shortly before the shock of their collapse instigated the start of the Great Recession in 2008.

    After five years of miserable unemployment and virtually no growth, it seems clear the Federal Reserve’s $2 trillion increase in bank lending at zero interest rates has been better at expanding the international derivatives markets than expanding the American economy. The Federal Reserve owns much of the blame for this phenomenon. By keeping interest rates so low, banks were unable to make a rate of return above their cost of capital on traditional lending.

    Kansas City Federal Reserve Bank President Thomas Hoenig in a recent interview warned that an extended period of ultra-low interest rates invites speculative behavior: “When you have zero rates that go on indefinitely, you are inviting future problems.” The recent J.P. Morgan derivatives fiasco has demonstrated that the Fed’s zero interest rate policy has encouraged risky financial speculation that is highly dangerous and potentially destructive. It’s time for the Fed to let interest rates rise, so banks can get back to the business of financing America’s real-economy."(snip)

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    Not to worry..... These guys use mathmatical formulas to insure nothing can go wrong.
    The country has been looted.

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    Quote Originally Posted by Melonie View Post
    Chris Street's take on the next logical progression ...from http://www.testosteronepit.com/home/...tes-ahead.html


    (snip)"If there was an Academy of Motion Picture Arts and Sciences Award for the best acting performance by a CEO, Jamie Dimon of J.P. Morgan Bank would surely win the Oscar for his dismissal of a $2 billion off-shore derivative loss as “a complete tempest in a teapot.” Dimon tried to use all his theatrical skills to distract the American public from discovering that the U.S. Federal Reserve’s policy of loaning money to banks at zero-interest-rates has made derivative trading wildly profitable, but made lending to American businesses less profitable. As fallout from the J.P. Morgan fiasco exposes the bloated derivative activities of major banks, the Federal Reserve will be forced to terminate the zero interest rate policy and let rates rise to retard bank speculative actions. Higher interest rates will stimulate banks to make more commercial and industrial loans, resulting in higher U.S. economic growth.

    Achilles Macris, J.P. Morgan’s CIO in their London office, began using the bank’s access to cheap capital from the Fed to amass a huge over-the-counter derivative gamble that high yield and sovereign debt interest rates would fall, after MF Global suffered a $1.2 billion loss on similar bets and was forced to file for bankruptcy last October 30th. Morgan’s gamble became very profitable after December 21 when the European Central Bank (ECB) began making $640 billion of three year loans at 1% interest, referred to as “Long Term Refinancing Operations” (LTROs), available to the banks of Portugal, Ireland, Italy, Greece and Spain (PIIGS). By the end of December, J.P. Morgan’s total derivative exposure was $70.2 trillion on just $1.8 trillion of bank assets, according to the U. S. Controller of the Currency. Morgan is reported to have continued heavy derivative buying in January and February. Its profits soared again when the ECB announced LTRO2 as another $714 billion in three year low-interest loans to PIIGS banks.

    The stock of J.P. Morgan vaulted from $29 per share in December to $45 a share in March as rumors swirled that Achilles Macris and his London team of 6 had already made $2-3 billion as high yield and sovereign debt interest rates continued to fall. A jubilant Jamie Dimon announced that J.P. Morgan would increase its dividend and buy back $15 billion of its stock.

    Everything seemed rainbows and unicorns for J.P. Morgan until two weeks ago, when France and Greece elected hardcore leftist candidates who want to abandon austerity spending cuts and increase social welfare spending. Interest rates on the PIIGS sovereign debt shot back up and J.P. Morgan appears to have suffered a $4-5 billion loss. It also appears the bank has been unable to limit its losses to $2 billion by selling out of their enormous derivative positions.

    Jamie Dimon tried to dismiss the losses by promising heads will roll, but Congressional hearings will soon illuminate to American taxpayers that the Fed has provided the capital that has allowed America’s three largest banks to engage in $173 trillion in leveraged derivative speculation:

    Derivative Positions & Assets (in trillions of $)

    Bank

    JP Morgan Chase
    Citibank
    Bank of America

    Derivative Position

    $70.152
    $52.102
    $50.102

    Total Assets

    $1.811
    $1.288
    $1.452

    Leverage Ratio
    38.5
    40.3
    33.4

    The derivative exposure of these three banks alone exceeds 11 times the American economy and 2.7 times the economies of all the nations on earth. On December 30th, the derivatives leverage ratio of these three banks stood at 37 times. Menacingly, this leverage ratio exceeds the average leverage ratio of 32 times assets for Lehman Brothers, Bear Stearns and Merrill Lynch, shortly before the shock of their collapse instigated the start of the Great Recession in 2008.

    After five years of miserable unemployment and virtually no growth, it seems clear the Federal Reserve’s $2 trillion increase in bank lending at zero interest rates has been better at expanding the international derivatives markets than expanding the American economy. The Federal Reserve owns much of the blame for this phenomenon. By keeping interest rates so low, banks were unable to make a rate of return above their cost of capital on traditional lending.

    Kansas City Federal Reserve Bank President Thomas Hoenig in a recent interview warned that an extended period of ultra-low interest rates invites speculative behavior: “When you have zero rates that go on indefinitely, you are inviting future problems.” The recent J.P. Morgan derivatives fiasco has demonstrated that the Fed’s zero interest rate policy has encouraged risky financial speculation that is highly dangerous and potentially destructive. It’s time for the Fed to let interest rates rise, so banks can get back to the business of financing America’s real-economy."(snip)
    Duh. Who is it who has appointed nothing but soft money "doves" to the Fed ?

    Bernanke et. al. have consistently resisted a REAL interest rate of 2 %.

    My understanding of what J.P. Morgan did is that they made a derivative bet or hedge on its own bond holdings that went south. The sad thing is that Dodd-Frank did not do anything to address this sort of stuff. We have neither brought back Glass-Steagall nor imposed the Volcker Rule. If Chase deposits are guaranteed by the U.S. taxpayer then there ought to be limits on what they can and can't do with those funds. Period !

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    Default Re: weekend commentary- JP Morgan faces potential 8 BILLION dollar 'Mark to Market' l

    It is a common sense that gold is very percious and now more and more people like the gold metal, and more and more people now join ge group of hunting for treasure and gold. This is like the "gold rush". But what is different form before is that now people use more advanced equippmemt to help them to find the gold. And it seems among different equippments, people like the most, because that such a device can help them to identify the detail information of the metal so that people can find it in a short time.

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