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Friday
May112012

JPM Chase Chairman, Jamie Dimon, the Whale Man, and Glass-Steagall

It was fitting that while President Obama and his Hollywood apostles broke fundraising records at a sumptuous $40,000 per plate dinner at George Clooney’s place, word of JPM Chase’s ‘mistake’ rippled through the news. Not long ago, Dimon’s name was batted about to become Treasury Secretary.  But as lines are drawn and pundits take sides in the Jamie Dimon ego deflation saga – or, as I see it - why big banks should be made smaller and then, broken up into commercial vs. speculative components ala Glass Steagall – it’s important to look beyond the size of the $2 billion dollar (and counting) beached whale of a trading loss.

Yes, $2 billion in the scheme of JPM Chase’s book and quarterly earnings is tiny, a ‘trading blip’ as it’s been called by some business press. But that’s not a mitigating factor in what it represents. In this era dominated by a few consolidated and complex banks, the very fact that it’s a relatively small loss IS the red flag. 

First - because the loss could (and will) grow. Second, because even if it doesn’t, it’s a blatant example of a big bank incurring un-due risk within barely regulated, highly correlated financial markets. It only takes another Paulson hedge fund, or a trading desk at Goldman Sachs, to short the hell out of the corporates that JPM Chase is synthetically long, or take whatever the other side really is, to create a liquidity crisis that will further screw those least able to access credit – individuals, small businesses, and productive capital users.

We know this. We’ve seen this. We're in this. There’s no such thing as an isolated trading loss anymore. And yet Jamie Dimon, seated atop the most powerful bank in the world, has smugly led the charge to adamantly oppose any moves to alter the banking framework that allows him, or any bank, to call a bet - a hedge or client position or market-making maneuver  - with central bank, government official, and regulatory impunity.

Flashback to the unimaginable in 1933

It’s 1933 and the country has undergone several years of painful Depression following the 1920s speculation that crashed in the fall of 1929. Investigations into the bank related causes began under Republican President, Herbert Hoover and continued under Democratic President, FDR.

Okay, that’s pretty common knowledge. But, here’s something that isn’t: of all the giant banks operating their trusts schemes and taking advantage of off-book deals, and international bets in the late 1920s, it was an incoming head of Chase (replacing Al Wiggins who shorted Chase stock in a network of fraud) that advocated for Glass-Steagall. Indeed, despite all pedigree to the opposite (his father was Senator Nelson Aldrich architect of the Federal Reserve and brother-in-law, John D. Rockefeller), Chase Chair, Winthrop Aldrich, took to the front pages of the New York Times in March, 1933 to pitch decisive separation of commercial and speculative activity arguments.  Fellow bankers hated him.

His motives weren’t totally altruistic to be sure, but somewhere in his calculation that Chase would survive a separation of activities and emerge stronger than rival, Morgan Bank, was an awareness that something more – permanent – had to be put in place if only to save the banking industry from future confidence breaches and loss. It turned out he was right. And wrong. (much more on that in my next book, research still ongoing.)

Financial history has a sense of irony. JPM Chase was the post-Glass-Steagall repeal marriage, 66 years in the making, of  Morgan Bank and Chase. Today, it is the largest bank in America, possessing greater control of the nation’s cash than any other bank.  It also has the largest derivatives exposure ($70 trillion) including nearly $6 trillion worth of credit derivatives. 

It is the size of a bank holding company’s deposits that dictates the extent of the risk it takes, risk ‘models’ not withstanding: the more deposits, the more risk, the more potential loss. JPM Chase is not alone in using its position as deposit taker to increase speculation, but it has more to play with.

And the more access to other people’s money, the greater the gambling incentive. The largest banks hold deposits (our deposits) hostage in the global game of financial warfare. Related access to capital and bailouts are enabling weaponry in the fight for worldwide insitutional supremacy.

The Alleged Hedge

Now, consider JPM Chase’s alleged ‘hedge’ itself; a trading position taken in the London department, the chief investment office,  set up to allegedly protect the bank’s overall book and ‘invest’ its excess capital.  Any investment is a bet. A hedge is supposed to mitigate loss if the bet fails. An investment is not a hedge.

Let’s pretend for a moment that banks were about simple conventional - banking – taking deposits and making loans. In that context, it would be nonsensical to hedge loan risk by pouring on more loan risk, or put out a fire by pouring fuel on its flames.

In other words, if a bank lends money to, say Boeing, it accepts a rate, in return,  more or less related to its assessment of the risk involved in getting its money back, which translates into an interest payment. To hedge that payment, a bank could purchase ‘insurance’ or ‘protection’ from a counterparty solvent enough to make good on any shortfall in Boeing’s ability to pay its interest, or in the event of an Boeing default.  What is not a hedge for the loan, is further exposure to the risk that Boeing could default.  Yet, in a more complex manner, that’s exactly what happened here.

By engaging in a trade that tied up 15% of its assets, or $350 billion, no matter what label that trade received, the Whale man and his managers (leading up to Jamie Dimon), went long credit risk by shorting an index of synthetic credits, thereby placing the bank in the position of paying out, or losing money, if those credits deteriorate. In effect, and super-simplistically, it doubled down. In its more complex form, the firm took a short position in an index of credit default swaps representing 125 North American investment grade corporations (including Boeing), called the CDX.NA.IG.9. The index reference of underlying corporates has been diving in price, hence the loss - and mounting loss to JPM.

Deception and Delusion

Going long the corporate credit market while still immersed in the fallout of having been long the European sovereign and US real estate market, demonstrates the same cluelessness about the economy and financial system prevalent in the media and in Washington every time the words ‘slow recovery’ rather than something to the effect of ‘prolonged, continued, enduring depression’ are uttered.

In such a charade, why wouldn’t JPM Chase, a bank existing on an array of federal largesse, and Jamie Dimon who was re-voted to Class A NY Fed Director, the position he held during the 2008 crisis, in early 2010 – rubber stamp a bet that corporate economic health is a foregone conclusion.

It was under that same misplaced, other people’s money optimism and hubris that MF Global stole (or for the apologists, ‘mistakenly took’) $1.6 billion of its segregated customers' money to stay in a bad bet. Former MF Global CEO, the ‘honorable’ Jon Corzine’s bet was that certain European sovereign credits would improve. Only they didn’t. Not in time for his margins to hold out.

It’s more than ironic, that JPM Chase, the bank still entangled with MF Global customer money, took the same bet, albeit with different credits and is trying to pawn it off as an ‘egregious’ mistake, a blip on the radar of an otherwise pristinely risk-managed bank.

It’s also supremely annoying that Dimon is right about something, that the Volcker Rule wouldn’t necessarily apply to this ‘hedge.’ There’s nothing particularly wrong with the Volcker Rule; it will mitigate some fraction of risk, though given the SEC and Fed’s inability to understand what risk is, it’s unlikely they’ll take the mental leap to segment trades as mitigating it, or not. Yet, the Volcker Rule will not change one fundamental pillar of global systemic risk – as long as banks are not segregated ala Glass Steagall along deposit-taking  / loan-making vs. speculation lines, they will have access to capital to burn. And burn it they will.  

 

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    JPM Chase Chairman, Jamie Dimon, the Whale Man, and Glass-Steagall - Thoughts - Nomi Prins
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Reader Comments (30)

That was an outstanding take on Dimon and JPMorgan Chase, etc.

If one were unduly sarcastic it might be said that Vidal Sassoon gave one last Sassoon-sized haircut to Dimon and JPM prior to his passing.

And my weekly rant:

That Was The Week That Was


(Or, affirming Dan Savage and the Ultimate Fraud, reaffirming the wonderful Cate Jenkins, Steve Coll, JPMorgan Chase, and the Sesame Street connection.)

Back at the end of 2010, the US Senate held an overwhelmingly unanimous voice vote (so their individual votes wouldn't be recorded) in favor of blanket immunity for the banksters' fraudclosures --- their commission of millions AND millions of felonies.

President Obama, seemingly wisely, vetoed their immunity legislation, only to sneakily and underhandedly and unethically formulate a national committee of states' attorneys-general to do exactly what those corrupt whore scum of the Senate voted for --- granting blanket immunity to the super-crooked banksters!

Immediately prior to his donation-seeking trip to the West Coast, first Vice President Biden, then President Obama, affirmed, in a purely non-legal and non-binding context, same sex marriage.

Political donations to the Obama/Biden reelection campaign immediately spiked upwards, yet as Dan Savage sagely observed, President Obama really didn't take any valid action, in fact was his usual equivocating self, suggesting it was a state's rights issue!

State's rights issue? ? ? ?

Shades of neocon talking points for the past 30 years ! ! !


The real news this week was that a federal court overturned the unlawful firing of deadly serious Dr. Cate Jenkins of the EPA (her warnings went ignored, and American workers at Ground Zero later died).

Turning whistle blower during the criminal Bush administration, Cate Jenkins was unlawfully fired under the criminal Obama administration.

Simon Johnson, so-called economist at MIT (a wholly-owned subsidiary of the DoD), claimed that proprietary trading was outlawed under the Dodd-Frank legislation, yet Jamie Dimon (supreme corporate welfare queen) just publicly admitted that JP Morgan Chase lost billions on proprietary trading! ? ! ? (The final total will probably be close to $5 billion; JPMC has an established record for sloppy bookkeeping.)

Steve Coll is on a national book tour talking about ExxonMobil --- yet appears both ignorant and oblivious to who owns ExxonMobil. Coll's foundation, the New America Foundation, is funded by the Peterson Foundation, created by Peter G. Peterson to hide his wealth and ownership and to peddle influence.

Peter G. Peterson was the original financial backer for his wife, who created and produces Sesame Street. There exists a strong correlation between the viewing of Sesame Street and a high quotient for gullibility as an adult.

That is, viewing Sesame Street as a child tends to make one susceptible as an adult to blindly obey authority.

WE MUST ALL OBEY! ! !

http://www.commondreams.org/headline/2012/05/07-4

EPA chemist Dr. Cate Jenkins, who had worked for the agency for more than 30 years, was the first official to sound the alarm on the dangers dust posed to firefighters and First Responders. But the EPA head at the time claimed there was no health hazard.

May 13, 2012 | Unregistered Commentersgt_doom

Hi SD,

Thank you for reading my post - you and 382 people now have more truthful, msm-independent, information than anyone that watched Meet the Press. I'm thinking of just adding Kim Kardashian into all my titles lines, and maybe more people will. Or just working for her instead. ...

Anyway, it is outrageous that Dimon's contrition on Sunday, and notices of firing a few of his people (so very bold and captain-of-his-ship-like, will probably be enough to make people soon go on to focus on other things - except for some arguing about the Volcker Rule, that in no matter what format, you can drive a derivatives truck through, because it leaves a balance sheet that allows the co-mingling of customer deposits and speculation of any sort, a and that Obama / Geithner / Bernanke have said nothing on the issue...

THanks for pointing out the case about Dr Jenkins!

Nomi

May 14, 2012 | Registered CommenterNomi Prins

I"m confused by your description of JPM's short position. I thought one made money if prices decline? Could you please, clarify?

May 14, 2012 | Unregistered Commenterearnyermoney

Sure - first, in credit default swaps, everything is kind of backwards to the underlying credit values. In regular bond land: if you buy a bond, and its value (price) increases, you make money. If you buy a bond, and its value declines, you lose money.

But, in CDS land, If you buy a credit default swap on an underlying bond (or bonds), you're buying protection in the event that the underlying credit defaults, and pay a premium to insure yourself against that possibility. The less likely it is a credit will default, the lower the premium you pay for that protection.

On the other side of the trade, if the underlying bond (or bonds) does default, some counterparty has to pay you the cash flows of the credit (bond or bonds) even if the bond issuer doesn't. Even absent the actual event of a default, what's traded is the value of insuring that event of a default. So even if a credit (bond or bonds) just weakens (its value declines), you have locked in a lower price premium for that default protection, than you would otherwise have if the credit had already lost value...(think - buying a credit default swap, or credit protection, on a AAA is cheaper than a BBB, because theoretically it's less risky - though as we seen in the CDO / subprime debacle, a AAA can go to junk really fast.)

JPM chose to take the position of effectively taking in those premiums up front, and thus being the provider of insurance in the event of a worsening credit scenario, therefore betting that the value of those credits would increase, meaning the cost of protecting/insuring them in the case of a default would decrease, and they would have thus locked in a series of higher premiums.

But, rather than the underlying credits increasing in value, they decreased in value, and JPM was stuck in the position of locking in those premium losses.

May 14, 2012 | Registered CommenterNomi Prins

Thank you for the response.

I wish you would cross post more frequently at Zero Hedge. I see there are 5K plus reads of this post on that site.

May 14, 2012 | Unregistered Commenterearnyermoney

You're welcome, and thanks for letting me know, I will do that...
Nomi

May 14, 2012 | Registered CommenterNomi Prins

Thanks for a brilliant article Nomi. And I did come from Zero Hedge too.

May 15, 2012 | Unregistered CommenterGawain

What a great explanation of the actual mechanics of what transpired, Nomi thanks. I arrived here from Jesse Cafe Americain. What I still can't fathom is why JPM didn't try to <B>unwind the original positions</B> instead of such an elaborate hedge. In today's more complicated world ruled by quants and arbs, with numerous uncertainties about Europe, China, and the health of US Economy, couldn't somebody have suggested to Dimon, "yeah well if this all goes south unexpectedly we will have a real mess on our hands." As you said, "it demonstrates the same cluelessness". It is breathtaking in its arrogance.

May 15, 2012 | Unregistered CommenterCAdderson

Absolute arrogance ... they simply expected the trade to turn back in their favor...and that they could hold on, until that happened, instead of unwinding their positions and taking sooner losses... same logic as during the ongoing housing securities collapse...for which, losing positions are still sitting on JPM's and other banks' books, not being properly evaluated to take losses indicative of current market values.

May 15, 2012 | Registered CommenterNomi Prins

Will Section 13 apply to this 2-5 billion dollar boo-boo?
Human beings have trouble understanding massive zeros,
put this simply:
Chase is going to charge $500 for your overdraft & $50 in monthly
junk fees to pay for this error.

May 15, 2012 | Unregistered CommenterCaroline Gerardo

Nice article and Interesting example.
To tweak the example what if Boeing in turn took a short position on JPM after having taken the loan from JPM? Or even a short position on Boeings own credit (in effect the two positions –Short JPM and/or short Boeing credit would be economically similar if the aggregate of JPM’s lending comprised only giving money to Boeing). Will this in effect set off a perpetual motion economic transfer machine with taxes as the frictional loss?
Of course the cost of the two bets may not be equal. Further in the real world as there are more borrowers and lenders with a continuous dynamic inter-action the value of these hedges(“bets?”) and their potential payouts continuously pulsates providing the same rush as what is visually obtained in when a roulette wheel spins.
In effect these forms of “bets/hedges” are a play in relative probability and underline your point that that there is a blurring of lines between hedges and bets. Given the outrageous size of the bets this makes for a situation where the tail wags the dog.
It is disturbing that the outsized impact of what should essential be entertainment (bets) has become the cutting edge of economic life in the past decade or two – guess at its time tulips conditioned behavior of the Dutch populace too.

May 15, 2012 | Unregistered CommenterVijay

I'm thinking of just adding Kim Kardashian into all my titles lines...

That's a great idea. If you could legally get away with it, maybe,

Macroeconomic advice that Kim Kardashian might offer,

or perhaps,

What kind of global financial wisdom would Kim Kardashian dispense?

Good, catchy titles, IMHO!

Seriously, though, old Abraham Lincoln* once said, Calling a dog's tail its fifth leg don't make it so!

Jamie Dimon has updated and corrupted that saying to: When I say a dog's tail is a hedge, it's a hedge!

*[To those still subscribing to American mythology, FYI: Abraham Lincoln was the son of well-to-do, multiple property and retail owner, Thomas Lincoln.]

May 15, 2012 | Unregistered Commentersgt_doom

One more item, according to the latest information that is slowly leaking out, this "hedge" of JPM's sounds more like what Taibbi discussed several articles ago, a CSO, or collateralized swap obligation, a basket of naked swaps which JPM was betting upon?

May 15, 2012 | Unregistered Commentersgt_doom

Caroline - you mean section 13 of the Fed Reserve Act? I'm not sure, but you've hit on a key aspect that people aren't aware of when the debate is limited to 'taxpayers bailing out banks' and them being provided thru the Volcker Rule in the Dodd-Frank Act - as depositors at any large bank (because they all behave similarly; the top 5 dominate the market), we are on the hook for incremental fees to bring in cash to back up losses continuously, they seem small, $20 for balances below certain amounts here and there, etc, maybe, but in aggregate, they combine to provide extra income to banks to bet with. That's the reality of not having banks separated, in addition to the greater risks.

May 15, 2012 | Registered CommenterNomi Prins

SD - yes, not a hedge, as I mention in the piece and answer above, JPM Chase was short an index of credit default swaps, meaning they got a premium upfront to bet that corporate bonds would appreciate, and when they didn't, began to take a loss

May 15, 2012 | Registered CommenterNomi Prins

Vijay - yeah, because credit default swap bets require no position of an underlying security (called a 'reference obligation' in CDS lingo), there can be, in theory, an infinite chain of incestuous bets.

May 15, 2012 | Registered CommenterNomi Prins

2 years ago i thought i would re-enter the investment world when Glass-Steagall is essentially re-enacted. and i thought (and still think) that that re-enactment will not happen until the current corrupt system implodes...which may have begun. the implosion, of course, will seriously damage the "investment world" and all of us who have avoided it. but that does not concern those who have (or control) all the money and use it to buy a system that benefits them and theirs.

i read your excellent article and all of the comments. it is not by chance that the subject is incredibly complicated.. obfuscation can best be achieved through complexity. am i nuts? or does that scream out for the simplicity of Glass Steagall?

how, though, would Glass Steagall have prevented the MF Global failure and subsequent debacle? has the corruption spread too far?

May 15, 2012 | Unregistered CommenterPatricia

Patricia - those that claim banks can get around any regulations do have a point, banks can and will find and expand loopholes, buy legislation, and create off-book products that fly under whatever regulatory framework there exists, until they explode....BUT, because of that ability and the complexity and sheer volume of securities trading out there - what Glass Steagall would do, is remove the financial safety net of an umbilical chord to the Fed and Treasury Department and well as the reliance on customer deposits and loans to count as capital chips on the global betting table. It wouldn't keep firms from trading, but it would inhibit them from enjoying the support of 'other people's money' with which to do it. It would make regulations easier to implement, too.

May 15, 2012 | Registered CommenterNomi Prins

i hear you, Nomi. i fear, though, that this slimy snowball has gathered such speed and volume that nothing can stop, slow, or impact it...not even Glass Steagall. reinstating Glass-Steagall would, however, be a just act. therein lies the conundrum: who is there to act justly?

May 15, 2012 | Unregistered CommenterPatricia

Nomi -

I'm a mathematician who has been trying for years to understand how the "math" of economics works - and your interview in episode e288 of max keiser this week was the first time i ever really "got" the "math" of economics.

http://www.youtube.com/watch?feature=player_detailpage&v=Y2VhkQe3gQ0#t=708s

seriously, i have never heard anyone explain it so clearly and simply. when you described the doubling-down, and then when max said that is known as a "martingale" system (which i'd read about when i studied quant stuff), and then when max said "the only way you can be guaranteed to win in a doubling-down martingale system is when you have access to an infinite line of credit"... a lightbulb lit up in my head, and from now on i can see the whole thing crystal-clear

it's so amazing to understand this after years of trying to figure it out.
and as an added bonus, it's really simple too:

so jamie just happens to be the guy who is closest to the money spigot (in his revolving door relationship with the fed and jpmorgan)...

so in a way, jamie dimon is more powerful (socially, politically) than bernanke.
because while bernanke gets to create the money, jamie dimon gets to decide who it will first be ladled out to.

- i "love" the delicious excitement when you realize, like, wow, all we need to do is take a position opposite to jpmorgan's positions in the synthetic derivatives market, and we could destroy jpmorgan... but then you realize that little caveat:

if jpmorgan is the one who has been ladling out the money the whole time in the system, and can continue to do so in the future...

...then "politics" might in this case trump "mathematics", and you wouldn't want to be the one to take a (mathematically) perfectly logical position against jpmorgan, because (politically) someone's gonna come get you, somehow...

ie, due to their proximity to the money-spigot, jpmorgan have power over everyone else, and in a certain extreme circumstance (ie, in the case of a direct attack on jpmorgan itself, on its positions), jpmorgan could deploy this power to their own benefit


- i "love" the fact that they're the biggest bank in the US - that they are the hellspawn of the repeal of glass-stegall!

http://en.wiktionary.org/wiki/hellspawn


- i "love" the fact that jpmorgan also handles the american foodstamp system!


(i just mean "love" in a novel-writer's or movie-director's point of view: it's just such a juicy evil detail)


i think years from now, when this is all in the history books (if there are any history books, or people around to read them), this will be a really gripping tale, of how the guy closest to the money spigot destroyed our financial system by sucking up everyone else's money

so it really is all that simple and obvious: hello! the guy who gets to make the intial money-ladling decisions (currently jamie dimon) wins the game!

and accounting is meaningless if it's embedded inside a system of derivative and shadow banking.

and of course: if you don't separate commercial and speculative banking, the speculative side occasionally destroys the commercial side

i don't see how a whole profession of people - economics, traders - could not see the simple math here about how money is created and injected into the system.

the two messed-up parts of the system (mathematically) are obvious these:

(1) the point where the money is created, and then gets initially handed off to jamie dimon at jpmorgan, who then decides who to pass it on to next (and has the nerve to charge interest on it, and he's not out-of-pocket for it in any sense, as he got it for free from bernanke, who simply created it out of thin air)

(2) on top if this, whenever anything does go wrong, the move it off the books into a larger, enclosing, but not very scritinized system, called derivatives and shadow banking, which is where all the major action takes place, and where the regulators close their eyes to

these are the two things that enable all the unfairness and fraud, and they're also the most taboo topic of course - untile someone like nomi prins comes along and simply points them out in a major story about america's biggest bank, jpmorgan.

May 16, 2012 | Unregistered Commenterhellspawn

FIXED TYPOS:

and accounting is meaningless if it's embedded inside a system of derivativeS and shadow banking.

i don't see how a whole profession of people - economiSTs, traders - could not see the simple math here about how money is created and injected into the system.

the two messed-up parts of the system (mathematically) are obviousLY these:

(2) on top if this, whenever anything does go wrong, theY move it off the books into a larger, enclosing, but not very scrutinized system, called derivatives and shadow banking, which is where all the major action takes place, and WHICH the regulators close their eyes to

May 16, 2012 | Unregistered Commenterhellspawn

by the way, i didn't come here from zerohedge or from jessie's cafe americain...

i actually saw naomi on max keiser episode e288, i felt that her interview with max was the most mathemetically clear and simple exposé i had ever heard about how the whole system of financial fraud works

and i googled
nomi prins jamie dimon

and i found what i was hoping for: this amazing post about how jpmorgan plays the fed and the derivatives market

there is something very special about this story, and about nomi's presentation of it.

as i said, i am a mathematician, and i even bought a bunch of quant books once to try to understand quantitative finance (but i have never had much liking for stochastics and probability, i just literally cannot stay awake for what i condescendingly call such heavily "calculational" mathematics, i'm way over on the other end of math, in logic, studying "foundational" stuff like brouwer's intuitionism, girard's linear logic, bruno & montanari's tile logic, meseguer's & goguen's maude & obj3, lawvere's algebraic semantics)

i have never been able to really see what's going on, mathematically, in our finance systems, until this exposé by nomi.

and now i see why i never could see it - everyone was to verklemmt to say it because it's all just simple fraud covered up by "difficult" math!

what nomi has pointed out here (using jpmorgans recent two billion dollar loss as a particularly illustrative example) is nothing less than the three things that destroy our money system c(1) the unfair way we create and hand out money, and how we set the interest rates on it, and (2) the way we move all the big stuff into the derivatives and shadow banking system, and close our eyes to it there and (3) the commingling of commercial and speculative banking, which glass-steagal prevented for a while

it's just so obvious, it requires hundreds of really expensive books blathering about black-scholes and martingales and stochastic calculus which seem REALLY REALLY HARD but they're just a layer of calculational obfuscation over a central core of unfair money-creation and fraudulent accounting practices which any person with high school math skills could otherwise see through if it weren't dressed up with so much needlessly complicated, distracting math

well, a sociologist or anthropologist would probably tell you that it was inevitable that such an encrustation of lies would form around the money-creation spigot, and that the real action would try to flee underground into an off-balance-sheet, shadow system of derivatives

from the point of view of a film-maker or novelist - a story-teller - i think the really important question is, how do we frame this, to make it into a gripping, simple tale of theft which the average person could really get into?

nomi has done a great job laying out the facts and exposing this tale of fraud. and several other writers should take their turn at telling this story too - her interview with max keiser on this topic was great (episode e288), and maybe someone like matt taibbi could also provide another nice framing...

seriously, this to me is the first time i've ever really gotten an easy-to-understand example of how the whole derivatives mess works - although i've been going around talking about it for years saying to anyone who will listen, saying "there's three quarters of a quadrillion dollars in the derivatives system"...

but i think now focusing on one bank, jpmorgan, america's biggest bank, the hellspawn of the repeal of glass-steagal, the company in charge of really ALL initial money handouts in the system - to corporates, to sovereigns - and to people on foodstamps... (i really love that detail), and how it's making these bets, using OUR money, in this off-balance-sheet netherworld of synthetic derivatives,

and, another important detail: as often happens, it's all based on believing phoney optimistic crap, about how US corporates are improving (the same way MFGlobal was based on believing phoney optimistic crap about how Euro sovereigns are improving)... another typical, nauseating detail so common among these idiots who destroy our systems: this phony hyped optimism they run on, while all the sensible people around them see reality but get ignored

plus the cheesy metaphors jamie dimon uses when talking about how he's cleaning up the mess, AS IF HE IN ANY WAY CAN

it's a friggin 90 trillion dollar position in derivatives which just lost a tiny $2 billion chunk, and his ass is totally exposed, everyone can see what his position is, and bet against him, and take this bank down

+++

and yet: this is the scariest detail of all in this whole mess: does the linked-ness of jpmorgan to the REST of the system somehow protect jpmorgan?

if you take down the company standing closest to the money spigot... what happens? can he take down the rest of the system with him, by virtue of his connectedness with pretty much everything else in the system, from corporates to sovereigns to foodstamp recipients?

the way i see it, we have a stark choice before us here:

(1) either the market takes jpmorgan down, and it will be a real mess as jpmorgan takes down a lot of hostages with it

(2) they break up these big banks, re-instate glass-steagal - and figure out a better way of doling out money ab initio - maybe look into some ideas from ellen brown about public banking

May 16, 2012 | Unregistered Commenterhellspawn

TYPOS

toO verklemmt

(1)

May 16, 2012 | Unregistered Commenterhellspawn

..does the linked-ness of jpmorgan to the REST of the system somehow protect jpmorgan?

Not to presumptuously answer for Ms. Prins, but allow me to add the following:

To answer the above, JPMC is a primary dealer, and once you fully understand the status of the primary dealers, you grasp the overall structure.

Plus, it's considerably more rigged for JPMC than you have inferred:

JUST HOW RIGGED IS IT ???

JPMorgan Chase (this applies to Goldman Sachs & Morgan Stanley, but more so to top rat JPM) was responsible for lobbying congress for the overturning of Glass-Steagall, while it created the credit default swap, and countless variants of CDOs. It has enjoyed the strongest derivatives position since that time.

JPMorgan was responsible for structuring the securitized-mortgage-foreclosure profit cycle:

they profit from lending the mortgage, then profit from its securitization, then profit from its foreclosure (especially the FHA loans, where they automatically are reimbursed almost all of the original amount), then profit from its reselling, then profit when it's securitized again.

And JPMorgan Chase has been involved, both directly and indirectly, in offshoring jobs and promoting massive offshoring of jobs -- when then leads to economic problems and unemployment, thus leading to default on mortgages, resulting in foreclosures, further profiting JPMorgan Chase.

And if those unfortunate souls then must put in for food stamps, JPMorgan Chase profits from that program, as it is routinely, nationally and locally, handled by them and their banks.

And it doesn't end there, as those jobs are offshored to countless foreign factories, and foreign production facilities, and state-of-the-art research & development laboratories and training centers of which normally are financed -- over the past three to four decades -- by US foreign aid (USAID, OPIC, various and sundry other programs, etc.). [And people thought all those executives doing stints at those former government agencies -- they've now all since been privatized -- were actually performing public serivice?]

That's correct, you the taxpayer and your descendants, have paid for the multinationals' foreign enterprises -- while they pay almost no taxes, or usually none at all (over 70% of American-based multinationals and corporations at last count paid no federal taxes).

Just how rigged is it??? It's completely rigged.

May 16, 2012 | Unregistered Commentersgt_doom

I got a call the other day from my banker. He said the check bounced. I said mine or yours? He said ours.

May 16, 2012 | Unregistered CommenterMichael

"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." Paul Getty

May 17, 2012 | Registered CommenterNomi Prins

http://www.republicreport.org/2012/jpmorgan-banking-committee/

Luckily for Dimon, the professional staff in charge of managing the banking committee will be quite familiar to him and his team of lobbyists. That’s because the staff director for the Senate Banking Committee is none other than a former J.P. Morgan lobbyist, Dwight Fettig.

In 2009, Fettig was a registered lobbyist for J.P. Morgan. His disclosures show that he was hired to work on “financial services regulatory reform” and the “Restoring American Financial Stability Act of 2009? on behalf of the investment bank. Now, as staff director for the Senate Banking Committee, he will be overseeing the hearings on J.P. Morgan’s risky proprietary trading.

sd's comment: Business as usual. . . .

May 24, 2012 | Unregistered Commentersgt_doom

The criminals today rule every aspect of american life; they make the rules they break and forgive themselves for breaking. They're allowed to be the legal counterfeiters and print the nation's currency for themselves. It's the same in Europe. The criminals are everywhere and have won. Seriously this is what democracy begets. It reminds of Al Pacino's remark playing the gangster in Scarface.

June 2, 2012 | Unregistered CommenterTim

I enjoyed your interview on Dem now. I have long been inquiring as to why we don't make a rule that if you, as a congress person, sits on any committee then you cannot receive any monies from corporations that pertain to said committee,i.e. ways and means or banking com.-no money from banks, loan com.,etc, defense-no monies from Boeing, lockheed martin,etc., same on energy-no oil monies,etc. Also why didn't those that be write into tarp that ANY bank or wall st. firm that took tarp monies could not use lobbying money until ALL tarp funds are returned. That, to me, is like giving them money to use against the tax payers that bailed them out in the first place. I would appreciate your thoughts on both ideas.

June 15, 2012 | Unregistered Commenterkoleen little

I barely understand even the basics of investment banking but I have a comment I hope everyone that's reading will consider. Personally, I don't believe these "trading losses" are mistakes. I think they're pay-outs to other financial entities for various specific purposes. It's most likely a sneaky method to transfer funds through an avenue not otherwise available. It strikes me as naive to assume that a bank like JP Morgan Chase, and a CEO like Dimon, are repeatedly susceptible to such "mistakes." The honest traders don't make it to the top like Dimon; you have to be willing to take the heat for the decisions made by even higher-ups--to transfer money covertly under the guise of foolishness or arrogance.

July 15, 2012 | Unregistered Commenterlightpage12

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