No one could have predicted:
Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.
When Jamie Dimon, the bank’s chief executive, announced in May that the bank had lost $2 billion in a bet on credit derivatives, he estimated that losses could double within the next few quarters. But the red ink has been mounting in recent weeks, as the bank has been unwinding its positions, according to interviews with current and former traders and executives at the bank who asked not to be named because of investigations into the bank.
The bank’s exit from its money-losing trade is happening faster than many expected. JPMorgan previously said it hoped to clear its position by early next year; now it is already out of more than half of the trade and may be completely free this year.
I’ve decided it is unfair to call our Galtian overlords degenerate gamblers. Not unfair to them, but to the gamblers. At least gamblers know how much they are risking when they tell the dealer to hit.
scav
Wonder what his bonus will be for having to do all this distasteful testifying and dis-entangling.
blackfrancis
Break it up. Bring back Glass-Steagall. Close the casino.
serge
Dimon should be fine. Jerry Bremer lost $9Bn in cash in Iraq. He wasn’t punished. That’s a warehouse full of pallets of CASH. Gone, unaccounted for, never to be found.
NonyNony
@serge:
Bremer never had to account for himself to a Board of Directors or a group of shareholders.
Unfortunately, I don’t think $9B counts as “real money” to the Board of Directors of Chase. So Dimon also probably won’t be facing repercussions. But he’s starting to get closer to where the shareholders might start getting concerned about what he’s doing with “their” money.
Boots Day
It’s very interesting to me the way the word “bet” is used so frequently now to describe the investments these banks are making. I don’t think I ever heard that word used in that way before the subprime meltdown.
But now, it’s very clear and widely accepted that what these banks are doing is nothing more than gambling. And they’re doing it with taxpayer money.
MattF
So, will JPMC go back to being a bank rather than a hedge fund? Like, investing some of that loose cash, rather than playing rock, paper, scissors against the algorithmic traders? I think not, but here’s a little hint why they should (via jwz.org):
jwz.org/blog/2012/06/robot-hand-beats-you-at-rock-paper-scissors-every-time/
Yes, folks, the computer cheats.
Walker
@NonyNony:
Fixed that for you.
rollotomasi
I dont understand the problem with this chase/dimon situation. Investment banks take risks – sometimes wild risks. Risk is good. Extreme risk is better. They made an error. I’ll wager they dont make this same mistake twice.
So long as they don’t expect to recover their losses from taxpayers, why shouldn’t they take risks. Isn’t that how the system is supposed to work?
NonyNony
@Walker:
Meh. I don’t think Dimon gives a crap about depositors either. I doubt he believes they’ll flee his company en masse, which is what it would take for the Board to sit up and fire his ass.
And even if the board did fire his ass, I’ll bet he has a 2 ton Golden Parachute ready for him anyway.
ericblair
@NonyNony:
What the major shareholders should be getting concerned about is the total joke of risk management at JPM, which is supposedly the best in the business. It would be one thing if management came out and said “we took a position, we knew how much was on the line, everyone signed off, the position went bad, shit happens, and we’ve planned for this eventuality.” Instead, we got “uh, someone lost some money, we’re not sure how much, we’ll get back to you, and some heads will roll or something and we won’t do it again pinky-swear.”
Oh yeah, if this just came out, nice timing. We should be on the lookout for more “4:59 before the long weekend take out the trash” announcements someone’s trying to bury in the ACA hullabaloo.
eric
It was not a bet, it was a tax, therefore it was ok
Mouse-Bear
And tend to feel actual remorse and/or regret when they lose money intended for other purposes (kid’s food, house payment, etc.).
Maude
Things aren’t looking good for JPM or Dimon.
I don’t think we have the whole story. Seems that this is coming out in dribs an drabs.
Corner Stone
Cole – you may have been pointed to Dealbook, or even found that source on your own, but there’s a credible case to be made that Dealbook stole their story and “sources” from previous reporting. And then failed to attribute or give credit.
I thought it was significant to point out their pattern of behavior in stealing from other sites.
JP Morgan Managers Being Told Trade Loss is $9 Billion
Please see the Update at the bottom of that link:
“UPDATE 6-28-12: This morning the New York Times Dealbook rewrote my scoop about a possible $9bn loss for JPM and didn’t credit me for reporting this first. They’ve done journalism theft like this before when I was scooping them at the New York Post during the financial crisis. Times reporters like Andrew Ross Sorkin led the scoop stealing behavior during 08 and this morning I see him doing the same thing on CNBC.”
Steve in DC
@MattF:
I think part of the problem is that all the banks are using computers against each other. The usual sources have touched on this issue before. But banks are moving all sorts of high volume trading over to computers right now. It just happens way to fast for a human to do it. Eventually one of these machines is going to screw up something massive.
Though I’d laugh if someone managed to infect one of these machines.
greenergood
From Wiki: ‘In January 2008, it was confirmed that Blair would be joining investment bank JPMorgan Chase in a “senior advisory capacity” and that he would advise Zurich Financial Services on climate change. Some sources have claimed that his role at JP Morgan will pay more than $1m a year. This additional salary will contribute to annual earnings of over £7m.’
Nice to read that our former Prime Minister has allied himself with such a nice bunch of blokes.
Napoleon
What a coincidence, this just happens to come out the day of the Obamacare ruling so will get stepped all over in the news.
Harlan T. Fescue
It is easy for the Peasant, unfamiliar as it is with the act of earning money, perhaps through the hard work of getting lesser creatures to toil on one’s behalf and then betting the proceeds of their labor in the market, or by toiling for some years as the descendant of wealthy parentage until one’s toils pay off when said parents die and one inherits their wealth, to criticize its social and moral superiors for their actions. Of course the Peasant lacks both the financial experience and raw mental capacity to properly understand that when the Good People at JPMorgan Chase “lose” $9 billion, they have simply helped society to efficiently reallocate those monies from the tiny investment and “retirement” accounts of various moochers to the much larger accounts of Those of Us who deserve those monies.
Lacking the ability to comprehend this most basic of societal transaction, the Peasant resorts to attacking Us and Our Status, which leads us to the precarious position of today’s Good People, always at risk of some unwashed servant or another uttering nasty things about Us for no discernible reason beyond the servant’s own anger that We have taken its monies away from it. But said monies would be wasted upon you moochers, who merely use it for frivolities like “food,” “shelter,” “basic clothing,” “medicine,” and other such items of which, frankly, you already possess too much. Society depends upon the Moral Leaders at institutions like JPMorgan Chase to take those monies from the dirty, inefficient hands of the Peasant and return them to their rightful owners.
NR
Time for the Democrats to force all of us to give them money.
ericblair
@NR:
Yeah, wouldn’t want the Gummint! to give Our Money! to Those People!
David Koch
“I say, I say, dis is just a blip”, ~ Senator Fog Horn Leg Horn (R-TN).
RaflW
Sure glad those Senators raked him over the coals a week or two ago.
Oh, what’s that? They managed a reach-around from the dais? Alrighty then.
T_malone
Hello,
I just recently found this site and I love it! Thank you!
I am not sure if you are aware of what has been going on over the pond with Barclay’s bank and the interest rate manipulation. The economist explains it better here:
economist.com/blogs/schumpeter/2012/06/barclays%E2%80%99-libor-embarrassment
JP Morgan is just a big fly on a corrupt pile of poo and it will get worse. Expect it.
Mouse-Bear
@NR:
There, I fixed it for you.
Comrade Dread
Wonder how many people that money could have kept in their homes or apartment? Or how many could have had their bills paid? Or how many could have been fed for a month. How many could have had medical and dental work done? How many homes could have been built?
But I’m probably just a stupid hippie soshalist who doesn’t understan the glorious creative destruction of capitalism.
danielx
Yeah, and at least gamblers don’t go about whinging to the government for a bailout when they lose on a bet, unlike the fucking bankers.
@Harlan T. Fescue:
Oh my. I know it’s facetious, but it’s…perfect. Have you been offered prime space on the editorial pages of the NY Times, Washington Post or Wall Street Journal? Your writing strikes just the right tone of self-righteous pomposity and sanctimony. It’s worthy of George Will and at points almost (dare I say it) Brooksian. You could do very well, provided you’re willing to jettison integrity, morals…all that unpleasant baggage most of us have to carry around.
The Moar You Know
So did JP Morgan, make no mistake. They knew within a dollar how much they’d lost the day this hit.
They’re just doing the same kind of shit that any dishonest spouse would do if they had to go home to the wife and tell her they’d just gambled away every dime in the savings account: “oh yeah, I lost a bit down at the tables. Not much, we’ll get it back, don’t worry!”
One week later: “Umm, honey…”
Two weeks later: “Remember that poker game? Yeah, well, as it turns out…”
Four weeks later: “Oh, I got in all the mail already…”
One year later: “What do you mean someone tacked a foreclosure notice on the door?”
The Moar You Know
moderation jail for bad word, pls help thanks
Roger Moore
@rollotomasi:
Because they were gambling with their depositors’ money. The whole point of a bank deposit is that it’s supposed to be safe, so the bank shouldn’t be allowed to gamble with it. This is what Glass Steagall was about and what the Volker Rule is supposed to do: prevent investment banks from being able to make their risky bets with deposits that are supposed to be safe as houses.
PWL
I’m just wondering if this means we’ll be subjected to another spectacle of Senators kissing his expensively-tailored ass.
El Cid
Sure, but if the loss was $9 billion, that includes $2 billion, so, of course, once again, the brilliant Jamie Dimon was once again correct.
Martin
Too true. I’ve made money in derivatives. It’s like a drug – you can make ungodly sums of money, and lose ungodly sums of money just as equally. It works really well as a hedge, which is how it should be used, but it’s just as easy to play it like a lottery.
Not necessarily. There are lots of derivatives that have fully open-ended losses. Selling calls against a held security is a reasonable hedge and relatively safe because if the security skyrockets in price (stock prices have no upper limit) then they can sell off the ones they hold to cover the call. But if they write that call to open with no held security (these are the naked positions that have been tried to be banned) then their potential loss is limitless. Their quantitative models might put the likelihood of a loss over a certain amount to be exceedingly low, but there’s still a potential there. Further, efforts to unravel a position like this often compound the problem because you end up putting more demand onto a position at the very moment that you’re trying to eliminate it. That’s not an issue for someone like me that might put $2K in, but when you put in billions, you will move market prices just by getting in and out of your positions.
Roger Moore
@Martin:
Especially if it’s a deliberate squeeze, as appears to be the case for JPMC, rather than just a bad bet. You’d think that taking a position that could easily lead to a squeeze would be the kind of thing an allegedly great risk management department would step in and stop.
scav
Somehow I think this LIBOR — Barclays et al stuff is more important than its level of coverage would suggest (granted, there’s a lot going on). Just a back of the neck feeling.
ETA: problem is, the level of mendacity judged normal in these circles tore my jaw off long ago so there’s nothing left to drop and little gob to smack.
Roger Moore
@scav:
We’re just seeing the tiniest tip of the iceberg right now. It’s only going to get bigger as the news rolls on.
Arclite
Gamblers also lose sleep when they I saw one high stakes poker player who said the first time she lost a million dollars on poker in a night, she didn’t sleep for five days straight.
The thing with these guys is that I don’t think they’re losing any sleep over it.
Maude
@Roger Moore:
I agree that we haven’t seen nothing yet.
We don’t know what JPM was doing. The regulators have to sort through the mess.
Arclite
@Arclite: Why did my comment enter moderation?
Schlemizel
Early on I read credible reports that the loses could go as high as $13 billion and were certainly more than $7 billion. The media has worked studiously to ignore these reports and allowed Congress to pretend it was “only” $2 billion. I think that 9 might be close but I bet if the true number actually comes out it will be above 10.
Corner Stone
@Roger Moore:
And then what?
These jackasses at Barclays so magnanimously deigning to forgo their fucking bonii. Fuck them. They should be in jail. But no one’s got the ability to do it.
Every singly C-level person at any TBTF bank around the world should have been phased out of their job in a schedule to be determined by the sovereign nation represented.
Look at what banksters did in South Korea recently. They got frisky and when they busted out they either committed suicide or went to jail.
What did “The West” do with these fucking scumbags? We kissed their ass at Congress and told them how if they would inseminate our virgins we would appreciate it.
Corner Stone
@Maude:
HAHAHAHAHAHA!!….gasping…BWAHAHAHAHAHA!!
Corner Stone
@scav: If the motherfucking JPM’s and BoA’s et al could get away with muni bond bid rigging for years and years and years, and then pay a teensy fine to recover, what the hell do you think is going to happen about LIBOR rigging?
Nothing. They pay a fine out of the taxpayers pocket and the execs go about their fucking business.
Corner Stone
@Martin: You’re so worldly and knowledgeable. Gives me tingles in my nether regions, it does.
scav
@Corner Stone: Well, we’ll have to see. I’m not getting hopes up necessarily, but contexts matter too, and history is not 100% destined to happen exactly as it happened before. National Health care plans been tried in the US and are inevitably dooommmmeeed dooommeed dooommmed. At this moment, it may play into the politicians baser instinct to play harder ball especially given the scale of the mess the world is in, thanks to bankers, and obviously thanks to bankers. And the main, or most active arena of action might be in the UK and I don’t pretend understand how that might play out, being that much closer to the Euromess. No, I’m not sure, it’s a back of the neck avalanchy kind of feel, nothing more. Certainly hasn’t hit Diamond yet, all he had to do so far is give up his bonus, poor dear.