… or so I am led to believe, having read Felix Salmon’s post “Jamie Dimon’s Failure” at his Reuters blog. I do not have a good grasp of the Ferengi mindset — that’s why I read Salmon, who I count on to explain Modern High Finance in terms where I can at least hope to grasp the general outline. Obviously you should read Salmon’s whole post, but as I understand the saga so far, today’s scapegoat Ina Drew was being paid an “eight-figure salary” because her department (the Chief Investment Office) was so successful at turning the “liability” of cash deposits into gold for JPMorgan:
…With lots of deposits coming in, and little corporate demand for loans, it was easy for all that money to find its way to the Chief Investment Office, which could take any amount of liabilities (deposits are liabilities, for a bank) and turn them into assets generating billions of dollars in profits.
But the CIO does much more than just provide profits for JP Morgan. In contrast to the bank’s lending book, the CIO is nimble. Loans, as a rule, have to be held to maturity: that’s the essence of relationship banking. Investments, by contrast, can be sold at any time. Of course, an investment which can be sold at any time has another name: it’s a trade. Thus did the CIO become home to big traders, making huge bets and huge bonuses.
In the past couple of years, of course, that raised its own set of problems: how could this group of traders possibly be Volcker-compliant? The answer lay in Drew’s love of crises: her incredibly valuable ability to prevent losses and even make profits when the world is falling apart. In that sense, the CIO was one big hedge, and in a narrower sense the CIO was the go-to office whenever JP Morgan saw a risk which needed hedging….
So, basically, Drew and her subordinates were very, very good — and for a long time also very, very lucky — at swapping chips from red to black and black to red one jump ahead of the other players on the roulette wheel that is today’s global financial market. And maybe some of those chips were bought with dollars that were, or should’ve been, marked NOT FOR USE IN THE CASINO, but as long as the CIO stayed lucky the fish wouldn’t notice the float until those dollars had been replaced. It was an excellent living, while JPMorgan was just one of many market raptors bulking up in the rich capitalist jungles of the Bush-era global finance bubble.
Huge Clumsy Raptor JPMorgan Fails to Be A Tiny Nimble InsectivorePost + Comments (71)