I went long this morning

The regulators did have the info right in front of them 99% of all CDS trades are at DTCC. Everyone knew JPM was moving the markets and doing the majority of the trades. No one at the SEC/OCC is capable of figuring what, if anything, they were doing wrong and if anything should have been done to prevent it.

+100 to the Madoff debacle as well.

This didn't actually happen, you realize.

GS got their bank holding sub approved in ~2002, and then expanded further in 2006. And as noted in several reputable media accounts, GS [among others] didn't want to have the Fed force loans on them - especially after WEB gave them $5Bn and would have been happy to loan them more at higher rates. [Rightly or wrongly for both parties, they felt they didn't need the money.]

And if your retort is 'Well, the whole fin'l system would have failed so GS would have failed OMG,' then that's not really a WallSt problem is it?
GS would be no worse off than anyone else. GS was in the strongest fin'l position of any major institution and paid their loans back the fastest.

The notion that GS 'ran to become a real bank' is an absurd myth. No one thought they were becoming a bank as it was happening anyway, and no one does now.

They shouldn't hedge their ~$360bn bond and loan portfolio? They should just take in very short-term deposit money and make long-term loans? Hilarious.

naijdorf, while that is a nice essay on the internal actions and mentalities in play around the boardrooms of the big firms, without a semblance of contagion control from a majority of the banks ( not just GS), there would have been further destruction. How far and how violent, there is no way for anyone to model or explain it.

The latest JP situation rings the same as back then. What was originally disclosed as $2B has people speculating the real number could be much higher. The main point learned in the past 5 years is bankers are notorious liars and cheats of the system. Until the actual dollars are seen through a forensic audit, to believe the slight of hand techniques is a sure sign of naivete.

JPM is rumored to be actually gaining on this "loss" to the tune of $5B. They will blow away this quarter's estimates and gain billions back in cap.

Aren't those 'gains' just a way of accounting for the lower market value of their debt?

Unless they are planning to purchase their own debt in the open market, it is just a balance sheet adjustment and will not affect cash flow.

First it was $2B, maybe $3B.

Then it was $5B

Now it's $7B.

Time for the apologists to admit they had no clue, and this speculation and the associated mounting losses are a) far from over and b) not meaningfully correlated to anything else in JPM's portfolio (ie. not a hedge)

I like how 'could' and 'may' mean 'is'.

No one wants to go out on a limb while it's still growing.

Look at what the stock did - the market has priced in about a $24B loss for this quarter. In other words the line is that there's still 3-4x what we've found so far. I suspect that's about right. Mind you the line's being set largely by the same funds who aren't going to let JPM close their position.

Of course, if it was actually a hedge they wouldn't want or need to close it

This isn't entirely accurate either. They didn't want government buying stake in the company via equity or convertible notes, but they absolutely wanted and needed liquidity provided through short-term loans by the Fed. They would've faced a run without access to Fed facility, which is how Bear Stearns went down and why they created Primary Dealer Credit Facility. In the aftermath of Lehman bankruptcy, it didn't matter too much if you have a strong financial position, if no one gave you liquidity. Market liquidity providers (commercial banks, CP/repo market, depositors, counterparties, etc) don't care about your financial position and don't have anyone to do credit analysis. They care about whether you can borrow again from someone else to pay them back. This is recipe for herd behavior.

And when you don't have liquidity and everyone knows this, your perfectly hedged trillion dollar book is miraculously going to move against you. Because Primary Dealer Credit Facility was seen as a temporary measure and didn't inspire sufficient confidence among other market participants that they are bank-run proof, GS and MS became bank-holding companies (or reorganized corporately to link more parts of their operation to their bank subsidiary to make eligible for Fed credit and subject to bank regulations).

ZeroHedge did a great article a while back on how "Gross becomes Net" when shtf. Basically, counterparties are unreliable (read AIG) during times of market turmoil. Sure, you may be "hedged" and market neutral, but your hedges are only as good as your counterparty's credit.

I am not against sound banking and hedging when possible. However, something in the interest rate swap? market is bugging me. Rates are at historic lows. Banking in the US is highly concentrated, as there only a few major players. So tell me, how can the top banks with all their interest rate risk on their loan books be reliably hedged? That is, who can reliably take the other side?

Still growing, and we ain't done yet.

http://marketday.msnbc.msn.com/_news...of-a-loss?lite

$5.8B just this quarter.

The "oh, it was just a hedge" morons should quite finance while they're behind

Supposedly the Whale left the bank. Must be nice to donk off 4-6Bs and just call it a day. He'll be back I'm sure.

Sure Dimon appreciates the feds on his phones 24/7 thanks to this genius.

You are missing the point. From your posts in this thread I think you should be the one quitting finance.

CDS can not be hedged perfectly so the $$ amout does not matter one bit when determining if it was a legitimate hedge. What matters is the relitative loss compaired to the size of there portfolio. which, even at 6 billion, is a small %.