The point of a hedge is to dampen swings, profit or loss. I have no idea what you're talking about. Why do you feel like if you are hedged you cannot lose? Why do you think 2 billion dollars is a lot of money when it comes to a corporation the size of JPM?

Hedges are rarely precise so profit/losses on hedges is common and saying $2B is a big swing and miss is a news headline when unless we knew the size of the hedge it doesn't mean much.

its the casual nature of..........oh it's just $2B, hardly an issue, is why this story became huge. If it were so trivial, then why the concern from the public who got run through the ringer last time, and then the shareholders are not to pleased with the sudden lack of financial dividend, as was promised.

As this is politics, and the political ramification is the wunderkid losers ( I tend to think of them as) who royally **** up, then shrug their shoulders. No problem they say as they continue to cash their checks. Its a continuation of heads I win, tails I don't lose, which didn't end very well.

The public are stupid, hopefully we are trying to do better than the public.

Dont know what the shareholders actually think about this but obviously they would have been happier if the hedge (if it was a hedge) had come up with a $2B profit.


I agree but the problem isn't losers its winners. The crises like all other crises came from lauding people who made profits. We always get this the wrong way around- it was when people like Fred Goodwin, Fuld, Milkin etc are making huge profits that people need to have a long hard look.

You're presenting a false dichotomy. This was either another 2008 or its completely trivial. There's a lot of ground in the middle. This was not trivial. Heads have already rolled at JPM, and this case is getting a ton of attention from everyone including JPM itself, regulators and I'm sure their competitors who don't want to make the same mistake. But on the other hand a 2 billion dollar loss isn't going to collapse JPM, much less the entire financial system, so you need to drop that 2008 doomsday trajectory.

I'm not sure what you want here. It seems like you are saying a bank should be taking zero risk with depositors cash, like they should deposit that money in an interest bearing savings account or something. Unfortunately that also means continually losing money on a service they provide, which means they really shouldn't be in business.

After the fallout from the financial crisis, guys like Fuld have never made........... amends, for their actions and activities. That is the root problem. In addition, almost all bad trades must be thoroughly investigated to see IF/WHEN these cowboys are marching the system towards another cliff. Their paperwork though, which was designed to be a cryptic as possible, has the intent to obfuscate to all but those few on the inside. It's the same as the legal system used to be, only a lawyer would speak to a lawyer. By the use of arcane terminology, they managed to keep someone not in the brotherhood at bay. It was also good business to them, each interaction meant 2 sets of fees.

No one wants to be supervised, not a 5 year old in kindergarten or a hot shot commodities trader. Even notice no matter the outcome they always never made a mistake. It's not a question of dwelling on the negative, but the adage about the reason to study history, to not commit the same mistake over again, is relevant.

JPM is making the same mistake over again, it's ingrained in the free money lexicon of all those who flocked to the easy money on Wallstreet. One of the most dangerous people is someone who has never been dealt a crushing blow, or even worse has been able to get some else to take the fall. It gives them an air of invincibility. So while a few may have lost jobs as the system shrank, those still there are still drooling and doodling more ways to "heads I win, tails I don't lose". That is not possible in the real world. And that's the key concept missing from those in financial engineering today, they like to use imaginary numbers and crafted equations, then expect it to always work, in the real world. Ponzi became considered illegal, not because it didn't work ( on paper its marvellous), but because of the destruction it leaves behind.

This I am at a loss with about your reasoning. Banking was/is all about the spread, they borrowed their depositors money at a low rate, then loan it out at a higher one. That is basic business, buy for less than you can sell for. It's what maintains each parties interest in the commodity/good, there is not supposed to be any blatant destruction. It ain't sexy, but it builds over time. And sometimes losses happen, but they shouldn't create a panic situation.

Quote:

a bank should be taking zero risk with depositors cash,

interesting phrasing, whose cash is it again?

Congress will probably write another 2000+ pages of regulations that no one will understand. I favor a simpler rule. If the IRS doesn't understand your hedging strategy, you will not receive a favorable tax treatment.

The IRS already doesn't understand the tax code, I don't think the IRS not understanding more things will help.

To reiterate, these trades did not happen in JPM's trading arm. They happened in the Chase Treasury. This fact renders everything above moot. There were no fees to be gained, they were on the same side of the transaction as one of the investment bank's clients.

People at JPM are claiming this was not a mistake? Everyone and their mother, including JPM is calling this a mistake. I believe you're just rambling now.

Imaginary numbers?

You still have zero idea what a hedge is. I suggest doing some research on economics before posting again. Try to understand the troublesome position the current super low interest rates put banks in when it comes to your "just loan it out at a higher rate its so easy" strategy.

@Semtex, only because that is the last posting in this thread:

I for one would like to know what your credentials are with relation to your understanding and comprehension of economics, which is the basis for your analysis of this JPM fiasco?

What research do you have, or what citations of articles and information are you referring to, upon which the claims in your posts attest to?

Where did you get your facts pertaining to your post, ‘these trades did not happen in JPM’s trading arm. They happened in the Chase Treasury’?

Where did you get your facts pertaining to your post, ‘There were no fees to be gained, they were on the same side of the transaction as one of the investment bank’s clients’?

As far as I am able to ascertain, the trades in question were Credit Default Swaps (CDS) that were being sold on an active publicly traded index, which reflected the potential for certain corporate bond issues that could become high risk. This is not a zero-sum game, which you and other posters in this thread seem to state in your postings.

What exactly is the ‘troublesome position the current super low interest rates put banks in’? If they are able to borrow capital reserves at 0.25%, which is the Federal Funds Rate, and the Discount Rate for borrowing overnight from the FED is 0.75%, is this not advantageous to them? If not, then what is your explanation of the intent of the FED to offer such a low Discount Rate? Could it be that the intent of the FED is to stimulate consumer borrowing from said banks, which means that they would charge consumer borrowers a higher interest rate commercially? Along with this interest rate suppression, the FED’s intent is to artificially depress mortgage interest rates via Quantitative Easing I & II and Operation Twist. Agree or not? If not, what is your economic explanation?

The original posting by David Sklansky was, ‘Should it impact future laws or elections?’

I think this question was posed to reflect upon whether commercial and investment banking should once again be separated by legislation/regulation similar to Glass Steagall, which was repealed by the Graham/Leach/Bliley Act of 1999.
The Financial Crisis was based upon derivative trading tied to the Collateralized Debt Obligations or packages of supposed ‘investment grade’ mortgages. Contained within the derivative trading were the ‘hedges’ you referred to and CDS’s that were sold by firms like AIG. The separation between commercial and investment banking was crossed, and the ‘Too Big to Fail’ financial institutions placed depositors at risk with their proprietary trading.
The Dodd Frank Act has done very little to address the problem of separating commercial and investment banking, nor does it seem, will it place significant restrictions on derivative trading, given the financial lobbying being executed to blunt the impact of the legislation.
The JPM loss is proof of the continuation of the trillions of dollars in derivative trading, despite what some posters contend is a miniscule loss. Might I add that this loss could grow to be much larger, which may be depend on what occurs in Europe during the coming months.

In essence, the ‘Too Big to Fail’ financial crisis has in effect, privatized profits and socialized losses. So, YES, we need to reinstate legislation like Glass Steagall.

Along with that legislation, consider that all of the complicit executives like Richard Fuld, John Thain, Ken Lewis, et al., are not being prosecuted. They are free and immensely wealthy, living the good life, wherever they are.