Recently Cathy O'Neil, a former Wall Street "quant" (quantative analyst) got disgusted with the way Wall Street executives were using (and misusing) VAR (Value at Risk) models in order to justify high risk derivatives trading. She finally decided she had seen enough, so she resigned to join the Occupy Wall Street movement. Cathy recently agreed to an interview on Russ Robert's "Econ Talk" program. She didn't mince any words in pointing out how shady and corrupt Wall Street has become - and how they are still a danger to taxpayers.

http://www.econtalk.org/archives/201..._oneil_on.html

I listened to Michigan Senator Carl Levin chairing a hearing (Friday) where Ina Drew, a former J.P. Morgan executive, was called to testify concerning the infamous "London Whale" trading fiasco in which Ms. Drew's traders managed to lose $6,000,000,000.00 of shareholders [taxpayer insured] money. (I love stretching out all those zeroes.) At one point during her testimony, Ms. Drew took a real cheap shot, so I couldn't resist firing off this email to Cathy O'Neil.

Dear Cathy:

Hello (again) from Alan C. Lawhon, way down here in Hicksville. (I sent an email to you after listening to your recent interview with Russ Roberts on his Econ Talk program.)

I’m sure you watched Michigan Senator Carl Levin calling Ina Drew and two other J.P. Morgan executives on the carpet Friday morning to get their take on the “London Whale” fiasco and how their traders managed to lose $6,000,000,000.00 right under their noses. (In case you didn’t, good old C-SPAN covered the hearing live.)

http://www.c-spanvideo.org/program/311541-1

It was amusing watching Ms. Drew squirm. She was clearly not happy being there and having to answer questions. You’ll get a kick out of what Ms. Drew has to say at around the 1:35:30 mark of the hearing. In response to a direct question from Senator Levin about value-at-risk [spreadsheet] models and how those models are developed and the data that is entered into them, Ms. Drew proceeds to blame you and your fellow quants for not keeping her informed. In Ina Drew’s world, it’s all your fault!

As soon as I heard her say that, I immediately recalled your interview with Russ Roberts. I laughed thinking “Oh, Cathy’s going to love hearing this!” Ms. Drew made her little statement in a self righteous huff as if she just couldn’t believe “those Ph.D’s” kept her in the dark. To his credit, I don’t think Senator Levin fell for her “woe is me” act for even one second – he just kept plowing right along with more questions fully cognizant that he was being shoveled a line of unadulterated BS. I love Senator Levin. :-)

A reporter for Bloomberg News was on the PBS Newshour earlier tonight commenting on Ms. Drew’s appearance before the committee. She pointed out how Ina Drew didn’t hesitate to throw her [former] colleagues (with the notable exception of Jamie Dimon) under the bus while simultaneously attempting to sidestep all personal responsibility. These bankers really have balls (or ovaries) of brass. Ms. Drew’s explanation of what happened seems to be “Well it’s not my fault Senator, I just didn’t know what was going on!” In other words, her defense is that she was dumb. I was going to use the word “ignorant,” but Ms. Drew bragged about her education in her opening statement along with a smattering of other statements pointing out what a fine upstanding citizen she considers herself as well as all the wonderful things she has accomplished. (I thought for a second she was going to add that she’s Wall Street’s version of Mother Theresa!)

Poor Ina. It just seems so unjust (and so cruel) that her fabulous career had to end over so trivial a matter as losing a piddling six billion dollars – especially when it wasn’t even her fault. I understand how Wall Street works now. The dumber you are (and the less you know) the higher you rise. I suppose that explains why Jamie Dimon is the dumbest man on Wall Street.

Nah. There are dumber people than Dimon on Wall Street. Much dumber. The sad thing is that besides Blankfein, Paulson, Buffett, and Bernanke he was probably the smartest guy in the room when the **** hit the fan in 2008.

I heard some snippets of what drew said on NPR....I might be biased (have a phd and work in finance) but lol when your excuse is "dont blame me, I'm terrible at my job!"

I too love Senator Levin. Maybe love is a strong word but I think he's really really super cool.

Is Chase allowed to "gamble" with federally insured deposits?

I love hearings like this. It's like watching people try to dance around raindrops but still get just as wet.

dessin:

It's a given that Ms. Drew, Mr. Blaustein, Mr. Cavanagh and all the other J.P. Morgan executives went into that hearing having been exhaustively briefed in advance by legal counsel. It's also clear they were trying (to the best of their ability) to follow orders - which boiled down to: "Answer questions as succinctly as possible and don't volunteer anything! Don't admit personal responsibility and do not get into any kind of bitter exchange with any of the senators!" (I'm paraphrasing a bit, but it's fairly obvious that both Ina Drew as well as Mr. Blaustein really didn't like being on the hot seat.) One has the impression that in their careers they have become so accustomed to ordering people around and running roughshod over regulators - I call it the "Masters of the Universe" complex - that they really didn't enjoy suddenly having the shoe on the other foot. (Ms. Drew in particular seemed really put off having to answer questions from a handful of lowly senators. The body english on that witness table was telling.)

Senator Levin, as usual, turned in another bravura performance. These folks start off the hearing, (especially Ms. Drew), telling the world how great they are and how highly they think of themselves. Senator Levin ignores the self congratulatory plaudits and the resume recitation and proceeds to beat them to a pulp with the facts. In many cases, Senator Levin was castigating these bankers with their own words extracted from internal JPM emails. Despite her protestations of what a sweet and kind soul she was in her opening statement, Ms. Drew had a particular proclivity for telling OCC regulators where they could get off. It was funny watching Ina's "Oh sh*t!" reaction when Senator Levin directed her to take a look at exhibit so-and-so as he proceeded to read her own words back to her. In many cases her own words, as transcribed from her own emails, contradicted testimony she had just given! (Her reaction the first time Senator Levin nailed her by catching her in a blatant lie was priceless. The look on her face as she realized "He has that!?" was a true Kodak moment.) Ina was forced to admit (a few times in a quiet almost whispered mousy type voice) "yes," she had told a regulator (paraphrasing slightly) that he could go **** himself. (The attitude of senior management at J.P. Morgan Chase toward Government regulators - an attitude which emanated directly from Mr. Dimon - was one of utter contempt. That attitude was evident in the emails.)

Carl Levin, in his own inimitable way, twisted the knife and poured salt in the wound. The senator was very aware that the proceedings in his hearing room were being watched by lawyers representing various parties who have brought suit against J.P. Morgan. By putting these folks on the record, under oath, and exposing their lies and misrepresentations; Carl Levin has probably greatly increased the amount of money Mr. Dimon and his cronies will have to pay to make the lawsuits go away. (One especially touching moment during the testimony was when Senator McCain, a former Navy officer who knows how military officers are held accountable for big time screwups, asked Mr. Blaustein why nobody [in senior management] at J.P. Morgan Chase has been held accountable? Why has nobody been fired? Mr. Blaustein responded with a sympathy invoking comment ... he volunteered as to how his annual compensation has been reduced by fifty percent. Senator McCain asked Mr. Blaustein for specific numbers. Swallowing hard and realizing that this might not go over well, Mr. Blaustein manufactured some on-the-spot earnestness and responded by stating that his compensation had been cut from $9.5 million down to $5 million. I was reminded of that famous spontaneous reaction by the radio journalist who witnessed the Hindenburg exploding: "Oh, the humanity!"

I'm sorry but lol at high ranking military officers being held accountable for anything. If they were Tommy Franks would have been executed by firing squad.

wat

I watched this video for about an hour.. it may have been more, all I know is I woke up face down on my desk in a puddle of my own drool. This crap couldn't even be called double-speak imo.

Gretchen Morgenstern has a pretty good column in today's New York Times dissecting what went on in Friday's hearing.

http://www.nytimes.com/2013/03/17/bu.../dF3kcFOmtYK15 GTnNkA

When Russ Roberts was talking with [former] Wall Street quant Cathy O'Neil, he expressed the rather gloomy assessment that we are now in the worst of all possible worlds. By bailing them out, effectively increasing moral hazard by orders of magnitude, we've virtually guaranteed that the bad and risky behavior will continue unabated. (In other words, the London Whale was not a fluke or an anamoly.)

To make it clear to folks like Jamie Dimon that he plays with derivatives and other fancy "financial products" at his own risk, the implicit (and explicit) guarantee of taxpayer bailout has to be removed. It must be made unequivocally clear to both shareholders and bondholders that they will eat the losses - and "not" be paid back at 100 cents on the dollar - when folks like Mr. Dimon run the bank into the ground. It used to be that way on Wall Street back in the days when most of these "investment banks" were privately owned partnerships, but not anymore. Until and unless the fear of failure and having to actually eat losses rather than sloughing them off on taxpayers is returned, (in other words the discipline of the marketplace is restored), Russ Roberts fear and prediction will probably be proven correct: Wall Street recklessness and irresponsibility will not stop until Wall Street has destroyed us all. These guys, (i.e. Jamie Dimon, Lloyd Blankfein, et al.), are on drugs. Do you really think they give a damn as to who eats their losses (and pays for their mistakes) just as long as it's not them?

There's nothing to restrain these guys or throttle their behavior. (Certainly not the politicians, most of whom have their hands out taking campaign contributions from their lobbyists.) The only thing that will change Wall Street is an unmitigated disaster - a calamity so bad that half the country is unemployed. That's where we're headed as these Wall Street gamblers won't be satisfied until they've bankrupted us all. By the time this runs its full course, we may rue not having lined these "Masters of the Universe" up and shot them back in 2008. That's how a dictator would have dealt with folks who managed to lose hundreds of billions (trillions?) of dollars of his money.

Alan,

Can you please tell me more about how the $6,000,000,000.00 was taxpayer insured?

pvn:

I can't believe you're asking that question. These banks are all FDIC insured, meaning taxpayers are ultimately on the hook if they fail. Do you recall who it was that had the pleasure of bailing these banks out back in 2008? If the shareholders and bondholders of these institutions were the ones who had to eat the losses, Mr. Dimon, Ina Drew (and a multitude of their colleagues) would have been fired back in 2008.

These institutions were bailed out due to systemic fear - a belief (whether true or not) that our entire economic system would have collapsed if these banks went down. If these banks are truly that important to the daily functioning of society, then they should be run like utilities - and not like casinos.

No. That's the depositor accounts being insured. That's different than the $6,000,000,000.00 that the trader lost being insured. The FDIC only pays out to retail depositors if the bank fails, which didn't happen in this case.

Now if you want to say that the investment bank could blow up and drag the retail arm down with it, that's a different story. If the FDIC is a given (which it no doubt is) then I'm fine with regulation requiring investment and retail banks to be completely 100% separate (as they used to be), an in that case letting the investment banks fail if/when they do stupid ****. However, in this case, the threat to JPMC by a $6B loss is, as shown by the outcome, pretty durn trivial.

do you think they are?

do you think every endeavor that has risk is "like a casino"?

pvn:

I can see that you and I are never going to agree as to what is (and what is not) acceptable or permissable business practices for these banks, so I'll settle for the following. The managements of these banks, acting on behalf of their shareholders and bondholders, can run their institutions however they see fit. If they want to play around with derivatives and other "weapons of financial mass destruction" (in the words of a famous investor who might know of what he speaks) then let them play to their hearts content - they can knock themselves out. But when those trades (excuse me, "positions") blow up in their faces, no taxpayer bailouts - not one dime of taxpayer money goes toward saving these people from their own greed and stupidity.

If all these TBTF banks go under in a chain reaction of interconnected dominos falling and we're thrust into a repeat of the 1930's, Jamie Dimon, Ms. Drew (and all their overpaid cohorts) will have to go live in a castle surrounded by a moat - or a remote island - to get away from all the angry [unemployed] people who will be chasing them with pitchforks and guns. (You're probably too young to remember this, but kidnapping of the wives and children of bankers for ransom was common here in the United States during the Great Depression. Read Bryan Burrough's book.) If these bankers insist upon their right to play with dynamite in order to fatten their pay and bonuses, they have no right trying to stick taxpayers with the losses when it all goes south.

Ina Drew Then, Ina Drew Now

Amazing what you can find on the internet. Friday we saw a humbled, (the CNBC reporter described her as "shaken"), Ina Drew walking out of Senator Levin's hearing room seemingly in a daze. After having been "roughed up" a bit by Senator Levin, (mostly with her own words thrown right back in her face), Ms. Drew was in no mood to talk to the CNBC reporter.

Contrast Friday's performance, where Ms. Drew insisted that she knew nothing and all the bad things that occurred were somebody else's fault, with this article:

http://mycrains.crainsnewyork.com/40...995/ina-r-drew

from several years ago where Ina Drew brags about her prowess as a trader and how much she knows about what is going on. Oh, how the mighty have fallen.

Pretty dramatic rhetoric for what amounts to cutting off our collective noses to spite the face.

Best part is you even realize the guys you're trying to punish could afford (figurative) castles. Really, they'd just flee the country and live comfortably in relative obscurity.

There isn't a single lawyer on the planet that would advice his/her client to admit personal responsibility.

[QUOTE=grizy;37652861]Pretty dramatic rhetoric for what amounts to cutting off our collective noses to spite the face.

Best part is you even realize the guys you're trying to punish could afford (figurative) castles. Really, they'd just flee the country and live comfortably in relative obscurity.

There isn't a single lawyer on the planet that would advice his/her client to admit personal responsibility.[/QUOTE]

You are correct sir grizy. If you want to speak about the collective good, right now we have Republicans in Congress, (Paul Ryan et al.), insisting that in order to return the country to prosperity, we must inflict deep budget cuts on the poor and less fortunate. It's hard for the Republicans to make such an argument when they suddenly go deaf and dumb as all their rich Wall Street buddies (excuse me "contributors") are being bailed out. Republicans are all in favor of "austerity" and balancing the budget - just as long as none of the pain is inflicted on their privileged friends. (And some people wonder how Mitt Romney managed to lose ...)

I guess you didn't read what I wrote because we're not very far apart.

"Several years ago," lol. To be fair, CDS didn't exist in the 90s, much less tranches on them.

Somebody may have noted this Zero Hedge article earlier in this thread.

http://www.zerohedge.com/news/2013-0...imon-under-bus

The really fascinating part is not the article itself, but the numerous reader comments that follow. There's quite a bit of chaff, but scattered among the comments are some real gems.

The whole mess is really quite simple.

Nobody was or is scared of losing their own money, and nobody was or is scared of going to jail.

There Might Be Hope After All ...

Came across this very interesting article:

http://www.newrepublic.com/article/1...n-break-banks#

I'll believe it when a bill breaking up the big banks actually passes both houses of the Congress and is signed into law by the President - and survives a [probable] Supreme Court challenge - but the fact that this is actually being talked about and discussed among members of Congress (in both parties) is an encouraging sign.

The very fact that some members of Congress have read Simon Johnson's book and are seriously thinking about breaking up the banks is an implicit admission that they realize TBTF is still with us and Dodd-Frank has likely not fixed anything. (If there were another September 2008 style crisis tomorrow, next week, or next month; we're probably right back in the same mess we were in four years ago - more bailouts.) This time though I sense the politicians perceive the danger - to them - of bailing the banks out a second time. Rather than having to ride that merry-go-round (and all the unpleasantness that comes with it), maybe it's best to just go ahead and break the banks up and circumvent a completely avoidable problem.

Maybe it was the shock of senator Robert Bennett out in Utah losing his senate seat to chants of "Bailout Bob!" that woke other Republicans up. I'll believe it when (if) it actually happens, but maybe there's hope after all.

Breaking up the banks does nothing. The systemic risk comes from trading and derivatives, which have nothing to do with bank size.

Deposit banks can't be investment banks, investment banks can't be publicly traded, criminal activity is aggressively prosecuted. That is the solution.

Riverman:

You are (partially) correct in that it is the behavior of these banks, (i.e. dealing in derivatives and proprietary trading), that creates the risk, but the real problem is TBTF. These banks are so interconnected that if any one of them gets into serious trouble, then they are all in trouble. We've literally got a situation where if any one goes down, they all go down. (This is exactly why Paulson, Geithner, and Bernanke did what they did in 2008 - they were trying to prevent a total system-wide collapse.)

The only way to prevent a [potential] systemic failure is to create a situation where no one bank - no any bank - is so large that it's failure endangers the entire financial system. That's too much power concentrated in one company and one industry. This recent "London Whale" fiasco has demonstrated that these bankers are not going to change their behavior ... they'll continue playing with dynamite until it blows up in their faces. Given that reality, the only way to deal with this problem is to break the largest banks up so that the failure of one does not threaten the failure of all.

Breaking up large companies is not unprecedented in American history. Theodore Roosevelt burnished his reputation by breaking up Standard Oil Company. When an operation like JPM-Chase begins acting and behaving with impunity, (and it's actions are a danger to us all), it's time for a modern day Teddy Roosevelt to step in and take charge.

You ignored my second paragraph.