CEO Jamie Dimon of JPMorgan Chase (shown left) went public with a whale of tale today about how one of its investors, Bruno Michel Iksil, known as the “London Whale” lost $2 billion in bad bets on volatile synthetic credit securities. What is most striking about the story is that Dimon was the executive who led efforts to limit reforms by the Federal Reserve after the last financial scandal. Now he says “There were many errors, sloppiness and bad judgment . . . grievous mistakes, they were self-inflicted.” Sound familiar?
Iksil is also known as “Voldemort” because of the massive power he wielded. Dimon has worked hard to prevent reforms limiting or monitoring such risk-taking enterprises. This includes opposition to the Volcker rule and related reforms.
Now Dimon is expected to blame the whale rather than his own anti-reform position. It is not the first time that a mad leader personified his own failings:
“All that most maddens and torments; all that stirs up the lees of things; all truth with malice in it; all that cracks the sinews and cakes the brain; all the subtle demonisms of life and thought; all evil, to crazy Ahab, were visibly personified, and made practically assailable in Moby Dick. He piled upon the whale’s white hump the sum of all the general rage and hate felt by his whole race from Adam down; and then, as if his chest had been a mortar, he burst his hot heart’s shell upon it.”
– Moby Dick, Herman Melville
Dimon can save time on writing his own testimony and simply take this from Melville:
Towards thee I roll, thou all-destroying but unconquering whale; to the last I grapple with thee; from hell’s heart I stab at thee; for hate’s sake I spit my last breath at thee. Sink all coffins and all hearses to one common pool! and since neither can be mine, let me then tow to pieces, while still chasing thee, though tied to thee, thou damned whale!
He might however want to check what happened to Ahab in his final encounter with the whale.
Source: Time
JPMorgan Resignations: Three Executives At Bank Reportedly Will Resign Following $2 Billion Loss
AP
05/13/2012
http://www.huffingtonpost.com/2012/05/13/jpmorgan-resignations-three-expected-to-resign_n_1513305.html
Excerpt:
NEW YORK (AP) — Three high-ranking executives at JPMorgan Chase are expected to leave their jobs this week after a trading blunder cost the bank $2 billion, The Wall Street Journal reported Sunday.
The Journal, citing people familiar with the situation, reported that one of the executives is Ina Drew, who for seven years has run the risk-management division at the bank responsible for the loss.
The other two identified by the newspaper are an executive in charge of the London desk that placed the trades and a managing director on that team. The bank did not immediately return a message from The Associated Press.
The $2 billion loss, disclosed on Thursday by CEO Jamie Dimon, has been an embarrassment for the bank and led lawmakers and critics of the banking industry to call for tougher regulation of Wall Street.
On Friday, investors shaved almost 10 percent off JPMorgan’s stock price. Dimon said in a TV interview aired Sunday that he was “dead wrong” when he dismissed concerns about the bank’s trading last month.
“We made a terrible, egregious mistake,” Dimon said in an interview that was taped Friday and aired on NBC’s “Meet the Press.” “There’s almost no excuse for it.”
Dimon said he did not know the extent of the problem when he said in April that the concerns were a “tempest in a teapot.”
The loss came in the past six weeks. Dimon has said it came from trading in so-called credit derivatives and was designed to hedge against financial risk, not to make a profit for the bank.
Dimon said the bank is open to inquiries from regulators. He has also promised, in an email to the bank’s employees and in a conference call with stock analysts, to get to the bottom of what happened and learn from the mistake.
Dimon told NBC that he supported giving the government the authority to dismantle a failing big bank and wipe out shareholder equity. But he stressed that JPMorgan, the largest bank in the United States, is “very strong.”
It could still blow over — investors will forgive — if the losses turn out to be less than Dimon’s warning, said David Kotok, boss at Vineland-based Cumberland Advisors. On the other hand, Dimon himself warned, things could get worse in the quarters ahead.
==========================================================
Oh, really. Can we say, cook the books if you can. Where is the transparency? Ask Quantum Computer 9000.
The One Thing Jamie Dimon Got Right This Week: William D. Cohan
Sunday, May 13, 2012
http://www.northjersey.com/news/business/151281645_Now_there_s_no_doubt_Wall_St__must_be_reined_in.html
Excerpt:
About two-thirds of the way through JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon’s stunning conference call Thursday, in which he announced that the hedging strategy originating in the firm’s vaunted “chief investment office” had cost the firm $2 billion, he seemed to hit his stride.
“It is very unfortunate,” he said, “this plays right into the hands of pundits out there. But we have to deal with it.”
Well, Jamie, as a former JPMorgan Chase managing director turned Wall Street pundit, here you go: The problem with the unexpected loss and its hasty announcement was not so much the sheer magnitude of the losses — a firm with a trillion-dollar balance sheet can withstand them — but that for weeks you and your fellow senior executives have been pooh-poohing the risks posed by the huge proprietary bets being made by your bank’s Bruno Michel Iksil (aka the London Whale).
After Bloomberg News revealed the extent of the gambling that was going on in JPMorgan’s London office on April 5, Dimon called it a “complete tempest in a teapot” and heaped scorn on the journalists who revealed the extent of the bet and how it was roiling debt markets throughout the world. The firm’s chief financial officer, Doug Braunstein — my onetime boss, who fired me in 2004 — told the press on April 13 that the chief investment office “balances our risks. They hedge against downside risk, that’s the nature of protecting that balance sheet.” Braunstein added that he was “very comfortable with the positions we have” and that all of the positions are “very long-term in nature.”
What’s worse, in February, during the company’s annual investor day, Dimon further belittled the journalists in attendance by mocking their questions about Wall Street’s inordinately high compensation structure, whereby — generally speaking — 40 percent to 50 percent of every dollar of revenue generated goes to the employees who work there. At JPMorganChase, the compensation expense ratio in 2011 was around 35 percent, while at Goldman Sachs Group Inc. and Morgan Stanley it was higher — in the 50 percent range — and at Lazard Ltd., it was 63 percent.
Why Wall Street feels the need to pay the people who work there so much money is the question. Whom do these firms serve? The shareholders who own them or the employees who work there? For far too long, the answer has been — sadly — the bankers. Why don’t Dimon and his fellow industry leaders understand that the less that gets paid out to employees, the more that goes to the bottom line?
But Dimon would have none of it, at least during the investor day conference on Feb. 29. He even thought it would be funny to dig out a comparable statistic from a newspaper company and found one that showed that journalists’ compensation had eaten up 42 percent of the paper’s revenue. That’s “damned outrageous,” he said. “Worse than that, you don’t even make any money! We pay 35 percent. We make a lot of money.” He’s right about that. In 2011, JPMorgan made $19 billion in profit. Dimon received compensation of $23 million.
Philly Deals: Jamie Dimon loses his luster
Joseph N. DiStefano
May 13, 2012
http://www.philly.com/philly/business/151174045.html
Excerpt:
Through the deep financial crisis and its slow aftermath, JPMorgan Chase & Co. chief Jamie Dimon was the Last Man Standing. But Thursday night, he was just another limping bank boss with some explaining to do.
As chairman and CEO of the largest U.S. lender, a company he had banged together from a string of big-name but troubled loan and investment firms since the late 1990s, Dimon had kept his job through the financial meltdown and come out of it with the reputation for acuity and depth and the profitable record to challenge President Obama and Federal Reserve boss Ben Bernanke over whether companies like his had grown too big for the public’s safety.
And then, Thursday night, Dimon acknowledged that a French trader in his London office had blown $2 billion ($1 billion net) of the company’s own money in a failed strategy that was supposed to hedge the bank’s exposure to credit losses. “Poorly monitored, poorly structured, poorly reviewed” by his own treasury, Dimon admitted. “Egregious.” JPMorgan shares tumbled, wiping out more than $10 billion in value.
“Terrible timing,” bank analyst Jeffrey J. Harte told his clients at Sandler O’Neill + Partners L.P., a bank-investment firm in New York. The loss, Harte wrote, is not an existential threat to JPMorgan — $1 billion is about what the bank collects in profits every three weeks. Still, he told clients, he’ll no longer project a premium price for JPMorgan shares; after such an embarrassing stumble, Dimon’s bank no longer deserves special treatment.
“It’s a major step backward,” veteran bank-watcher Dick Bove, of Rochdale Securities in Connecticut, told me. Typically a critic of government regulation, Bove said JPMorgan’s error “ruins” bankers’ credibility at a time when they seemed to be winning the fight to ease heavy-handed oversight.
Dimon “should survive. But he’ll have to rebuild,” Bove said. “His mantra has always been, ‘Reward success, punish failure.’ So some people are going to be fired. And his aura of invincibility is gone. And breaking up the banks will now be an issue in the presidential race.”
It could still blow over — investors will forgive — if the losses turn out to be less than Dimon’s warning, said David Kotok, boss at Vineland-based Cumberland Advisors. On the other hand, Dimon himself warned, things could get worse in the quarters ahead.
The loss strengthens the case for bank critics who agree with ex-Fed chief Paul Volcker that commercial banks like JPMorgan — whose customer deposits are insured by solvent banks and those who rely on them, and backed in times of crisis by taxpayers — shouldn’t be making such big financial bets with company money. It also helps those who believe we should go back to the Depresssion-era separation between companies that take deposits and lend and have an easy-to-trace role in the real economy (call them banks) and those that make ingenious, calculated, high-stakes bets on more abstract investments (call them, for example, hedge funds).
http://www.bloomberg.com/news/2012-05-13/elizabeth-warren-calls-for-dimon-to-resign-from-new-york-fed.html
Honest to God, these finance people are dumber than a box of rocks.
You cannot fix a predatory system that’s designed at its base to be fixed no more than you can alter the base instincts of a cat. How about a system that puts people before profits?
The rule is currently scheduled to take effect in July, though Federal Reserve Chairman Ben Bernanke has suggested regulators will probably miss the deadline. Part of the delay is due to a barrage of pressure from lobbyists, who have helped to complicate and water down the rule.
=========================================================
Wait until the value of the U.S. dollar implodes. Thank the lobbyists. And the weak politicians. At the beginning of the 20th century, Argentina had a higher standard of living than the United States.
=========================================================
“This latest debacle at JPMorgan demonstrates that the banks cannot police themselves, and should not be trusted to do so,”
=========================================================
No kidding.
=========================================================
“At minimum, they should be required to disclose details about their derivatives, so their shareholders can understand what risks they are taking.”
=========================================================
Can you understand the details of the derivatives risks? The people taking those risks have supercomputers to run the calculations. Don’t forget about Quantum Computer 9000.
JPMorgan Chase CEO: I Have No Idea Whether We Broke The Law
05/11/12
http://www.huffingtonpost.com/2012/05/11/jamie-dimon-i-have-no-idea-whether-we-broke-law_n_1510700.html?ref=business
JPMorgan Trading Loss Suggests Little Has Changed Since The Financial Crisis
By D.M. Levine
05/11/2012
http://www.huffingtonpost.com/2012/05/11/jpmorgan-trading-loss-2-billion-financial-crisis_n_1510217.html?ref=business
Excerpt;
If you thought Wall Street had learned its lesson four years after the global financial crisis, JPMorgan Chase’s $2 billion trading debacle suggests you should think again, investment bankers and industry experts say.
To some, it suggests that the need for financial reform is still just as urgent as it was the day the crisis broke out.
JPMorgan revealed on Thursday that it had lost about $2 billion (with possibly more losses to come) from risky bets on opaque derivatives at a London trading desk.
The pressure on the bank intensified on Friday, with reports that the Securities and Exchange Commission had opened an investigation of its trades and Fitch Ratings downgrading the bank’s long-term credit rating to A+ from AA-.
JPMorgan’s big losing trade shows that at least some big banks are engaged in the same sort of behavior that rocked the financial system in 2008, if on a smaller scale.
“This is a smaller version of the same betting that went on in 2006,” said Will Rhode, a principal and director of fixed income at The Tabb Group, a financial-markets research and advisory firm.
“Ultimately, this is about banks being dissatisfied with the single-digit returns on equity that are associated with their conventional lending businesses, and trying to find other ways to make money,” said Daniel Alpert, founding managing partner at investment bank Westwood Capital, “with risk, once again, taking a backseat to potential reward.”
The episode has provided ammunition to those calling for new regulations, particularly the part of the Dodd-Frank financial reform act known as the Volcker Rule, or a ban on proprietary trading by federally insured banks. The rule is currently scheduled to take effect in July, though Federal Reserve Chairman Ben Bernanke has suggested regulators will probably miss the deadline. Part of the delay is due to a barrage of pressure from lobbyists, who have helped to complicate and water down the rule.
“This latest debacle at JPMorgan demonstrates that the banks cannot police themselves, and should not be trusted to do so,” said law professor Frank Partnoy, director of the Center on Corporate and Securities Law at the University of San Diego. “At minimum, they should be required to disclose details about their derivatives, so their shareholders can understand what risks they are taking.”
“Reinstate the Glass-Steagall Act. Too simple?”
Nope. Not just too simple. Too effective at stopping the kind of criminal speculation banks are currently engaging in.
http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act
Reinstate the Glass-Steagall Act. Too simple? Most of the Big Eight accounting firm consolidation happened during the Clinton administration. Now it’s the Fat Four. Bad idea.
The destruction of the Arthur Anderson accounting firm was also a bad idea. Kill off the Houston office if you want, but why destroy the entire firm? KPMG almost met the same fate, but the federal government finally decided it might not be a good idea to consolidate the accounting industry any further.
BTW – the accounting industry used to make massive political contributions to both political parties. The AICPA might try to deny that. Just business.
Wasnt Dodd-Frank supposed to stop this stuff?
You mean to tell me they didn’t anticipate this? How can that be? Liberals are so smart, they don’t create loophole filled regulations which favor donors( hat tip to Charles Schumer and Chris Dodd).
This is a most informative site, thank you Jonathan Turley.
This is a most informative site, thank you contributors.
I have bookmarked this thread, there is a wealth of relevant links.
Forget same sex marriage as a big topic in the news. What does Willard have to say about this story? Too big to fail Willard? Bail them out with the public bucket from the public trough?
The government should not allow a firm to call itself JPMorgan after all the Morgans have died off. Dumb Dimon would be ok.
This reminds me of the law in Vegas that wont let a 200 lb ten year old shoot craps in the Casino. If he is too big to fail then dont let him shoot craps. If he is too young to shoot craps then dont let him shoot craps. If he is too big to fail in the banking business he is shooting craps with our money.
Here’s a great blog site http://www.naked capitalism.com that documents and analyzes all kinds of these perfidious friends of Bush, Obama & Romney:
http://www.nakedcapitalism.com/2012/05/jp-morgan-loss-bomb-confirms-that-its-time-to-kill-var.html
It was Senator Scott Brown of my state who helped water down the Volcker Rule:
Wall Street CEOs Personally Lobby Federal Reserve To Weaken New Financial Regulations
By Travis Waldron on May 3, 2012
http://thinkprogress.org/economy/2012/05/03/476115/banks-lobby-volcker-rule/
Federal regulators in charge of writing the Volcker Rule, which would ban federally-insured financial institutions from risky proprietary trading, are moving at a faster pace than expected and could have the rule finalized by September.
Wall Street banks have been lobbying to weaken the rule since it was originally proposed by its namesake, former Federal Reserve Chairman Paul Volcker, and now that it is just months away from finalization, their efforts are getting stronger. The chief executives of six major Wall Street banks, led by JPMorgan Chase CEO Jamie Dimon, traveled to Washington yesterday to personally lobby the Federal Reserve on multiple issues — weakening the Volcker Rule chief among them — Bloomberg reports:
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon led Wall Street bosses in a closed-door meeting to personally lobby the Federal Reserve about softening proposed reforms that might crimp their profits.
The contingent, which included Bank of America Corp.’s Brian T. Moynihan, 52, and Goldman Sachs Group Inc.’s Lloyd C. Blankfein, 57, pressed the Fed on rules they said would overstate trading risks and harm financial markets, the central bank said yesterday in a statement. They also discussed what they see as flaws in Fed stress tests designed to gauge the strength of the nation’s largest lenders.
Wall Street banks, with the help of Massachusetts Sen. Scott Brown (R), were able to water down the Volcker Rule even before it became law as part of the 2010 Dodd-Frank Wall Street Reform Act. Since the law passed, they have pushed to make it even weaker, falsely arguing that it poses a major risk to the American economy. The banks have been so successful weakening the rule that Volcker himself was disappointed in its outcome.
Not all bankers oppose the rule. Greg Smith, the former Goldman Sachs trader who publicly resigned from the firm, unknowingly made the case for the rule in an editorial in the New York Times, and a former Merrill Lynch banker recently said the rule was “necessary to correct a mistake that poses a danger to our economy.”
Typo date correction: the Greenwald article was written 5/10/12 and was originally linked by Elaine M. above.
http://www.salon.com/2012/05/10/wall_streets_immunity/singleton/