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FBI opens investigation into JP Morgan.

blankslate

Diamond Member
Jun 16, 2008
8,471
423
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http://money.cnn.com/2012/05/16/markets/jpmorgan-fbi-investigation/index.htm

Erik Gordon, a law and business professor at the University of Michigan, said the opening of an FBI investigation escalates pressure on the bank.
"The FBI are not guys looking for violations of civil and and securities law," Gordon said. "They look for one thing, and one thing only: criminality."
James Cox, a professor at Duke Law School, said that it is unusual for the FBI to launch an investigation so soon after an incident in which no malfeasance is immediately apparent.

http://www.foxbusiness.com/news/2012/05/16/fbi-mueller-confirms-probe-into-jp-morgan-trading-loss/

"All I can say is we've opened a preliminary investigation and, as you would well know having been in this business for a long time, it depends on a number of factors," FBI Director Robert Mueller said at a Senate Judiciary Committee hearing Wednesday.






I wonder if this means that there is something that indicates "criminality"

I hope the F.B.I. wouldn't open an investigation unless there was a strong indication that they could find something.

The fact that this happened in a few short years after the debacle in 2008 involving derivatives is just mind boggling.

A version of the Glass Steagall act needs to be reinstated. Clinton must've been drinking some damn good kool-aid when he signed Graham Leech Blighly into law.
 
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LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
http://money.cnn.com/2012/05/16/markets/jpmorgan-fbi-investigation/index.htm




http://www.foxbusiness.com/news/2012/05/16/fbi-mueller-confirms-probe-into-jp-morgan-trading-loss/









I wonder if this means that there is something that indicates "criminality"

I hope the F.B.I. wouldn't open an investigation unless there was a strong indication that they could find something.

The fact that this happened in a few short years after the debacle in 2008 involving derivatives is just mind boggling.

A version of the Glass Steagall act needs to be reinstated. Clinton must've been drinking some damn good kool-aid when he signed Graham Leech Blighly into law.

It's not even as much as Glass Steagall as it's just the fact that the banks are WAY too big. BoA, JPM and Citi should be at least 10 banks, if not more.

That alone is the biggest problem we have, literally and figuratively. Even if these "hedges" were just that, hedges, the fact that you are "hedging" $400bn in assets like that means that you're too fucking big.

The bigger they are the more complex they are, it's not linear.
 

Jhhnn

No Lifer
Nov 11, 1999
61,652
13,733
136
It's not even as much as Glass Steagall as it's just the fact that the banks are WAY too big. BoA, JPM and Citi should be at least 10 banks, if not more.

That alone is the biggest problem we have, literally and figuratively. Even if these "hedges" were just that, hedges, the fact that you are "hedging" $400bn in assets like that means that you're too fucking big.

The bigger they are the more complex they are, it's not linear.
I agree completely.

Something that few seem to realize is that synthetic derivatives like these are a zero sum game where vast amounts of capital change hands while engaged in no productive purposes whatsoever.

JPMC lost $2B? Their counterparties won $2B, and none of it went to building any sort of productive means at all. No factories, no distribution centers, no malls, no jobs were created.

In truth, it's a symptom of what happens when entirely too much income is allowed to flow into too few hands for too long- they see the highest profit in taking money from each other, and in beating down market participants who are necessarily long- pensions, endowments, the mutual funds in 401K's... they find little profit in creative or constructive enterprise at all.
 

nehalem256

Lifer
Apr 13, 2012
15,670
6
0
I agree completely.

Something that few seem to realize is that synthetic derivatives like these are a zero sum game where vast amounts of capital change hands while engaged in no productive purposes whatsoever.

JPMC lost $2B? Their counterparties won $2B, and none of it went to building any sort of productive means at all. No factories, no distribution centers, no malls, no jobs were created.
Well Im sure a few jobs were created for traders (or gamblers). But other than that this is exactly correct. The greatest minds of our generation our effectively trying to figure out better ways to play poker... what a waste for our society.
 

JKing106

Platinum Member
Mar 19, 2009
2,193
0
0
It's not even as much as Glass Steagall as it's just the fact that the banks are WAY too big. BoA, JPM and Citi should be at least 10 banks, if not more.

That alone is the biggest problem we have, literally and figuratively. Even if these "hedges" were just that, hedges, the fact that you are "hedging" $400bn in assets like that means that you're too fucking big.

The bigger they are the more complex they are, it's not linear.
+1
 

HendrixFan

Diamond Member
Oct 18, 2001
4,649
0
71
It's not even as much as Glass Steagall as it's just the fact that the banks are WAY too big. BoA, JPM and Citi should be at least 10 banks, if not more.


The worst part about this investigation is you just know nothing will come of it. If the financial collapse in '08 couldn't bring any changes, then we will never see the system corrected.
 

Pr0d1gy

Diamond Member
Jan 30, 2005
7,776
0
76
What the heck happened in '98 for all those mergers to take place?
Graham Leech Blighly happened. In 1998 Citigroup was given a one year trial which, as it turned out, served to give our lawmakers and represented officials to pass the GLB law that removed post-Depression laws that were meant to prevent exactly this kind of mess. Obviously, Clinton had no idea a bunch of thieves would take over and ruin everything, but this is where it started.

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
 

Exterous

Super Moderator
Jun 20, 2006
19,103
1,971
126
The banking lobby got de-regulatoin passed with both parties' support. IIRC the group most against it was progressives.
Graham Leech Blighly happened. In 1998 Citigroup was given a one year trial which, as it turned out, served to give our lawmakers and represented officials to pass the GLB law that removed post-Depression laws that were meant to prevent exactly this kind of mess. Obviously, Clinton had no idea a bunch of thieves would take over and ruin everything, but this is where it started.

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
Thanks!
 

PandaBear

Golden Member
Aug 23, 2000
1,373
1
81
Trying to be as unbiased as possible here:

The reason a mere $2B loss causes criminal investigation and the CEO stepped down has nothing to do with political pressure from the US. I think the reason is that they found a serious mistake in their trades that either bet on something that is bigger than what they can afford, or they hedge their risk on someone that isn't able to payout if things turn sour. When your numbers are that big, you cannot assume that the insurance company you buy a policy on will be around when you need to file a claim. That's the reason no one sells earth quake insurance (or the cost is so high that most people don't buy it).

I'd imagine they caught it on only a small $2B loss, but the reality could be a lot worse if a black swan event comes, like Euro tanking related counter parties collapse (other banks in Europe that they buy derivatives from).

Why criminal? they probably use depositors money or some US bail out fund to do so rather than their own gambling money.
 

mshan

Diamond Member
Nov 16, 2004
7,869
0
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JPM with $8 billion dollar loss?:
"So, in summary, it appears that the CDS data confirms what we suspected.

A large (~$120bn) tail-risk tranche credit hedge was placed.

The hedging of that hedge became very onerous but surprisingly profitable as markets rallied day after day with no give-back.

This led to a greedy trader lifting some of the original tranche (and the HY short side) and leaving himself much more naked long to the market into LTRO2 - which marked the top. Losses escalated through April (~$2.5bn or so).

Dimon went public (with some of the details).

Last week, the rest of the tranche was dumped (we suspect) at a large cost (perhaps ~$5.5bn) leaving, we suspect...

A potential ~$8bn loss and a heavy IG9 long credit position hedged (with major basis risk - difference in dynamics between the legs of the trade and the hedge) by various other liquid positions including shorts in HYG, JNK, IG18, and HY18 (and we would suspect equity/financials too).

Data: CMA, Barclays, and DTCC


http://www.zerohedge.com/news/8bn-loss-or-was-jpmorgan-unhedged-long-and-wrong-post-ltro2



I don't have the financial background to breakdown those graphs, but was this truly a trader who got greedy and lost discipline, or is there anything to suggest JPM itself was making a large proprietary trade directional bet on market (e. g. http://blogs.reuters.com/felix-salmon/2012/05/21/chart-of-the-day-jp-morgans-excess-deposits/) under the guise of "hedging" the firm's other risks?:
"To put it another way, JP Morgan has $9,900 on deposit per US household — and of that, $3,600 per US household is “excess deposits” which are mostly being farmed off to London rather than being invested in helping US individuals and businesses grow.

The ostensible purpose of JP Morgan’s Chief Investment Office is to take the bank’s excess deposits and invest them in a way which manages to hedge the rest of the bank’s exposures. But if you’re spending 57 cents on hedging operations for every dollar you’re making in original loans, which is the case here, then something’s clearly very wrong. JP Morgan’s loan book isn’t that risky, or difficult to hedge. And if it is, JP Morgan needs some new loan officers.

The real story here, of course, has nothing to do with the difficulty of hedging JP Morgan’s loan exposures. Rather, the hotshot CIO traders in London were managing to get a higher return on their “hedging” operations than the loan officers were getting on their bread-and-butter loans. And so Jamie Dimon started taking in all the deposits he could find, and sending them straight to London, where they could be “hedged” to the tune of billions of dollars a year in profits."
 
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DucatiMonster696

Diamond Member
Aug 13, 2009
4,269
1
71
Where there are losers there are also winners. Show me the other side of those trades that JPM lost on and someone else won.
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Heh, there should be a too big to fail law for any merger request. Just like when law maker reviews/approves merger looking for anti-trust violation, they should be looking to see if the resulting company would require government bailout in case of failure due to the impact to overall economy.

If it would, no go.

If that's done, companies can do whatever they want and it's between their shareholders and stakeholders. They go bankrupt because of greedy trade? Good.
 

mshan

Diamond Member
Nov 16, 2004
7,869
0
71
"Where there are losers there are also winners. Show me the other side of those trades that JPM lost on and someone else won."



"Last February, at a conference organized by another hedge fund manager, his friend William A. Ackman, Mr. Weinstein was hailed as one of the savviest credit traders in the business.

The February conference was held, ironically, in JPMorgan’s offices on Madison Avenue. Workers at the bank milled about as Mr. Weinstein and others offered investment tips.

Dressed in a sharp blue suit, Mr. Weinstein stepped up to the microphone and opened with a joke that only a financial wonk would appreciate. He showed a slide comparing the cost of credit default swaps on various government debt to the percentage of young men in those countries who live with their parents. The slide titled “Mamma Mia!” suggested that, by that measure, Greece, Portugal and Italy were in trouble.

But what really got people’s attention was his second-to-last slide. It was his pick for the “best” investment idea of the moment. Mr. Weinstein recommended buying the Investment Grade Series 9 10-year Index CDS — the same index that Mr. Iksil was shorting.

The crowd, 300 or so investment professionals, began buzzing.

“Once he came out in that meeting and was so specific, others jumped in,” one hedge fund manager said.

But the London Whale was so big that, for months, the hedge funds betting against him simply got steamrolled. One of Mr. Weinstein’s funds at Saba was down 20 percent heading into May.

Then the tables began to turn, as news reports about Mr. Iksil, fed by the hedge funds, began to surface on both sides of the Atlantic. Suddenly, everyone was checking out the obscure index that Mr. Weinstein and others had seized upon.

By May, when fears over Europe’s debt crisis again came to the fore, the trade reversed. The London Whale was losing. And Mr. Weinstein began to make back all of his losses — and then some — in a matter of weeks.

Other hedge funds were also big winners. Blue Mountain Capital and BlueCrest Capital, both created by former JPMorgan traders, were among those winners. Lucidus Capital Partners, CQS and a fund called III came out ahead, too."
"Mr. Weinstein was a pioneer in complex credit derivatives, latching onto them early in his tenure at Deutsche Bank, before they became the financial weapons of mass destruction that worsened the financial crisis. He was a profit machine at the bank, notching earnings in 10 of his 11 years trading there. At 27, he became one of the youngest managing directors in the bank’s history. Before his book blew up, Mr. Weinstein was reportedly pulling down about $40 million a year. He exploited price discrepancies and piled leverage into his trades.

Then his team at Deutsche Bank lost $1.8 billion during the 2008 financial crisis. The trading losses ruined bonuses throughout the bank, and ruffled more than a few feathers.

He would later leave the bank and, along with 12 of his colleagues, set up Saba. Mr. Weinstein started it with $140 million — a pittance by hedge fund standards. In the intervening years, he has outperformed his peers and managed to vacuum up assets at a time when most growing hedge funds have been struggling to hold on to what they’ve got. He now controls more than $5.5 billion.

The similarities between Mr. Weinstein and Mr. Iksil still resonate in the market.

“It was one whale versus another whale,” one hedge fund manager said."


http://www.nytimes.com/2012/05/27/business/how-boaz-weinstein-and-hedge-funds-outsmarted-jpmorgan.html?pagewanted=2&hp
 
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MovingTarget

Diamond Member
Jun 22, 2003
8,990
84
91
This is way overdue, but until we split these leviathans up, nothing will ultimately change. They are too big to be allowed to exist...
 

blankslate

Diamond Member
Jun 16, 2008
8,471
423
126
This is way overdue, but until we split these leviathans up, nothing will ultimately change. They are too big to be allowed to exist...

Unfortunately there is no Teddy Roosevelt style "Trust-buster" anywhere to be seen, not even a hint that such an animal in politics exists.
 

bradley

Diamond Member
Jan 9, 2000
3,671
2
81
Tip of the iceberg. The unprecedented amount of centralized unchecked power and wealth concentrated in the banking, political and media sector should frighten anyone who isn't part of the status quo.
 
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irishScott

Lifer
Oct 10, 2006
21,570
2
0
And if they actually find anything JP Morgan may pay pocket change in 10 years. I'm dubious.
 

Kadarin

Lifer
Nov 23, 2001
44,311
8
81
Tip of the iceberg. The unprecedented amount of centralized unchecked power and wealth concentrated in the banking, political and media sector should frighten anyone who isn't part of the status quo.
^^^ This.
 

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