I think what we are seeing here is not about JPMorgan as a large financial institution, but more on what can go wrong with derivatives when they basically unregulated and in a sense, naked, being that little or no capital is being set aside to cover these bets. Personally, I think we have way too many derivatives period, but regardless, deposit taking banks should not be in this market at all, it is totally irresponsible because with out regulators track record, it ultimately puts the tax paying citizenry as risk because this banks are so large that we politically at this point can’t fathom letting them fail if they got out of hand.
In this reality, we should tell them how it is going to be and force the banks that take deposit or are covered by the FDIC, move these operations on to a hedge fund that they would capitalize separately. With this new company, you can let it fail and the bank shareholders and bond holders would lose out, but only what they put into it. I am hoping this will be the learned lesson we need to enforce this. I am not saying their is no place for derivatives (still debatable), but we need to be prudent.
We should not let the influence of any powerful institution curtail us for doing what is needed even if it is unpopular. I have faith in banks and other financial institutions that they will always find out new innovations to make money and get in trouble with. But this issue here is a dead horse at this point and it should be easy for us to put in simple rules and a timeline so the banks can divest these assets and put them into the proper vehicle. They can not have their cake and eat it too on our dime, they need to spend their own (and they have many).
New York Times - Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.
Sounds like its “Ma Bell” time for the large banks. Back in the 1980′s the government found that AT&T in its current form as the the nations only carrier was too big and it hampered innovation and competition. As a result, they split up the carrier into seven smaller regional carriers that had to compete. This over the long run was very effective in creating a marketplace that bought more choice to consumers and opened the way for more businesses to spring up to serve this more open market.
Breaking up these large financial institutions into smaller pieces would do the things like reduce risk on the FDIC in the event of insolvency. It would also create the ability for boutique firms to be created to do some of the specialized services that the national banks could do under one roof. Overall it will be good for the consumers to not have as much concentration of capital and wealth in so few places, we already have the Federal Reserve System in place and that is the largest concentration of capital on behalf of the United States government, we don’t need more. I want more local and regional banking and if you need international banking then you can go to places like New York or Los Angeles for banking firms that handle those type of services.
The point I read about defending large banking institutions is that they need this size to be competitive globally. My question would be what size is big enough? Why as a society should we under-write a blank check on the size they can get. The only thing I see this size helps with is the large pile of derivatives that are at such large numbers is really looks like they are being using as some of of manner of “hiding” risk and or losses on “bets”. I believe we are going to see a real investigation into the banks and what is going on under the skirt. Popular support is building and as more knowledge on the financial industries inner workings come to light, more questions are going to be asked by the common man and the rising to the top until our representatives can ignore these question no longer. This is healthy and long overdue.
Money News: Another Federal Reserve policymaker on Thursday called for the break-up of big banks like JPMorgan Chase & Co., saying that firm’s recent large trading loss underscores the difficulty of regulating such banks and the dangers they pose.
I didn’t want to jump all over this story because it seemed to be really hyped up. First I saw headlines that were talking about “a fresh look at banking regulations because of loss”, like we didn’t need to strengthen them after the 2007-08 crisis. As if we all just forget about the trillions of dollars that were sucked out of the market, declining housing prices and major government support to almost any companies that could call themselves a “financial institution”.
I hope our attention span is longer than that.
Now I am reading on CNBC that the $2 billion was just an initial estimate and these positions are not “unwound” and could still materially affect the bottom-line of JP Morgan. At the same time I am hearing of a possible default and exit of Greece in Europe. From what I have read, it looks like these bets are connected to Europe and if they are taking a bath like this, it would be safe to assume they have some exposure to this developing situation. Many experts were stating on the record that the European debt crisis was not over and that all the stop-gap measures the ECB was implementing were not permanent fixes. Could this be the straw that breaks the camels back and starts unforeseen events down the road?
The Federal Reserve did meet today and it seemed to be warming to the possibility of more stimulus to support our “recovery”. Emphasis was added because it still feels like we are still in the same muck as before with gas and food prices becoming more elevated. Gold prices have been soft as of late but it is May so we will need to sit back and see what transpires.
CNBC - The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses. When Jamie Dimon, JPMorgan’s chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan’s distress, fueling faster deterioration in the underlying credit market positions held by the bank.
First GMAC (Ally Financial) and now JP Morgan. This is starting to seem a little epidemic. We should not be surprised if more cases of foreclosures halts come up. During the bubble we had a rush of mortgage lenders packaging these bad loans up to sell to large investment banks to make those CDOs. It is no surprise that many corners were cut in the paperwork when putting these together.
If a borrower is in default then there is a legal remedy for it but the people in the first lien position need to slow down and make sure all their ducks are in order so the borrower and lender are given all their rights in the courts through this process. We have specific rules on foreclosure and a certain burden of proof that needs to be generated to take possession of a home.
Washington Post - J.P. Morgan Chase, one of the nation’s leading banks, announced Wednesday that it will freeze foreclosures in about half the country because of flawed paperwork, a move that Wall Street analysts said will pressure the rest of the industry to follow suit.
Wall Street Journal, Washington - J.P. Morgan Securities Inc. and two of its former managing directors on Wednesday settled charges with the U.S. Securities and Exchange Commission for their roles in an unlawful payment scheme that enabled them to win business involving municipal-bond offerings and swap-agreement transactions with Jefferson County, Ala.
J.P. Morgan Securities, a unit of J.P. Morgan Chase & Co., will pay a penalty of $25 million, make a payment of $50 million to Jefferson County, and forfeit more than $647 million in claimed termination fees, the SEC announced.
The settlement comes as the SEC is examining several municipal investment contracts. Jefferson County has faced credit-rating downgrades and possible bankruptcy after its investments in over-the-counter derivatives.
J.P. Morgan said in a statement that the company is pleased to have settled the Jefferson County matter.