JPM 2 Billion Bluff



May 13 (LPAC)–JPMorgan Chase Chairman and CEO Jamie Dimon appeared on NBC’s “Meet the Press” Sunday morning and tried to chill out the crisis triggered by his bank’s suddenly announced major derivatives-market losses: “It’s not life-threatening,” Dimon lied, and forecast his bank would still show a profit this quarter. Humorously, Dimon insisted on the one hand that he knows with absolute certainty that the huge London CDS trades were just hedging risk, not casino bets for the bank; on the other hand, he said he didn’t know about the size or nature of these trades until this week!

Clinton Labor Secretary Robert Reich’s blog entry was again on Glass-Steagall on Sunday, and he warned the truth will out: “Word on the Street is that J.P. Morgan’s exposure is so large, that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.” Reich concluded: “What just happened at J.P. Morgan reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up, should be heeded.”

An article in the Sunday London Guardian noted: “There is thought to be more than one high-profile trade behind the losses — which the bank has admitted could escalate. JP Morgan is being selective about the information being disclosed because its rivals might [!] try to move prices against it as it attempts to unwind the trades.” Some sources estimate JPM’s losses can go to $20 billion; the “wrong bets” were over $100 billion. Recall that LTCM’s collapse, in precisely such a derivatives predicament, unfolded over a full three months at the end of 1998, until the verge of a global financial blowout was reached.

New York Times financial reporter Gretchen Morgensen endorsed Glass-Steagall in a Sunday column on JPMorgan and Dimon’s hubris: “This much is clear: If the Glass Steagall law were still around, the problematic trading at JPMorgan would not have occurred.” This was after reviewing former FDIC Deputy Commissioner Michael Greenburger’s arguments, circulated Saturday afternoon, a complicated scenario that the Volcker Rule plus the Lincoln Rule would have ameliorated the loss.

On NBC “Meet the Press,” Sen. Carl Levin appeared opposite Dimon, strenuously arguing for the Volcker Rule and Levin-Merkeley: “So we’ve got to be very, very careful that the regulators here are not undermined by this huge effort to weaken the rule by putting in a huge loophole” that includes the trading involved in the JPMorgan loss. The “loophole” is the Obama Administration’s anti-Glass-Steagall Dodd-Frank Act itself. Even one of the “Austrians” at the website commented, “The most important thing not said [on “Meet the Press”], was Glass Steagall, the one law whose overturning allowed the commingling of deposits and hedge fund activity courtesy of Gramm-Leach-Bliley, hilariously called the Financial Services Modernization Act of 1999. If America is to have even a remote hope of returning to normalcy, Glass-Steagall has to be reinstated.


That’s why human beings organize themselves into nation states , set up national credit and Hamiltonian Banking. To counter the British monetarist system which after all is based on Mandeville.

And instead of clamoring for morality in a Mandeville Grumbling Hive (the inspiration for the current system), apply Glass-Steagall firmly and accros the board as FDR did using the nation state.


Forgive me for being simplistic here, but what I see from DMcW’s article is the quantity theory of money being applied in an effort to stabilise prices. This widely-accepted theory (even taught to CA’s like myself) espouses that prices move according to the supply of money, ie., more money higher prices and vice versa.
Essentially, money supply should maintain prices in equilibrium over the medium term (anything over 12 months).
Therefore, as DMcW’s article sets out, deleveraging reduces the supply of money (using the M2 parameter) thus causing deflation while intervention (releveraging) increases the money supply thus causing inflation.
Assuming the above, I assume David you are alluding to either runaway deflation or inflation over the medium term. I can only see a real risk of deflation over the medium term, I see no medium term inflation risk whatsoever.
While I “get” David’s analysis as to the effects, I would ask myself what is the deep-rooted cause of such an imbalance within the EZ monetary area and the only explanation I can see is that a choice has been made by the ECB (including the Irish and Italian members) that the solvency of governments and the liquidity of “core” country banking systems outweigh the need to reflate the periphery countries asset bases. Thus we have deleveraging in Ireland and releveraging in Germany, France, Italy and Spain. Now, the banks who have been releveraged, where are they going to invest this liquidity? Irish real estate, don’t think so.
They will invest in their own nations’ Government bonds because of political pressure to fund deficit spending and because they earn circa 500bps margin for the effort and in commodities because they are liquid investments. Irish deflation simply does not weigh upon the ECB as the “core” is being munitioned to face a certain Irish EZ withdrawal.
If, however the ECB had played it straight according to monetary theory, they would have employed a much longer LTRO timescale of at least 7/10/15 years and would have lent to each country’s central bank for deficit spending and to domestic banks for reflation of each affected economy.
Unfortunately, our government and central bank chose not to put up the good fight.
Vae victis as the Romans (ancient) would have said…

ref article 2012/05/14 

What Jamie Dimon didn’t tell you on ‘Meet the Press’ – Los Angeles Times


The European Stabilization Mechanism, Or How Goldman Sachs Captured Europe


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