Guest Post: Amaranth Kill Shot: Collateral Damage In A 78 Trillion Dollar Derivatives Book Compliments Of JPM

Tyler Durden's picture

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Hot Cumontitties's picture

(_)_)88888D ~~~~ D :

TruthInSunshine's picture

“With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly. The Federal Reserve’s responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well-managed and do not create excessive risk in their institutions.”

-- Ben S. Bernanke, True American Genius




augie's picture

some times you really just have to sit back and admire it.

Rainman's picture

+ 78 T fiatscos worth of emergency powers accounting.

trav7777's picture

complete bullshit!

This is NOT what happened to Amaranth.  Amaranth was using GS as a clearing broker, consequently, GS knew Amaranth's positions.  GS adjusted downward at that time, certain commodities' (levered long positions of Amaranth) ratios from its indexed commodities basket, causing a massive wave of selling of the underliers as every fund manager and mooch fund on the planet had to rejigger to GS's new basket apportionment.  You can look up there on the chart and see how the GSCI was adjusted; it was NOT NG that caused this, it was gasoline!  Amaranth's position in gasoline is what undid the fund as it caused a cascading liquidity problem for the firm.

GS then scooped up Amaranth's long positions for steep discounts in Amaranth's liquidation and covered their OWN short positions in the same commodities!

YES, IOW, GS used its knowledge of Amaranth's exposure to mount a speculative attack on the fund due to GS having the ability to control in the short-term the price of one of Amaranth's main leveraged positions.  Everyone should recall the sudden steep drop in the price of gasoline during that period as Amaranth's liquidation of positions rippled through the market.  Also, it served as a serious warning to anyone using a bigger fish as a clearing broker that you, too can get busted out like a poker whale by card sharks at the table (in this case, the table dealer).

SilverDoctors's picture

There will be no justice in gold and silver manipulation until the free markets bring JPM and HSBS to their knees. 
Lets accelerate that process by buying physical gold and silver.  For those already 100% in physical gold and silver, consider going one step further and Crash JP Morgue, Charge Silver!

Idiot Savant's picture

Great advice! Put all your eggs in one basket, then incur debt borrowing additional eggs for said basket. /sarc/

NidStyles's picture

Holy crap that's a read and a half.

Magnix's picture

only read 1/4 of it....

FEDbuster's picture

"They are FINANCIAL TERRORISTS!", Max Keiser

Tail Dogging The Wag's picture



Ancona's picture

These fucking bankers shoul;d all be publicly executed in a most painful and debilitating manner. It should be slow and excruciating. I would like to see Dimon run over by a steam roller, or thrown through one of those osplatch tree chipping machines.

topcallingtroll's picture

Stop taking your mood stabilizers. Have a few drinks, and keep.thinking those thoughts.

topcallingtroll's picture

So i suppose with the bush law on disclosure then a bank can run a few spv's with more than non-material amounts of capital then fail to disclose? This is even better than mark to magic. It means that capital ratios are irrelevant?

A bank could be technically insolvent, but allowed to continue to double down on "approved" trades and roll over contracts exempt from disclosure?

I might just be a believer in conspiracy some day. This even troubles the troll. You guys' jokes about the cayman islands could be true.

MayIMommaDogFace2theBananaPatch's picture

Troll sees the light?  This is a very strange day indeed.

trav7777's picture

what clued you in, all the hundreds of billions of Treasuries bought from "caribbean banks"??  LOL

Gene Parmesan's picture

$78 Trillion - sounds like we're talking about real money for a change.

Spitzer's picture

Nothing says buy gold like this.

Didn't LTCM try this bullshit before ?

chumbawamba's picture

Just a little bit more...

AldoHux_IV's picture

Fucking criminals the lot of them: regulators and banksters-- time to get the rope.

DNB-sore's picture

I thought paper was for describing history, and yes....

Print this page!!!!!!

disabledvet's picture

This is a good piece.  First off "that was Bear Stern's finest hour" as they were the only with the balls to say "this is Wall Street and we're here for the money.  We loaned you the money, phucker--now give us the worthless phucking gold."  Needless to say "Italy didn't pay" since "sovreigns never do" so "i wouldn't cry for Italy on this one."  Amarenth is an interesting case--i'm certainly no expert but I do recall a "little company called Enron" and "when they collapsed the price of natural gas went basically to zero."  That changed "for some odd reason" and "when it changed again Amarenth got zeroed out."  How do the "banks come out ahead everytime"?  Well...the easy answer is "they don't."  It also has "the added value of being true."  Now PROCEED TO THE NEXT COLLAPSE PLEASSSSSE!  Because "when last I checked it was Wall Street that collapsed in 2008" and "when they say this time is different" my first thought is "oh, the American government is now going to collapse too!"  According to S&P's SO FAR SO GOOD!

Sudden Debt's picture

Jam sure does seem to have a lot of power. It's like they own the fed and the gov and act like god!

I think the taxpayers will suffer the loses from their silver shorts and if you read this shit you can only imagine in what kind of other mess they are in and what other crap they pulled on the taxpayers back.

If they can check mate banks and traders that don't go along and walk in and out of the white house like they own the place and now they are buying muni assets it's pretty clear the us and eu will one day be called the united jpm continents.

These guys really need to be put out of business!
They are the cause of everything what's wrong with this world!

Sudden Debt's picture

Jam sure does seem to have a lot of power. It's like they own the fed and the gov and act like god!

I think the taxpayers will suffer the loses from their silver shorts and if you read this shit you can only imagine in what kind of other mess they are in and what other crap they pulled on the taxpayers back.

If they can check mate banks and traders that don't go along and walk in and out of the white house like they own the place and now they are buying muni assets it's pretty clear the us and eu will one day be called the united jpm continents.

These guys really need to be put out of business!
They are the cause of everything what's wrong with this world!

blindfaith's picture

so, fellow ZeroHedge folks now you "see" just what you are up against.  If you have not read the whole thing in an attempt to jump in and post a comment...go read it.

Great, now that you have read long do any of you think it will be before all these conspiring powers of industry and government  bring your investment plans to the dirt?

When the dealer lets cards pass under the table to conspiring players, everybody else at the table is a victim.  No investment you make is now safe including gold, silver, and dirty socks.

SDRII's picture


alchemisteve's picture

Reason 1,000,001 we need Ron Paul and the Tea Party patriots!

traderjoe's picture

Both of whom are fully co-opted by the PTB. Ron Paul has been in the House since the 70's.

flattrader's picture

Paul talks a good game.  And that fools those so inclined.

Many of the Tea Party Patriots are busy collecing farmer welfare--like Congressman Gospel Singer from Frog Fuck, TN and the little bitch from MO who can only say "Show Me the Money and Don't Pick on Me."

Since it's a matter of public record and they've admitted to taking the money, they can't run and hide from it or claim "partisan" reporting.

The rest are busy sucking Koch for the Brothers who bankrolled their victory.

While the majority of American farmers receive no government money at all, at least 23 current members of congress or their families have received government money for their farms -- combining for more than $12 million since 1995 according to a new report from the Environmental Working Group.


The biggest recipient was Rep. Stephen Fincher, a Republican from Frog Jump, Tenn.


While the self-described Tea Party patriot lists his occupation as "farmer" and "gospel singer" in the Congressional Directory, he doesn't mention that his family has received more than $3 million in farm subsidies from 1995 to 2009, according to the Environmental Working Group.


When asked whether he would be willing to see all his subsidies go away, Fincher would not directly say he would no longer take any more subsidies.

"We need a good, better, we need a better farm program and we need to streamline it," he said. "We need to look at many many options. And that's a long way off."


Rep. Vicky Hartzler, R-Mo., who also was swept into office with the Tea Party movement, received $774,489 in farm subsidies over the same period, according to the EWG's numbers.


According to the EWG report, Rep. Marlin Stutzman, R-Ind., received almost $180,000 between 1997 and 2009.


ABC News' Diane Sawyer grilled the lawmakers on the subject in January during her exclusive Tea Party interview with 10 freshmen members of the House and Senate.

"Are you ready to vote against all farm subsidies? That's $20 billion by one estimate, at least," Sawyer asked.


"Well, I think everything should be on the table," Hartzler said. "And, yes, there's a lot of us farmers that have participated in the program."


Sawyer then asked Rep. Stutzman about the more than $100,000 in farm subsidies he received and whether he would vote to cut them.


Stutzman told ABC News that he is in favor of eliminating farm subsidies, including his own.


"Yes, I would vote to eliminate farm subsidies. It manipulates the market," he said. "And that's the problem here in Washington: The adult conversation, I think, has to be, 'no.'"


Hartzler said she was open to "starting the discussion and look at it."

But she added, "I think we need to make sure that everything is looked at before we just pick on the farmers."

Founders Keeper's picture

Sorry flattrader. I was reading along, and then you lost me at http:/abcnews...

You're gonna have to take your game up a notch.



flattrader's picture

Public record is public record.  They took the money and fed at the trough and won't say that they'll give it back or agree to farmer welfare cuts.

There are no suits against ABC for libel.

The Tea Party darlings are what they are...hypocrites.

Beatscape's picture

This is obscene.  A 10% loss in JPM's derivative book would wipe out more than half the states in our country.  They should never be allowed to have exposure of this magnitude.  It's only a matter of time before we get 2007-2008 financial armageddon redux.  Next time, let them fail.

flattrader's picture


Do you know off hand what the Morgue's derivatives book amount was at end 2007? before the crisis started.

tallen's picture

We're gonna need a whole army of accountants when JPM blows up, millions of them sifting through the utter garbage assets they claim on their books.

DaddyO's picture


When JPM blows up there won't be a need to audit because their demise will bring about the financial armeggedon that everyone seems to think is on the horizon.


Rainman's picture

Me crystal ball says it will be a Euro bank to go first.......pushing over each of the counterparty dominoes worldwide. One by one.  Print and save.  

topcallingtroll's picture

Do i.understand the bush disclosure laws and their effects on spv's or spe's and I would.appreciate an informed comment below. This.doesnt make sense

MayIMommaDogFace2theBananaPatch's picture

This.doesnt make sense

Yes, exactly!!!  You ARE waking up.

TideFighter's picture

Hey, that LCTM, is he a "friend of ours" or a "friend of mine"?


tom a taxpayer's picture

LCTM is a "friend of mine" who a "friend of ours" had to bust out.

chubbar's picture

Anyone here still think the cocksuckers over at the CFTC plan to enforce position limits in silver on JPM or HSBC?

TideFighter's picture

No. But there will be "fresh orange juice" and "frozen from concentrate"

I've always paid more for fresh.

DNB-sore's picture

a lotm of points topcrawlingtroll

BrobamaReds's picture

Great report on rigged and manipulated "size".  I'll bet that Katie "the gash" Couric will report on this tonight.

max2205's picture

Moral: don't make too much money and drive a component of govt statistics too high or the gubermint will back a TBTF to take the other side of the trade and blow you up. Nice post TD.

bazillion trillion derivative implode will make a Supernova look like lighting farts. Just f'ing scary

plocequ1's picture

Thank god. I bring home shit. I have nothing . Just me , My soul and my Member

Hephasteus's picture

Too late. The gold and silver derivatives are already lit.

SpeakerFTD's picture

I haven't read the fully-linked analysis of the Amaranth collapse, so perhaps the following is discussed, but what you have in the above post is definitely omitting critical information.

Amaranth trader Brian Hunter was massively long the Mar/Apr spread.   For those unfamiliar with NG, this has historically been one of the price spreads used to hedge the seasonal exposure between winter and summer.   Hunter was long these spreads all down the curve and, due to his nonstop buying, they had appreciated massively with the front spread trading before the collapse at around $3.25 (Hunter had driven in up from well below $2).   He was long ALL of it, and the whole street was on the other side.   

My understanding is that the Nymex was particularly concerned about this spread.  Hunter had been using paper profits from the appreciation of this spread to access additional capital, which was then used to continue buying the same spread.   It was a Ponzi scheme, and it would have blown up long before if not for Katrina bailing him with windfall profits.   But he added to the trade continually afterwards, effectively cornering the market on the spread.  When it came time to unwind, forced by Nymex, there were no bids, and the selling then precipitated more forced selling on Amaranth's part.

In any case, everyone was on the other side of the trade, including, for size, Centaurus, another fund.   They were the ones that finally took him out of most of the size on the spread.  I believe Citadel ended up with remaining book, and it was so big that the daily swings were in the tens to hundreds of millions of dollars.

Anyway, Amaranth was not a victim of anything except its own stupidity.   It was Amaranth itself that was distorting the market.  And in this case, Nymex actually did its job, as the Mar/Apr spread collapsed after Amaranth blew up (the front month spread ended up settling almost flat and it is now about $0.20 cents on average down the curve) and a major source of market distortion disappeared.   The spread has never recovered anywhere near the levels it traded at when Amaranth was in the market.

One interesting aside, is that numerous gas storage projects were started during this period of massive spreads to take advantage of the seasonality.   Amaranth lost billions, but their distortion of the price curve almost certainly spurred more investment in storage than would have occurred independently.