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

Submitted by Rob Kirby

Amaranth Kill Shot: Collateral Damage In A 78 Trillion Dollar Derivatives Book Compliments Of J.P. Morgan Chase (pdf)

The
purpose of this paper is to illuminate the real purpose of the obscene
size of derivatives books amongst the world’s largest financial
institutions.  Derivatives in strategic markets are controlled by governments through proxy banks and agencies using these instruments.  By sheer volume, the trading in paper “tails” wag the physical “dogs”.  When
market volatility negatively impacts these large institutions they are
given a pass by regulators and accounting protocols in the interest of
national security and preservation of the status quo.  Moreover, this ensures the perpetuation of U.S. Dollar hegemonic power.  The following accounts outline how these instruments are used to project this power.

Amaranth Advisors LLC went bankrupt in Oct. 2006.  By mid 2007 the
Committee of Homeland Security and Government Affairs released a
document containing a detailed investigation of the Amaranth scandal
entitled “Excessive Speculation in the Natural Gas Markets.”  Amaranth,
hedge fund, was launched in 2000 as a multi-strategy hedge fund, but
had by 2005-2006 generated over 80% of their profits from energy
trading.

Market
circumstances surrounding Amaranth indicated that they were
predominantly long natural gas. This is not surprising since “very easy
money policies” by the Federal Reserve, a hot housing market along with
rapidly industrializing Asian economies had created steadily increasing
demand – and a bullish environment - for commodities in general and
energy inputs in particular.

Juxtaposed
against this inflationary backdrop, the U.S. Federal Reserve, the
Bureau of Labor Statistics, and the U.S. Treasury ALL consistently
fudged [lied about] economic data, always overstating economic growth
and employment data and perpetually understating the effects of
inflation.  This has been well documented by John Williams of www.shadowstats.com.

Amaranth
became a high profile entity employing leverage to push prices of a
high profile strategic commodity like natural gas higher.  This
put Amaranth at odds with the 2 % inflation “kool-aide” illusion that
the Fed and U.S. regulators were [and still are] trying to falsely sell
the American people.  In 2008, Ludwig Chincarini CFA, Ph.D, penned a paper chronicling Amaranth’s collapse titled, Lessons from the Collapse of Amaranth Advisors L.L.C. linked here.  The
report gave details regarding Amaranth’s management style and risk
management practices as well as chronologically detailing the last days
of the hedge fund.

Through the research provided to us by Ludwig Chincarini CFA, Ph.D., we get an accurate picture of Amaranth’s methodology for managing risk as follows:

“The
Chief Risk Officer of Amaranth had a goal of building a robust risk
management system. Amaranth was unusual in terms of risk management in
that it had a risk manager for each trading book that would sit with the
risk takers on the trading desk. This was believed to be more effective
at understanding and managing risk. Most of these risk officers had
advanced degrees. The risk group produced daily position and profit and
loss (P&L) information, greek sensitivites (i.e. delta, gamma, vega,
and rho), leverage reports, concentrations, premium at risk, and
industry exposures. The daily risk report also contained the following:

1.
Daily value-at-risk (VaR) and Stress reports. The VaR contained various
confidence levels, including one standard deviation (SD) at 68% and 4
SD at 99.99% over a 20 day period. The stress reports included scenarios
of increasing credit spreads by 50%, contracting volatility by 30% over
one month and 15% for three months, 7% for six months, and 3% for
twelve months, interest rate changes of 1.1 times the current yield
curve. Each strategy was stressed separately, although they intended to
build a more general stress test that would consolidate all positions.

2.
All long and short positions were broken down. In particular, the risk
report listed the top 5 and top 10 long and short positions.

3.
A liquidity report that contained positions and their respective
volumes for each strategy was used to constrain the size of each
strategy. The risk managers also calculated expected losses for the
individual positions. The firm had no formal stop-losses or
concentration limits. Amaranth took several steps to ensure adequate
liquidity for their positions. These steps are listed on the more
detailed version of this section on the FMA website.”

In
fact, the risk aversion procedures taken by Amaranth don’t really seem
much different than the mandated risk management procedures practiced by
J.P. Morgan, B of A, Citibank, Goldman Sachs and Morgan Stanley – ALL
with derivatives books measuring from 42.1 to 78.6 Trillion at Dec.
31/10.  Here’s how the U.S. Office of the Comptroller of the Currency [OCC] states these behemoths manage their risk [pg. 8]:

“Banks
control market risk in trading operations primarily by establishing
limits against potential losses. Value at Risk (VaR) is a statistical
measure that banks use to quantify the maximum
expected loss, over a specified horizon and at a certain confidence
level, in normal markets. It is important to emphasize that VaR is not
the maximum potential loss;
it provides a loss estimate at a specified confidence level. A VaR of
$50 million at 99% confidence measured over one trading day, for
example, indicates that a trading loss of greater than $50 million in
the next day on that portfolio should occur only once in every 100
trading days under normal market conditions. Since VaR does not measure
the maximum potential loss,
banks stress test trading portfolios to assess the potential for loss
beyond the VaR measure. Banks and supervisors have been working to
expand the use of stress analyses to complement the VaR risk measurement
process that is typically used when assessing a bank’s exposure to
market risk……..[more]”

And here is what OCC reports as VaR for these selected banks [pg. 9]:

    

The tables above show that J.P. Morgue had a 78.6 Trillion Dollar derivatives book [446 dollars in bets for every one dollar in equity] and estimates that the most they could expect to lose in any given day is $ 71 million.  [Note:
Amaranth, with an approximate 20 Billion Dollar Derivatives book – lost
an average of $ 420 million for 14 days straight for total losses of
approximately 6 billion at the beginning of Sept. 06].

As a housekeeping note:  Years ago, circa 1998, J.P. Morgue’s management deemed their proprietary measure of assessing risk [VaR] so “brilliant” they “spun it off” in a separate company called RiskMetrics.

“JP
Morgan [had] developed a methodology for calculating VaR for simple
portfolios (i.e. portfolios that do not include any significant options
components) called RiskMetrics. The success of RiskMetrics has been so
great that Morgan has spun off the RiskMetrics group as a separate
company.

RiskMetrics
forecasts the volatility of financial instruments and their various
correlations. It is this calculation that enables us to calculate the
VaR in a simple fashion. Volatility comes into play because if the
underlying markets are volatile, investments of a given size are more
likely to lose money than they would if markets were less volatile.”

RiskMetrics was successfully marketed to some of the most astute, successful risk managers in ALL THE LAND such as:

Bear Stearns

Bear
Stearns Global Clearing Services and RiskMetrics Group to Offer Risk
Management, Portfolio Analysis and Investment Planning Solution to
Independent Investment Advisors.

          Publication Date: 25-JAN-06

Article Excerpt
NEW
YORK -- Bear, Stearns Securities Corp. and RiskMetrics Group announced
today they have entered into an agreement to offer RiskMetrics Group's
WealthBench(TM) technology platform to independent investment advisors
and family offices via the Bear Stearns WealthSET(SM) wealth management
solution. Investment advisor clients of Global Clearing Services are now
able to access WealthSET's institutional quality risk analytics, investment planning, asset allocation and proposal generation capabilities.

And

Lehman Bros.

Lehman's prime brokerage to offer clients RiskMetrics tools online

Published online only

Author: Gallagher Polyn

Source: Risk magazine | 13 Dec 2002

Lehman Brothers' global prime brokerage unit will offer RiskMetrics'
RiskManager tool to hedge funds, fund of funds and investors via its
website, LehmanLive. The RiskManager service features value-at-risk,
stress testing and 'what-if' scenario generation.

Observations

• most of the huge derivatives players take a similar standardized approach to evaluating and assessing risk

• Despite
  relative uniformity in risk management models among derivatives risk
  managers we see a disproportionate number of smaller, relatively better
  capitalized players fail while larger relatively under-capitalized
  bemoths continue to make windfall gains and flourish.

• There
  appears to be a double standard being practiced by the CFTC regarding
  position limits between the largest derivatives players [like J.P.
  Morgue] and smaller ones [like Amaranth].  Issues of concentration [commodities laws] are enforced on smaller players and ignored on the preferred players.  This
  preferential treatment extends to this day as the CFTC continues to
  “look the other way” while J.P. Morgan and HSBC increasingly dominate
  the short open interest in COMEX silver – even as reported shortages of
  physical metal continue to crop up at national mints around the world.

Perhaps some of you might be wondering how J.P. Morgue et al really do it?  How they can take such HUGE, LEVERAGED risk and seemingly NEVER lose?  Well, here’s a clue:  back in early 2006, Business Week reported,

President George
W. Bush has bestowed on his intelligence czar, John Negroponte, broad
authority, in the name of national security, to excuse publicly traded
companies from their usual accounting and securities-disclosure
obligations. Notice of the development came in a brief entry in the
Federal Register, dated May 5, 2006,

What that means folks, is:  “if
J.P. Morgan is deemed to be acting in the name of National Security or
the National Interest – THEY [and presumably others] CAN “LEGALLY” BE
EXCUSED FROM ACCOUNTING.

The reality is that derivatives trading is risky.  Major players in the derivatives trade ALL, more or less, use the same risk management practices.  The
key difference[s] between J.P. Morgan et al and interlopers - hedge
funds - who come-and-go is that the banks who act for the Federal
Reserve have the backing of the Great Guttenberg and they are not
subject to regulatory oversight or accounting. 

These
key banks have created ridiculously larger and disproportionate
derivatives edifices in key strategic areas of interest rates [bonds],
energy and precious metals where the sheer volume of paper trade
overwhelms and assigns false pricing to the underlying physical trade –
ie. the tail wags the dog.  Control of the pricing
in these strategic instruments works hand-in-hand with global U.S.
hegemonic strategy of dollar price settlements in key strategic
commodities and the perpetuation of supremacy of the Dollar as the
world’s reserve currency. 

It’s in this context that we begin our examination of the Amaranth kill shot.

Review of the Amaranth Kill Shot Sequence

The black text below in “quotes” was excerpted from Ludwig Chincarini CFA, Ph.D, Lessons from the Collapse of Amaranth Advisors L.L.C. linked here [pg. 17].  

The
chart below chronicles the milestones – beginning with the entrance of
J.P. Morgue into the Nat. Gas futures trading arena at the turn of
1995/96.  It should be noted that the Nat. Gas
price movement that led to Amaranth’s demise has been described by some
very qualified professionals as being a 5 or possibly even as high as a 9
standard deviation event where the fund lost an average of $420 million per day for the first 14 trading days of September, totaling a final loss of around $6 billion.

According to Dr. Jim Willie PhD. [Statistics] a 5 standard deviation event has a one in 1.74 million chances of happening.  Willie told me 9 standard deviation events do not happen in nature.

This
appended passage is a play-by-play of Amaranth’s final days where
virtually all of their equity was vaporized in a matter of 14 days.  Chincarini
documents how the CFTC took issues of concentration on the NYMEX
seriously, when it suited them to do so, as it pertained to Nat. Gas and
Amaranth.  Rob Kirby comments in blue:

Excerpt begins:

“Of
particular note was an August 8, 2006 complaint by NYMEX officials that
Amaranth’s position in the September 2006 contract (near-month
contract) was too high at 44% of the open interest on NYMEX. … Amaranth
reduced this short position by the day’s close by 5,379 contracts (see
the change in NYMEX contracts from the close of August 7 to the close of
August 8), but they also increased their similar exposure short
position on ICE by 7,778 contracts.

Thus,
ironically, the request by NYMEX to reduce Amaranth’s positions led
Amaranth to actually increase their overall September 2006 position. At
the same time, they also increased their exposure to the October 2006
contract; a contract that is a close substitute to the September 2006
contract. In particular, they had increased their October 2006 position
in NYMEX natural gas futures by 7,655 contracts and their equivalent
position on ICE October 2006 contracts by 4,984.”

[Rob Kirby note:
to say that the October 2006 contract was a Close substitute for the
September 2006 contract is VERY misleading BECAUSE September was still
the lead “spot” month – and Amaranth was being FORCED to roll out of their spot position – exposing a “weak hand” [like an open wound / blood in water attracts sharks].  If, instead, the “short” – undoubtedly J.P. Morgue - had been told to cover – the price would have EXPLODED UPWARD.  Additionally,
and more telling, the fact that Amaranth was using ICE Nat. Gas
contracts as substitutes for NYMEX contracts illustrates that there *used-to-be* a high degree of correlation between Nat. Gas traded in Europe and Nat. Gas traded in North America – more on this later].

 

“On
August 9, 2006 the NYMEX called Amaranth with continued concern about
the September 2006 contract and warned that October 2006 was large as
well and they should not simply reduce the September exposure by
shifting contracts to the October contract. In fact, by the close of
business that day, Amaranth increased their October 2006 position by
17,560 contacts and their ICE positions by 105.75. For September 2006,
Amaranth did follow NYMEX instructions by reducing NYMEX natural gas
positions by a further 24,310, but increased September ICE positions by
4,155.”

[Rob Kirby note:  winning or losing when institutional trading often comes down to “who blinks first”.  The CFTC decided that Amaranth would blink first.  At this point, Amaranth’s fate was sealed – and J.P. Morgue undoubtedly knew it.  A
noble assist in the Amaranth Kill Shot sequence has to go another Fed /
Treasury lackey institution – Goldman Sachs – who re weighted their
vaunted Goldman Sachs Commodity Index (GSCI) which, at the time, had
roughly 100 billion in institutional money following it.]

“On
August 10, 2006 another call from NYMEX urged Amaranth to reduce the
October 2006 position since it represented 63.47% of the NYMEX open
interest. In response to this call, Amaranth reduced the October 2006
position by 9,216 contracts, but increased their similar October 2006
ICE position by 18,804 contracts.

By
the end of this three-day session of calls from the NYMEX warning
Amaranth of its position size in September and October contracts,
Amaranth had actually increased their overall positions from August 7,
2007 to August 11, 2006 in those two contracts by 16,484 (a decrease in
September 2006 positions by 23,143 and an increase in October positions
by 39,627).”

[Rob Kirby note:  commentators made much of Amaranth’s elevated risk [VaR] measures and leverage employed – 5.23 times.  One
should remember that the “other side” of Amaranth’s trades was
principally J.P. Morgue. Morgue is the biggest hedge fund on the planet –
with market cap of roughly 176 billion and a derivatives book of [at
Sept. 30/06] 63.477 Trillion for leverage of 361 times.  Incredibly,
extreme, dizzying leverage NEVER seems to cause P & L problems for
ole J.P. Morgue’s derivatives book which at one time topped 90 Trillion -
EVER.  In fact, at Dec. 31/10, Morgue’s
derivatives book was 78.656 Trillion with market cap of 176 billion for
leverage today of 446 times].  In fact, Chincarini himself conjectured [on pg. 19],

“The
reconstruction of the VaR of Amaranth’s positions on August 31, 2006
was high, but cannot entirely explain Amaranth’s losses in September
2006 unless one designates the Amaranth collapse as a 5 standard
deviation event.”

Others, like Hilary Till of Premia Capital Management characterized the price move that buried Amaranth as a 9 standard deviation move:

“Hilary Till of Premia Capital Management released a damage control piece assessing aspects of the Amaranth case. She assured us that the market move associated with Amaranth’s loss was a nine standard deviation event. If you don’t know what that means, it is statisticians’ speak for “it won’t happen again.”

[end] -

Interesting, in Dr. Jim Willie’s words, “a 9 standard deviation never did happen, at least not naturally.”

Ladies
and gentlemen, Amaranth Advisors LLC was surgically removed from the
financial landscape by the Fed / J. P. Morgue in a “joint kinetic
movement”. 

Amaranth Versus Long Term Capital Management [LTCM]

For
those who forget, LTCM was a hedge fund founded by bond guru John
Meriwether which suffered a spectacular collapse in 1998 and was
subsequently bailed out by consortium of banks at the behest of the U.S.
Treasury and Federal Reserve.  Fed and Treasury
officials argued at the time that the bailout was necessary because the
collapse of LTCM posed systemic implications for the global financial
system.  Here’s why:

Much has been written on the Bank of Italy, LTCM and gold – like this excerpt from Embry / Hepburn back in 2004 at pg. 29:

….in September 1999, TheStreet.com quoted Nesbitt Burns gold analyst Jeff Stanley as saying on a conference call: "We've learned Long Term Capital Management is short 400 tons."74

In addition, Frank Veneroso stated:

“I
have received many testimonies that LTCM had extensively used gold
borrowings to fund its leveraged positions, and believe it likely that
the Fed removed these shorts from LTCM's books in the course of the bailout of LTCM.”75

Reg Howe also spoke of the apparent LTCM gold short position:

“Recent
confidential information from a highly reliable source confirms rumors
that at the time of its collapse, LTCM was short a substantial amount of
gold (300 to 400 tonnes is the range most often mentioned), and that
this position was covered in some type of arranged off-market
transaction.”76

Crucial to the allegations of gold price manipulation is a statement Veneroso made in 2002:

We
conclude from our argument based on the development of an inadvertent
corner in the gold markets, from a “prison of the shorts”, that, since
the Long Term Capital Management crisis in late 1998, the official
sector has been managing the price of gold.77

The
“prison of the shorts” cited by the renowned gold analyst is the
situation that developed due to the large speculative gold short
positions.

When sovereign gold is lent / leased – it is generally sold into the market to raise cash balances.

The
Italians were lending / leasing their sovereign gold and investing the
proceeds with LTCM. Italy was no doubt attempting to reverse their
sagging fortunes with their substantial sovereign gold holdings due to the reality that their gold holdings were ONLY losing value over that time frame:

 

 

The
declining gold price was effectively “screwing Italy’s chances” of
QUALIFYING FOR THE EURO – by negatively impacting the value of their
reserves.

This
would have made the Italians HIGHLY CAPTIVE and AGREEABLE – given their
predicament - to any proposal to help reverse or alleviate that
REALITY.

Thinking
that LTCM was infallible – owing to them having a couple of Nobel
laureates on staff and also being predisposed to playing fast-and-easy
with their gold accounts – Italy still wasn’t done. Next up was a gold
loan / lease – arranged by your friendly neighborhood bullion banker
[like Goldman Sachs].  The proceeds were invested
in LTCM in the belief they would earn the ‘magical gains’ that LTCM had
been delivering to their investors.

Embry
/ Hepburn tell us that Long Term Capital Management denied they ever
traded gold. In a letter sent to attorneys for the Gold Anti-Trust
Action Committee, LTCM’s attorney James G. Rickards maintained [pg. 29]:

“None
of LTCM, LTCP, nor their affiliates, has ever entered into any
transaction involving the purchase or sale of gold, including without
limitation, spot, forwards, options, futures, loans, borrowings,
repurchases, coin or bullion, long or short, physical or derivative or
in any other form whatsoever.”73

While
Jim Rickards may be “technically correct” that LTCM was not directly
involved in trading gold or in gold price rigging – they would
UNQUESTIONABLY have had direct knowledge of the genesis of the sovereign
Italian funds that were invested with LTCM – because Rickards’ own bio
states that he principally organized the bailout.  

When LTCM failed, they had to be bailed out because a public bankruptcy would have:

A]
exposed the Italian manipulation of their sovereign gold [which did aid
and abet in a wider – globally coordinated - gold price suppression]

and

B] that Italy was playing “financial accounting tricks” to qualify for the Euro, i.e.  the Euro might have been still-borne.

When
the “gang” of investors met at the Fed’s offices in NY to discuss the
bailout of LTCM – it’s been well reported that Greenspan and then Tres.
Secretary Rubin laid it on the table that all LTCM investors were going
to have to help bail LTCM out.

Bear
Stearns realized that unsustainable “short” monkey business was
involved where Gold was concerned and basically said – NOT A CHANCE WE
PAY A NICKEL!!!   Further details of the LTCM /
Bk. of Italy / Gold connection are laid out in a subscriber only paper
titled, Fine Italian Dining, archived at kribyanalytics.com.

Amaranth
had no golden skeleton buried in any of its closets – therefore a
public bankruptcy / dismemberment – mostly for the benefit of J.P.
Morgue, who effectively got to close out their short nat. gas positions
for pennies on the dollar by ‘absorbing’ Amaranth’s longs – was not only
desirable, but preferred because it sent a clear message to any and all
other hedge funds who might have harbored thoughts of becoming large
players in such a strategic space.

You
see folks, when you are printing money like a banshee and telling the
world that inflation is running at 2 % - you don’t want interlopers with
deep pockets – like Amaranth – bidding the price of strategic
commodities like natural gas – UP.

Rob Kirby

Comments

[Hot Cumontitties]

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

[TruthInSunshine]

“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

   11/15/05

[augie]

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

[Rainman]

+ 78 T fiatscos worth of emergency powers accounting.

[dlmaniac]

Kirby is da man!!

[trav7777]

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]

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!

www.silverdoctors.com

[Idiot Savant]

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

[NidStyles]

Holy crap that's a read and a half.

[Magnix]

only read 1/4 of it....

[FEDbuster]

"They are FINANCIAL TERRORISTS!", Max Keiser

[RossInvestor]

Great article.

[Tail Dogging The Wag]

HIT WHERE IT HURTS

SILVER AND GOLD (PHYSICAL ONLY)

http://www.youtube.com/watch?v=X-HQJXI4nVw

[Ancona]

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]

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

[topcallingtroll]

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.

[MayIMommaDogFac...]

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

[trav7777]

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

[Gene Parmesan]

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

[Spitzer]

Nothing says buy gold like this.

Didn't LTCM try this bullshit before ?

[chumbawamba]

Just a little bit more...

[AldoHux_IV]

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

[DNB-sore]

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

Print this page!!!!!!

[disabledvet]

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]

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]

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]

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 it...how 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]

One WORD: CHINA

[alchemisteve]

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

[traderjoe]

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

[flattrader]

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.

http://abcnews.go.com/Politics/tea-party-hypocrisy-lawmakers-tea-party-t...

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]

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]

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]

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]

Beat,

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

[tallen]

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]

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.

DaddyO

[Rainman]

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]

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

[MayIMommaDogFac...]

This.doesnt make sense

Yes, exactly!!!  You ARE waking up.

[TideFighter]

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

[tom a taxpayer]

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

[chubbar]

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

[TideFighter]

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

I've always paid more for fresh.

[DNB-sore]

a lotm of points topcrawlingtroll

[BrobamaReds]

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

[max2205]

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]

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

[Hephasteus]

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

http://www.youtube.com/watch?v=ob-5a8VhW5I

[SpeakerFTD]

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.  

[SpeakerFTD]

And to clarify, Amaranth did not blow up because of the Sept or Oct contract.   Their position was relatively peanuts there.   Pretty much all the $6 billion they lost was the Mar/Apr spreads and associated vol.

[Ricky Bobby]

I see just natural market forces at work, no intervention at all. Move along nothing to see here.

[SpeakerFTD]

My point is that this was not a case where some relatively naive player was actively hunted by a predatory bank (see SemGroup/GS).  Amaranth was offsides.  They were the market manipulators, not a bank.  

[ZeroPower]

Nice posts, thanks.

Any idea where NG will return to having some demand show up? Thing has been dead for some time now, hear most big players are still short but - until when? Zero? When the unwind comes, im assuming a fine dollar will be made to the long side...

[LordofTruth]

R.I.P. The WidowMaker

[Tracerfan]

The government-banking complex will be the end of this country.  The only question is when.

[Seasmoke]

7 top banks are in NY, one is in NC and one in CA......wonder who has to worry when they have to give one up as a sacraficial lamb

[Rainman]

...they are all as one..... all the cannibal activity the past 20 years conceived one huge banking beast with 9 heads. BAC used to be a straight SF bank holding deposits and lending money to California farmers. Now look at its bloated and gluttonous self.

[GFORCE]

So how do you explain what's happening now with the bidding up of key commodities, whilst the FED talks inflation down?

[breezer1]

wasn't kirby the one who broke the tungsten story?

[TrustMeImADoctor]

I like the article, but there's something off about it. Besides the gasoline issue, the SEC "non-reporting" issue links to an article about defense contractors. JPM's disclosures are fairly consistent and a missing once would have to be reported.

[PulauHantu29]

Pray tell, how many of these people went to jail?

[Miles Kendig]

Yep.  While most folks just turn over to the TV page.  Tragic that this is the state of affairs.  But it is.  Just remember Rob, a policy of judicial exclusion goes with.

http://jonathanturley.org/2008/07/21/obama-adviser-cass-sunstein-rejects...

http://www.businessweek.com/bwdaily/dnflash/may2006/nf20060523_2210.htm?...

Capialism my ass.  It's all just a CondomNation

http://www.zerohedge.com/article/guest-post-how-can-everyone-be-so-incom...

[JW n FL]

"All other off-balance sheet liabilities. Report all significant types of off-balance sheet

liabilities not covered in other items of this schedule. Exclude all items which are required to

be reported as liabilities on the balance sheet of the Report of Condition (Schedule RC),

contingent liabilities arising in connection with litigation in which the reporting bank is involved,

commitments to purchase property being acquired for lease to others (report in

Schedule RC-L, item 1.e, above), and signature and endorsement guarantees of the type

associated with the regular clearing of negotiable instruments or securities in the normal

course of business.

Report only the aggregate amount of those types of "other off-balance sheet liabilities" that

individually exceed 10 percent of the bank's total equity capital reported in Schedule RC,

item 28. If the bank has no types of "other off-balance sheet liabilities" that individually

exceed 10 percent of total equity capital, report a zero or the word "none."

Disclose in items 9.a through 9.f each type of "other off-balance sheet liabilities" reportable in

this item, and the dollar amount of the off-balance sheet liability, that individually exceeds

25 percent of the bank's total equity capital reported in Schedule RC, item 28. For each type

of off-balance sheet liability that exceeds this disclosure threshold for which a preprinted

caption has not been provided, describe the liability with a clear but concise caption in

items 9.c through 9.f. These descriptions should not exceed 50 characters in length

(including spacing between words)."

So, how many hundreds of Trillions are off book? with the structured individual value always being under the ceiling amount for non-disclosure? but reading above (Guest Post), JP does Not! have to report under any circumstance and maintains 100's of % more Leverage than the rest of the crowd.

$78t is more like 10 X's that amount, in the land of non-reportable.. how many other groups funnel / participate in deals with JP based on the skewed prism with which they get to distort any view.

If Goldman enters into a Transaction with JP as a Counter Party or Junior / Majority Participant the deal goes Black for anyone and everyone beyond the fact that it is off book?

***“Perhaps some of you might be wondering how J.P. Morgue et al really do it?  How they can take such HUGE, LEVERAGED risk and seemingly NEVER lose?  Well, here’s a clue:  back in early 2006, Business Week reported,

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006,

What that means folks, is:  “if J.P. Morgan is deemed to be acting in the name of National Security or the National Interest – THEY [and presumably others] CAN “LEGALLY” BE EXCUSED FROM ACCOUNTING.”***

This is a Never! Ending Rabbit Hole! And Honestly no one wants to know what is down the hole, everyone just wants whatever is broken fixed and that is just Not! Possible any more. You can Not! Un-pickle a cucumber.

No matter how many lies JP Morgan can dream up and sell the sheepeople. If something gives way that is big enough, it could just cause a shock wave that none of us would be able to out swim. I know like everyone else here knows that things are the same if not as bad post Frankfurt / Douche (Frank/Dodd). Leverage is real, Systemic Risk is so Fucking Broad that like the Ocean you cannot see the end of it.

I don’t know any more, I am really pissed that the powers that be let these idiots build a time bomb with no fucking off switch. System reset? Well that’s one way to get rid of social programs! Kudos! Republicans!

All of this slid by based on catch phrases that tested well, broad demographic reach! ***Abortion!*** ***Un-Fair Taxation!*** ***Security!*** ***Entitlement Issues!*** and whatever else the sheep would Gobble Up! Run with and then Regurgitate all over any and all that they came in contact with.. the meme’s of destruction fed to the idiots of the land!

God Love and Bless You All!

You are going to need it by the time the powers that be get done fucking you!

[onlooker]

Education is a wonderful thing. thanks and thanks

[Downtoolong]

I’ve been saying for years that the primary purpose of regulations and the regulators in the commodity markets is to prevent the little guys from beating the big players at their own game. Furthermore, if a company like Amaranth is a little guy, then what does that make the doctors, dentists and small individual investors that companies like JPM have been encouraging more heavily over the last few years to include commodity futures in their retirement funds and investment portfolios? You know what I’m talking about, that whole bullshit countercyclical, value stabilizing, risk reduction strategy they’ve been pitching. Truth is, JPM wants more suckers in the commodities futures markets to provide them with an easy hedge for their massive, and highly profitable, OTC derivatives business, and to pulverize them at the first opportunity when they get caught on the ugly side of a closing squeeze.

“Come in to my parlor said the spider to the fly.”

[StychoKiller]

Glad I bailed out of the stock market!

[Bansters-in-my-...]

"446 dollars in bets for every one dollar in equity"] and.....

And...Fuck off and die JPM

[mkkby]

What was the point of describing thier risk management in such verbose detail, when all they did was get so overinvested they had no exit strategy?  They blew themselves up with poor management and stupidity.

[honestann]

This is the nature of the predators-that-be.

Make no mistake.  It is either them or us.