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The Con Game Of Writing Up Assets
Wolf Richter www.testosteronepit.com
Normally we see the gory details only after a firm collapses, like Enron or Lehman, when vultures tear open its guts to fight over shriveled assets that had appeared fat and healthy on paper, and some of them had been written up repeatedly to create—which our accounting system encourages us to do—paper income.
Other outfits get bailed out. JPMorgan among them. A distinction made behind closed doors. They still have hollowed-out balance sheets ... and the certainty, if they’re large enough, that the Fed and the Treasury, or central banks and government agencies around the world, will prop them up at a moment’s notice. Confidence is required to keep the scheme going. Once confidence fades, the scheme collapses, and central banks have to print trillions and hand them to the industry so that confidence will reassert itself, and so that the scheme can be driven to the next level. And yet, it’s all about prosaic accounting.
Accounting rules allow the use of estimates to value many assets. And estimates can be written up. If a trader or an executive imagines that an asset has increased in value, he’ll set in motion a chain reaction that will cause the company to make the adjustments, increasing the value of the asset with one entry and increasing by the same amount an income account. It’s all good. Asset value goes up, profit goes up. Trader bonus goes up. Manager bonus goes up. CEO bonus goes up. Investors froth at the mouth. Earnings per share beat analysts’ expectations. A money machine. Everyone is happy. Even regulators, their banks being strong and profitable. Halleluiah.
Until it blows up. So, the revelation that the “London whale”—as JPMorgan trader Bruno Iksil was known due to his enormous positions—had been prodded by his boss to jack up the valuations of his trades comes as no surprise. But this time, the system got snared and exposed live. Iksil had been trading credit-default swaps in amounts so huge that they were budging the index. He lived in Paris and commuted to his office in London, on the Eurostar presumably. What is it with these French guys that are accused of gouging deep holes into the balance sheets of their mega banks?
Before him, there was Jérôme Kerviel who became famous in 2008 as the junior trader who’d lost $6 billion at French mega-bank Société Générale. Accused of a litany of shenanigans, he was condemned to five years in the hoosegow, though he claimed he was innocent and was being scapegoated. He just couldn’t prove it. Until now. And he’s fighting back. Read.... David and Société Générale.
It has been quite a ride for JPMorgan. At first, it was a loss of $2 billion, a “tempest in a teapot,” as CEO Jamie Dimon said. Then more truth seeped out, and it was suddenly $5.8 billion. And now it looks like it might spiral past $7 billion. Citing unnamed sources, the Wall Street Journal reported on the internal investigation that reviewed emails and voice communications. And these people were doing what nearly everyone is doing, nudging up asset values. With a host of beneficial side effects: increase capital ratios, boost income, goose bonuses.
The internal investigators determined that credit-trading chief Javier Martin-Artajo, who was working at the Chief Investment Office (CIO), had pushed Iksil to jack up the values of his trades—not just once, but repeatedly. And Iksil complied. Normally, this would have been no big deal, and future losses could have been swept under the complex rug of the mega bank. They tried. The called it $2 billion and a tempest in a teapot. No big deal really, just some hedging, all by the book. “The CIO balances our risks,” said CFO Doug Braunstein back when the scandal broke. It was about “protecting the balance sheet.” But it turned out to be too big to be swept under the rug.
There will be some housecleaning. And leaks to the Wall Street Journal to make clear to the world that this was a one-time event that won’t repeat itself, the handy-work of a couple of guys—who, through their lawyers, have denied any wrongdoing. New procedures would nip this sort of thing in the bud. These leaks and assorted dog-and-pony shows are part of the campaign to re-inflate the bubble of confidence without which the financial markets—and the valuations of stocks, bonds, and other instruments—would take a big hit.
And here is an issue that has been blissfully ignored or underplayed by the mainstream media though it has a profound impact on the US.... Mexico Dissolves Their FBI And Moves To Legalize Drugs, by hard-hitting Chriss Street.
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Bogus Bonus! We run into you everwhere we go!
And of course your comment made no sense.
I wonder what I gotta do to get kicked out (or get some others here removed).
Should change your "handle" to "Vic Venom", Bubba. Chill Baby, chill!
LOL.
But I'm not going to chill. Not that I'm all that pissed either...
...but it's time to chose: .gov commenters or me. I love this site but I'm just sick of the fuking nonsense here.
And I can keep going a LOOOOOOOOOOOOOOOOOOOOOOOONNNNNNNNNNNNNNNNNGGGGGGGGGGGGGG
fuking time.
Go away Troll
And you should keep junking me.
Obviously you are totally with it and have no patience for what I have to say.
Make another witty comment and get some greens! You are totally not a loser!
Lulz...a troll backslapping himself with mock praise...recursive irony has caused a stack overflow!
If Japan detected for irony here the way they should have checked for radiation, dudes would be dropping dead all over the place.
Did that make sense? I think that no.
GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG
EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE
TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT
these assholes out of here.
I try to take my life lessons from the US-ly wonders (not worldly, for that we'd need to travel somewhere other than Arkansas): Raging Waters, San Dimas.
Little tidepools for the peeps what can't think on their own and another section for people who want to play helter-skelter and scare the shit outta themselves (muddy waters!!!!).
Filthy Rich Dishonest Cheating Bankriminals...
this is news?
Filthy Rich Dishonest Cheating Bankriminals...
this is news?
Keep going buddy. Obviously you have a following here.
I say get more agressive with talking about attacking others. Why pussy-foot around?
Retail brokers are the filthiest. They rape their clients without their knowledge. They've got so many back door commissions coming in from 3rd parties and none of it is disclosed. They take the same number bps on investments as always while yield for the client continues to decline. All they need to do is bring the business to the door of these other financial institutions and the fees roll in while driving up management fees and killing returns. I see it every day. Example: Broker puts his client in a 5 year note at 2.5 percent and behind the scene he takes 125 bps from the issuing institution. True story.
True that singsing...that is why I, for one, practice the honest way of managing my clients money;
They pay me directly. NO commissions; a percentage of their assets. They make more, I make more. They make less, I make less.
Period.
I am 100% accountable for my trades and positions. The client can fire me if they deem my performance to be sub-standard to their needs.
Bottom line...no bullshit...no excuses.
Even with a loss in FX this year - no one has lost faith - as they know I'll make it up. I won't get paid a dime in that realm until I do.
Performance pay..............
You're still a paper-pusher playing with OPM.
Go get your shinebox, shitty con-man.
1) I beat most all indices with my clients money GMad. Year after year after year (verifiable).
2) The clients can fire me whenever they want to. It's called accountability - look up the word.
3) If I lose money for the client, I do get paid less, and am on the firing block.
4) Con man? Hardly. No, Mr. Stealing lines from Goodfellas, the CON is charging commissions for each and every trade, and no matter how the client ends up, that CON man still banks money - and they always charge the same commission. MY money is dependent on the clients making money - or - in some cases, not LOSING money.
Take 2008. I saw the markets going into a deep downturn - in APRIL...began moving everyone out, and increasing their exposure to gold, cash, PM's of all varieties. I was a tad too early, but stayed the course, and we watched as many others - with commission brokers/alsleep at the wheel dumb ass so-called "advisors" (ones that say they are advisors but are in fact, commission driven) took a huge hit. THEN, in October/November, I bought back in - NO commissions.
Performance. Period.
5) You obviously have no clue as to the advisory business, do you?
People act emotionally with their own money.
It is my job to be objective with it, based on a lengthy question/answer period with each client, based on their goals, needs, risk tolerances. It 's not a "one-size fits-all" world out there.
Some hire me, some don't. Some people are comfortable handling their own money - some aren't.
Lastly.....................go fuck yourself with a red hot poker up your heiney hole - douchebag.
Ha!
Fucktard.
Get that from a movie, you un-original ass.
Beetle you get paid as a percentage of their assets? Meaning for example you charge the client a 1% fee? So if they give you 100k they are paying you 1k a year. I think thats fair and if you do yor job and provide value it's a win/win. However if that is the case if the client loses 10% during the year and ends up with 90k, you still got paid right? Maybe not a grand but you got paid almost a grand. I am not sure how you "won't get paid a dime in that realm until you do" when the client suffers losses.
I am not trying to beat up on you here. I am just trying to clarify.
fonz...see my reply above.
Indeed, I still get paid - but less...but as I said, sometimes it's the protection of client assets, and my ability to protect them from themselves that earns me my livelyhood.
I gave the example of 2008, but I can go back to 2000/2001, 1997, 1994, and so on.
Moreover, the accountability and performance over time is what clients retain me for - or not.
To date, I have a 97% overall retention rate, and only take referrals. No advertising.
Lastly, I am not taking on new clients. The hassle is too much, and the follow up and rules I set down are too rigid for most.
Just clarify it dude! You are totally getting to a better place if you do!
Vic.....see bridge.......go.....climb to the top....see abyss below......close yes.....jump.
Asshammer......
i already know the answers.
If you are a victim of the JP Morgue Mutual Fund "performance" it's hard to imagine wanting to do any business with the bank as a whole. They simply have sucked for so long I don't think they have a clue what good is anymore. This is not some "vacuum" either. This is an EXTREMELY competitive market place and with the financial implosions on Wall Street now happening with striking regularity it is simply a matter of time before this impacts...indeed IMPAIRS the banks ability to do its basic business of providing credit. The scary part is that the Government needs these institutions to succeed so that they don't go bankrupt as well! This is a
ticking time bomb and in my opinion "it's already gone off." you tell me what happens next.
And the Morgue is going to continue to exist long past your existence.
I don't mean to hate on you b/c you are pretty cool, actually. But that fact is true.
You strike me as an angry, impotent ghetto tramp.
Be all you can be...
As someone who values assets on the Street, the problem with this piece is that there are auditors that check every value for anything that is not public stock. There has to to be memo for each asset and the memo explains the rates used, the cash flows used, competitor analysis, market comps, company backround, etc.
The hole is in derivatives since the auditors use the same models or a pricing service like DirectX (owned by JP Morgan). See where it gets messy?
There's no conspiracy. Just a bunch of a=holes who refuse to admit they don't know what they're supposed to know because they don't want to look stupid. That's 80% of the problem right there.