Long and the Short of JPMorgan

rcwhalen's picture

A couple of thoughts on the debacle with JPMorganChase yesterday.  Scheduled on CNBC Squawk Box at 8:00 ET today.  -- Chris



1) Not surprised by the size of the loss or source.  You cannot be consistently right when you trade derivatives.  There are times when the relationships you think exist are badly wrong, with disastrous results.  But I wonder how much Dodd-Frank, Volcker Rule contributed to this outcome.  Lot of change underway inside JPM.  

2) The irony here is that the media and investors alike have attributed magical, super human powers to Jamie Dimon and his colleagues.  But JPM is like everyone else, just a partial monopoly.  The interesting thing though is to see them screw up in structured products.  Again, given the risks the bank takes, not at all surprised to see this type of event.  Just shows how volatile and unpredictable is the investment side of the house. 

3) The other point is that these losses by JPM are entirely a function of the way that exotic derivatives for which there is no cash basis (like oil or gold) create risk that would not otherwise exist.  The losses by JPM are, indeed, self inflicted as Dimon said, and entirely speculative.  

Over the past couple of weeks, we have been hearing of a "change of direction" for the CIO group at JPM.  As I noted here, dozens of people have been let go from this area in the past 6 months due to the Volcker Rule.  The media does not get this part of the story for some reason. 

The JPM CIO area had traditionally positioned the book to make money in volatile markets net short to align with the net long book of the CIO in JPM's vast securities portfolio.

Press reports recently have claimed that JPM was shifting the trading book run by "the Whale" in London to a net long position.  If so, then JPM obviously wouldn't be hedging the portfolio anymore, and would actually be increasing the overall risk of the group.  
Not only would this put them at risk for a big loss, but if the Whale's activity wasn't a hedge anymore, and rather "trading" risk -- then it's not clear that this activity would be permitted under Volcker.
Press reports on JPM and the Whale badly underestimate the impact of the Volcker rule on the trading operations of the large banks.  But Jaimie Dimon seems to have handed his head to Chairman Vocker and the advocates of regulation with this error.  

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W10321303's picture

Another word for psycho speculators....SOCIOPATHS

Capitalism = LONG Term Investment that produces LONG Term Value

America = Long Term Investment in Weapons of Mass Destruction that produces Long Term DISASTER for the entire world

tony bonn's picture

jpm casino - why can't a bank make money lending money?

Shizzmoney's picture

How can ANY customer feel safe with their assets/accounts in JPM right now?

If I wanted to throw my money down a bottomless pit of unknown risk, I'd go to AC and bet my liferoll on a number in roulette

ejmoosa's picture

In a corporate fascist economy, sometimes the corporations are going to have to help the government make the case for their next round of regulations to protect us.


Perhaps JPM is giving the feds an  "assist" to the ultimate objective.

catch edge ghost's picture

Okay, since I'm not a big time banking expert or frequent talking head on financial channels, I'll just say it for you, Mr. Whalen.

This loss... was intentional. Pure political theatre with the sole intention of fluffing Paul Volcker, Chris Dodd, and Barney Frank.

If it had been a legitimate fuck up...
it would have happened at Bank of America or Citi or HSBC, or any where other than in the Fed's favorite guest house.

JPM: False Flag Financial Terrorism For the Motherfucking Win.

Shizzmoney's picture

Interesting theory.  If this was a smaller bank, everyone including JPM would be screaming "BREAK IT UP!". 

But since JPM has Congress and the Fed in their pocket, they know with certainty, they'll be bailed out (again) if SHTF with their liquidity.

This Truth Out tweet really says it all, and add validity to the theories above:

Congress cannot agree on $6 billion to save , yet they quickly agreed on $700 billion to save the banks

Mercury's picture

Probably not the case.


A) It isn't over yet

B) It is exactly JPM's favored status (see above) that gives them the balls to put on massive positions of this nature in the first place.

TuffsNotEnuff's picture

Bingo. Chase and BoNY set up the big auctions, plus their "co-located" computing statuses inside the markets' servers make them think they are invincible.

Plus, as well, their players are immune to prosecution. Dimon lying to stockholders on April 13th was worthy of Bernie Madoff -- recalls the "she's family" line.

Quinvarius's picture

In regard to point A, this loss in credit has the same structure and smell as their PM trades.  Too huge.  Too obvious.  Too wrong.  I see a pattern.  I must make the connection that they are set up like this in every market.  I think JPM is melting down like Fukashima--One reactor at a time.  This is going to get a lot worse.

But at least the QE3 wankers are finally going to get their QE6, with an offical name of QE3.  No loans will fix JPMs problems.  They need to have these positions off their books.

Mercury's picture

If there were no more TBTF policy there wouldn't be any problem here. End of story.

Especially with the monster size and scope of the derivatives marketplace, parsing whether or not a position is a speculation or a hedge will always be the water that gets through the cracks in any regulatory wall, including the Volker Rule.

But if Jamie Dimon's own ass (and those of his partners) is on the line...alone and without any  implicit or explicit government backstop, then JPM can only lie to themselves about risk and you will see behavior adjust accordingly.


TCass's picture

Dimon is not being honest.....JP has $1T in assets that obviously throw off a massive amount of volatility in earnings.

The only way that this group could be down massively since December, is if they are MASSIVELY SHORT the market!!!

I think he needs to admit he thinks the Government is running the economy into the ground and is preparing his book for the economic disaster that is coming...obviously not a smart thing to do when your fate is in the hands of Regulators and unfinished Rule writing. 

apberusdisvet's picture

Just the fact that these big risks are taken certainly indicates that there is truth to the meme that all the TBTFs are technically bankrupt (should mark to market actually return).  Look at the unbelievable balance sheet machinations of BofA, Wells, and the problems at Citi.  End game coming sooner or later?

the grateful unemployed's picture

Secretary of Treasury Dimon, no bad behavior goes unrewarded

sgt_doom's picture

I believe you're on target, good citizen, the grateful un...

But I simply can't understand how JPMC could lose any money on proprietary trading, 'cause MIT faux economist, Simon Johnson, proclaimed from the mountain top that Dood-Frank halted any proprietary trading? ? ?

So, either Simon Johnson can't read -- or refuses to actually read any legislation (RTFL, dood!!!!), or Simon Johnson is the typical MIT (a wholly-owned DoD subsidiary) prevaricator?

Again, we are shocked beyond belief --- perhaps Johnson should write yet another lamer book with that McKinsey stooge sidekick of his?

It can't have anything to do with MIT (a wholly-owned DoD subsidiary), I'm sure, 'cause after all, that's where Larry Summers' uncle, Samuelson (of "let's offshore all the jobs in America" notoriety) was a faux econ prof? ?

And we all know that Larry "women can't do science" Summers (now who was that Polish-French lady who won those two Nobel prizes in physics and chem? ? Has any guy yet won two Nobels in sciences?) uncle couldn't have been a complete douchetard?

Anywho, good comments, sir...


DavidC's picture

"But Jaimie Dimon seems to have handed his head to Chairman Vocker and the advocates of regulation with this error".

Hooray, let's hope so.


TuffsNotEnuff's picture

And remind us again why commercial banks are having employee traders play with derivatives ?????

These are casino bets. Nothing but bets. No ownership of anything tangible at any point in the derivatvies system. Nothing but claims of debt against other financial players.

Not suitable for commercial banks.

blunderdog's picture

Come on, now.  Let's try to be fair.

Banks can't make any money in a ZIRP-world populated by paupers. 

They just don't have a choice.

GMadScientist's picture

Exactly. These incompetent ass-clowns are precisely why oversight is necessary.


Esculent 69's picture

And that oversight is called returning to Glass-Steagall!


All Risk No Reward's picture

None of you understand the game afoot.  The Fed's mandate would have prevented this bubble bust operation, but you don't know what the Fed mandate is because the FED LIES about it and guys like Whalen are either ignorant or deceptive, but the end result is they never call the Fed out on their lies.

Federal Reserve Act Section 2A. Monetary Policy Objectives

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

[12 USC 225a. As added by act of November 16, 1977 (91 Stat. 1387) and amended by acts of October 27, 1978 (92 Stat. 1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000 (114 Stat. 3028).]

Read it!  The mandate is singular. 

"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production"

There is no dual mandate - it is THE BIG LIE engineered to hide the face that the Fed CRIMINALLY broke its own REGULATION and took monetary and credit aggregates PARABOLIC to the economy's long run potential to increase production.


With all politicians (including Ron Paul), with all media, with all "education," with everyone providing cover for these criminals.

Remember, the biggest cause of the Greatest Depression is the criminal Greatest Credit Bubble in human history!

The mentary system is a fraud engineered to asset strip society.  A flow chart explaining how this works is below...


Be sure to save these and pass them around - I might end up in a "re-education camp" for political activists (those that tell the truth) the Army admiotted setting up for U.S. citizens.


Can't stop the signal...  but don't expect anyone "big" on TV or gets lots of cash from the "establishment" to ever tell you the truth.

sgt_doom's picture

Actually, you make some excellent points.

According to Dodd-Frank, this should have been handled most covertly and quietly at the private clearinghouse level, with none of us the wiser.

It truly does smell worse the Ann Coulter's private parts on the hottest of summer days.....

GrinandBearit's picture

JPM loss is a non-event.  One week from now, it won't even be a blip on anyone's conciousness... guaranteed. 

I bet the market will close green today.

francis_the_wonder_hamster's picture

"I bet the market will close green today."

Crap.  One hour in and we are already green......

Whalen is (and has been) right about cash-settlement.  The lack of tranaparency (and real liquidity) practically guarantees events like this.

Quinvarius's picture

The market hears the printing press warming up to bail JPM out.

GrinandBearit's picture

Cramer was bearish this morning and saying he was wrong about Dimond and JPM... that = bullish!

S&P already up 10 points... market WILL close green.  I don't want it to, but it will.

An nuclear bomb could blow up on floor of the NYSE... it would be bullish -lol 

Zola's picture

Could we get some updates on what the DIV0 of the Gold manipulative position is ? 

lunaticfringe's picture

Didn't some guy name Corzine put up a big cash offer for the CEO gig at JPM?

geno-econ's picture

SEC has been yet again caught with their pants down in regulation enforcement responsibility for which they are taxing sales transactions. Shapiro does not look so good. 

DollarMenu's picture

What does it matter?

When has Shapiro ever looked good?

MOTS to infinity.

Ted K's picture

Good to see you're still making apologies and rationalizations for the big banks Chris.  Keep working extra hard to slyly imply the Volcker Rule somehow "confused" the head of JP Morgan's CIO unit into making proprietary trades.  Your extra effort shows your career bond with TBTF banks. A 12 year old could do a better job of concealing his first crush than you do your tie-in with TBTF banks. How many free meals, wines, and whispers on bank portfolio exposures do you get out of this crap Mr. Whalen???  

Good to see when the bankers are catching the heavy heat from their own actions, you drop the usual Whalen "copy and paste" propaganda into full blown "damn I guess I'm gonna have to type this myself to give this the proper spin" mode.

piceridu's picture

+ 2 billion... Upton Sinclair said it well: It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

11b40's picture

+100....Whalen was good on the R.E. issues, but everything I have read from him in the past year or so has just been crapola.

PulpCutter's picture


Far from doing away with Dodd-Frank, we need to go further, re-instating Glass-Steagall and 'unit' local banking laws.

American banking operated under "unit banking" laws, until the mid-1970s, requiring nearly all banks to be local.  A local bank lived and died with the local economy, which had the effect of strongly focusing the bankers on how best to 1) build the local economy while 2) maintaining prudent lending. This was a difficult balancing act; requiring realistic prudence, an entreprenurial streak, and deep knowledge of local businesses and businesspeople. Many people failed at being bankers, as should happen in such a competitive field, but the one's who made it were good at what they did.

Think the national megabanks give a rat's ass whether a Youngstown, or a Detroit, continues to go to seed? Instead, they bet against recovery of those local economies, with derivatives.  With unit banking laws gone, bankers now compete on who can best game the system, and who's the most amoral liar. Think I'm overstating the case? Talk to anyone who works on WallSt about what it takes to make it up the ladder.

We have plenty of stimulus - God, do we have plenty of stimulus.   The problem is it's not making it to the private, productive (that is, non-banking) sector.

The banks arguments for doing away with unit banking laws were that allowing conglomeration would 1) spread local risk, making reliance on the FDIC less common, and 2) allow the banks to finance bigger projects.   Reliance on the FDIC has, instead, gone way up, now that unit banking laws are gone.   Under unit banking laws, we grew huge capital-intensive industry titans such as USSteel, Standard Oil, Ford Motor, etc.; without those laws, all we've grown is an oversize banking sector.

Crash2012's picture

While I completely agree we need to return to Glass-Steagle, I do not think we need to return to 'unit banking'.  There are some states in the country that tend to be 'cash poor'.  Instead I would suggest we limit commercial banks to federal reserve districts.  IMHO this is why the deregulation in the 80's worked until we reached the nationwide mergers of the 90's.

Last year was the first year since the 1930's that no new banks were established in the US.  In other words, we have so many regulations from Dodd-Frank that nobody can even start a new local bank.  Dodd-Frank must be repealed.

I would also demand a total audit of the federal reserve.  The Fed should also report every DAILY transaction as they occur!

Secrecy leads to distrust, not stability!

myshadow's picture

I hope someone can help me with some comprehension.

This supposed to be related to corporate credit in some way.
In various accounts this transaction(s) are referred to as ‘bets’ or hedges.
In simple parlance, since at least 2 Billion was ‘lost’, was this a stack of dollars 2 billion worth?
What was the wager?
To whom?

About what?
Is it, in essence a promissory note?

My spidey sense has a bit of MF Global scenting the air.

sumo's picture

I've noticed that Chris has been back-pedalling ever since he joined forces with Tangent Capital. Before then, Chris was straight-up in his analysis.

GeneMarchbanks's picture

Nope that can't be it, Jim & the team are straight as they come. You should trust all them folks.


NEOSERF's picture

When one sees such backpeddling, one wonders if $2b is the right number or is it much larger...someone activate Ben's tracking chip and see where he is this morning...

geno-econ's picture

$2 billion a small number compared to $700 trillion in interest rate, currency and CDS derivatives. Illustrates potential losses associated with EU defaults, civil unrest, and liquidity traps.

chdwlch1's picture

Good thing JP Morgan and BofA moved all of that derivatives exposure over to the retail side of their balance sheet.  Sure was cordial of the Fed to allow it too...US taxpayer bailouts of the TBTF banks is the end game.  Anyone know why the US taxpayer is on the hook for derivatives bets that are made out of London offices just to skirt US regulations?  There is so much fraud, it's tough to know where to even start to clean it up...but breaking up the TBTF banks to limit the potential damage sure would be a nice start... 

rufusbird's picture

It is logical to assume that the way they treat the smaller amounts is the same way they treat the larger amounts...

Cursive's picture

Chris sounds more concerned about the effects of the Volcker rule and less concerned about the careless activities of a taxpayer-backstopped monopoly. Disappointing analysis.

Screwball's picture

What do you expect from the same guy that wrote an article on here telling us to vote for the pig Gingrich.

If it wasn't for my dislike of JPM, I would have never read this since I told myself never to read CW again after the Newt piece.

Now he really confirmed why to ignore him.

Debtless's picture

I wish there were heads on platters. But alas...fat fingers, rogue trader stories, and vaporized fund excuses is all we are due.

Wake me when the revolution is ready.

disabledvet's picture

The question you need to ask Chris is WHO ELSE? Of course we have learned nothing. There is nothing more stupidly human than to double down on stupidity. The RARITY isn't firing Alan Greenspan and getting Ben Bernanke...the RARITY is Ben Bernanke actually changing the policy! So your question SHOULD be "Who's Next" since "if Jamie Dimon is doing it so is everyone else" yes, yes? THAT is proper "risk management" and not "send in the clowns" bullshit we are subjected to by the other criminal syndicate called The Media.

Gloeschi's picture


1) you can't always be right. Our fault assuming otherwise

2) Jamie is just human. Our fault assuming otherwise

3) it's entirely the underlying's fault (no cash basis???).


davhay's picture

Any grown man named JAMIE deserves what ever he gets and then some!