What Was The Ultimate Cause Of JP Morgan's Big Derivative Bust? The Shocker - Ben Bernanke!!!

Reggie Middleton's picture


S&P and Fitch finally downgrade JP Morgan, 3 years after my initial multimedia warnings (see Listen Carefully...  for the details). Unfortunately, despite threats and ruminations, these rating agencies again act in retrospect, failing to do anything but remind stakeholders of the losses they have already taken rather than assisting them in avoiding losses.

So, what are the rating agencies missing?  They're missing the fact that nearly all of the big money center banks are doing exactly what JPM was doing and they have no one to rely upon but themselves when things go awry from a counterparty perspective. Bennie Bernanke has instituted perpetual ZIRP, and as such has basically broken the banking business in his attempt to save it. Through ZIRP, banks simply cannot make money doing things that traditional banks do, ex. profit from lending. As such, they reach for yield, and that's just the conservative ones. The big boys take baseball bats swinging for home runs, either consciously or subconsciously sanguine in the protection of the Bernanke flavored taxpayer put under their respective businesses. With such protection, already historically proven, bank managers are getting progressively more aggressive and increasingly less aware of the term "RISK adjusted reward" as they simply seek rewards. Alas, I'm getting ahead of myself, let me explain...

The JPM prop desk that held the losses which generated headlines earlier this week was marketed as a hedging operation when we all know it was anything but. What it was was a concerted grasp for yield and profit in a ZIRP environment where JPM (one of the world's largest congregations of interest bearing assets) was bearing effectively no interest.

Banks need to make money too, hence when there's no money to be made in traditional FI yields, the banks start reaching, and they tend to start reaching farther as desperation to make the next quarter mounts in the face of BoomBustBlog reading investors who may be able to see past earnings stuffing stemming from less than prudent reserve releases consistent underprovisioning.


 The BoomBustBlog subscriber document JPM Q1 2011 Review & Analysis illustrates the point of JPM's waning ability to make money by making loans and holding debt with perfect clarity, and did so a year in advance....



So, what do you do if you're a bank but you can't make money lending? You gamble, that's what you do! It's not like JPM hasn't gambled before, and it's not like they haven't lost money gambling...


I put out what I consider to be some of the best predictive research available. I also put an inordinate amount of info out for absolutely free, particularly in the case of those big names as in the employer of Voldemort. For those who have not read my seminal piece on Dimon's house of Morgan, file iconJPM Public Excerpt of Forensic Analysis Subscription published nearly three years ago, allow me to take the liberty to excerpt it for you...







Hmmm... Tell me if you get stuff like this from the rating agencies.... This is a good time to bring up that Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts


Continuing my rant on the effectiveness (not) of the ratings agencies, I bring to you an interesting documentary on the rating agencies' effect on the sovereign debt crisis in Europe, produced by VPRO Tegenlicht out of Amsterdam. You can see the full video here, but only about half of it is in English. I appear in the following spots: 4:00, 22:30, 40:00...  Reggie Middleton Discussing the Rating Agencies effect on Sovereign Europe

The next post on this topic will outline and illustrate several banks whom the agencies need to downgrade NOW, as in RIGHT NOW. These banks are, of course, JPM counterparties. In the meantime and in between time, follow me:

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Here's a subscription dump of our archives for JPM to placate the insatiable thirst of the BoomBustBlog paid subscriber:



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SmittyinLA's picture

I wonder how the state of CA is doing with all their speculative bets?

Buck Johnson's picture

So in essence these banks and financial systems are getting almost nothing in interest for the billions they invested.  So to make money they have to make riskier and riskier bets in order to make a profit.  And if made wrong then they are stuck with that error and they either double down and hope for a win and then some or they double down and lose more without a way to pay it back.

SmittyinLA's picture

Can a state "short"  its own bond insurors?

Sarge's picture

Ok so if JPM is in the tank and all the other banks have been doing the same thing then would i be amiss in saying it is soon over for the economy?

Carl Spackler's picture

Possible answer to Reggie's ultimate cause question:

Is is that Jamie Dimon is a Greek?



chumbawamba's picture

The Shocker:

Two in the Pink, one in the Stink

She never had it so good.  Thanks, Ben!


indio007's picture

OMFG the three finger mooey!

OpenThePodBayDoorHAL's picture

But, but, but...are you Chumbawamba?

Monk's picture

The ultimate cause is government working for Wall Street.


tarsubil's picture

What happens when the tightrope walker carries a balance pole that weighs 200X his body weight? Hey, it's balanced so the net weight is 0, right?

ebworthen's picture

Good calls Reggie; shame that Washington and Wall Street are allergic to reality.

Budd aka Sidewinder's picture

If you're still doing your retail banking with JPM/Chase, wake the fuck up and move your money to a regional, local bank, or a credit union.  That's an easy step and a tiny way to punish these arrogant nihilists.

Budd aka Sidewinder's picture

If you're still doing your retail banking with JPM/Chase, wake the fuck up and move your money to a regional, local bank, or a credit union.  That's an easy step and a tiny way to punish these arrogant nihilists.

Yardfarmer's picture

financial Fukushima. terminal derivatives cancer. 



MrBoompi's picture

Is that QE I smell?

falak pema's picture

So Reggie which weasel will go pop first; the JMP fortress or the French wall of cards; when Euro zone melts down...

rsnoble's picture

Just ask my retired dad planning to live off interest how happy he is with these fucking assholes. 

One fucked up move after another until total collapse. Anything to stay in power. 

As for the homerun comment......anyone here should know the success rate of that. 

One thing's for sure.............having a lot of $ has nothing to do with intelligence in many cases.

rsnoble's picture

BTW I liked an article I read awhile back when the big boys proclaimed that they were upset because the retail investor was gone and that "the retail investor is our bread and butter". That should tell you everything you need to know to stay out of the market unless you are a good t/a trader.

Also don't forget this:


We'll have to see where the bounce comes in, currently an H&S formation is playing out.  I won't be surprised to see a huge influx of "horseshit fabricated goody good better than good" news coming soon.  Question is can they get this POS to a new high? I mean afterall this is just a healthy correction lmfao.

Widowmaker's picture

Shillin Middleton.

Banks starved?! What about savers?

EFNuttin's picture

Point taken, the savers are getting eaten alive by the actual inflation numbers, not the absurd BLS ones.

However, visually, this article is hard enough to follow without covering an entire second set of stakeholders.

Sandmann's picture

This would be original if it wasn't simply the Endgame of what has been happening for >20 years. Banks have been increasing Risk in terms of "picking up nickels in front of steamrollers" and trying to score off the Yield Curve by Leverage. This goes back to Wasserstein-Perella at First Boston. The pyramid was in Corporate Finance manufacturing products for Junk Bonds to be traded. The financialization of the US Corporate Sector was the beginning of this Pyramid and it was the need to feed Bond Traders with new flavours that corrupted the whole system - Drexel, LBOs, Asset Stripping - the works.

This is the Destruction of Western Capitalism nothing less. The future is State Control - the issue is simply who controls The State ?


WhyDoesItHurtWhen iPee's picture



touche!  Fed, Gov, Finance has blurred into one entity.

"We are at one, with Landru.  Everything is Landru,"   (Star Trek)

CreativeDestructor's picture

Finally, someone mentioned Fed. Media and corrupt sell side analysts are so retarded, Fed hasn't even occured to anyone.

Dimon should direct all further questions to Ben Bernanke. MoFos.

Zero Govt's picture

"Bennie Bernanke has instituted perpetual ZIRP, and.. has basically broken the banking business in his attempt to save it."

Brilliant point Reggie

..and as you say Bennys policies are making gambling junkies like Blankfein and Dimon even bigger gambling junkies ...what a banking industry we have to look forward to... 'Fixed by the Fed'

Who would have thought it, Govt policies having the exact opposite effect as they paint on the tin ...like every other policy

Govt does not provide solutions, they are the fuking problem

NotApplicable's picture

Well, except for the fiction that any sort of business is trying to be "saved." It doesn't take a genius to realize that ZIRP4EVA is the end of ALL financial businesses that rely on interest revenue.

Once one realizes that even entities such as JPM are still merely abstract shells, the game of wealth transfer takes on much larger dimensions. All others will eventually follow suit with only the CBs (along with BIS/IMF/Worldbank) left standing at the end.

Remember, the easiest way to alter a system is to destroy it's ability to function, then allow TINA to provide the only tolerable solution.

shovelhead's picture

Very good stuff Reggie. Professional analysis that is understandable to the layman who may still operate with a tendency to rational thought and common sense.

Sometimes modern banking makes this tendency a liabilty to grasping what the hell these guys are doing. The tower of JPM's derivitave exposure is truely a sphincter tightening mountain of fail waiting to happen that will infect everybody with paper assets globally.

Your ZIRP take makes sense out of what seems to be irrational behavior by the biggies.

I, and many others here at ZH, appreciate your sharing your work here.

realtick's picture

I agree - Reggie one of a kind.

GCT's picture

Yes thank you Reggie for making complex issues understandable to those of us that otherwise would be in the dark.  A big Thank You to ZH for posting his articles as well!

tom a taxpayer's picture

Reggie - Thank you. You back up what you say with relevant data and insightful analysis. The contrast between your predictive analyses warnings about the horses getting rambunctious in the barn vs the rating agencies counting the horses after they flee the barn is priceless.

But key point: it's not the just the data or the analysis. It's that you have the balls to make the calls!

Alpine's picture

JP Morgan as a Federal Reserve shareholder, Bernanke's loyalty having three stakeholders goes first of all to its shareholders, largely before addressing the interests of the US citizens or government.

Shizzmoney's picture


That statement really goes to show who the country's rulers are.  It's not the Congress or the POTUS; it's the Fed Reserve and it's Board of Directors, who are filled with crinimals like Dimon whose only allegiance is to himself, not his country. 

Fascists, the whole lot.

cranky-old-geezer's picture



That statement really goes to show who the country's rulers are.  It's not the Congress or the POTUS ...

"Give me control of a nation's money and I care not who makes the laws."   --- Mayer Amschel Rothschild, founder of the Rothschild international banking dynasty.

johnnymustardseed's picture

JPM is the problem, downgraded by Fitch and S&P with outlook negative, but still able to get free money from the FED. I want to be a primary dealer, I have excellent credit... Seriously, we are so doomed!

slackrabbit's picture

Count me...I have this yellow metal... 

Zero Govt's picture

Bernanke soon to be seen as backing financial gambling junkies which'll put a hole in Blankfeins PR exercise to educate the public how valuable banking is to the economy

talk about shooting yourself in the foot on the launch pad

And we had someone calling for Dimons resignation from the Fed... can the embattled on the defensive Bernankes reputation possibly get any worse?

mendolover's picture

Becky Quick.  Woof.

CrimsonAvenger's picture

And Ben Bernanke is the fluffer.

Element's picture

The cock that went soft.

falak pema's picture

if it goes soft on one continent you can be sure its going very hard in other places...