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How JPMorgan's $5 Million Loss Rose 80-Fold In Minutes After "A Confrontation Between Traders"
Actually that title was misleading: there will be no disclosure of "how", because we don't know. What we do know is that thanks to the magic of JPM's definition of "Mark-To-Market" accounting, a $5 million prop trading loss (and thus forbidden by the Volcker Rule) funded by depositor cash as it took place in the infamous CIO unit whose job was to manage "excess deposits" in a prudent manner, became a $400 million prop trading loss in the span of 88 minutes. But not during trading - the market was long closed. The adjustment was purely on paper.
From the JPM Task force report on the CIO "London Whale" fiasco, as referenced yesterday:
April 10 was the first trading day in London after the “London Whale” articles were published. When the U.S. markets opened (i.e., towards the middle of the London trading day), one of the traders informed another that he was estimating a loss of approximately $700 million for the day. The latter reported this information to a more senior team member, who became angry and accused the third trader of undermining his credibility at JPMorgan. At 7:02 p.m. GMT on April 10, the trader with responsibility for the P&L Predict circulated a P&L Predict indicating a $5 million loss for the day; according to one of the traders, the trader who circulated this P&L Predict did so at the direction of another trader. After a confrontation between the other two traders, the same trader sent an updated P&L Predict at 8:30 p.m. GMT the same day, this time showing an estimated loss of approximately $400 million. He explained to one of the other traders that the market had improved and that the $400 million figure was an accurate reflection of mark-to-market losses for the day.
And that, ladies and gentlemen, is how "mark-to-market" is implemented in the current commercial bank prop trading units - through a "confrontation between traders."
We learn all this in the Task Force report. What we don't learn is why there was a confrontation, what was the basis for the mismarking, and most importantly, how it is possible that in JPM's wacky Schrodinger world, a Marked to Market loss can be $5 Million and $400 Million at the same time, depending on who a "confrontation" takes place between. Perhaps in JPM, Mark to Muscle is a more appropriate estimation of what is going on.
Why should readers care? Because this 80-fold delta in potential losses is funded, and thus impacts, something dear to all those who have savings at JPM. Their money. Money, which should not be used to speculate in fashion that means an a full wipe out of capital is purely in the eye of the beholder.
What it also means for all other "mark to market" estimates of JPM, and all other banks' profitability, we leave to readers to infer.
Finally, some much more deserved criticism of the JPM's Task Force "report" comes from Bloomberg's Jon Weil:
[H]ow did JPMorgan’s chief investment office, which manages deposits that the bank hasn’t lent, go from being a conservatively run risk manager to a profit center speculating on higher-yielding assets such as credit derivatives? The company’s report, conveniently, said this pivotal question was outside the inquiry’s scope. It’s worth noting that it was Dimon who pushed for the transformation several years ago, as Bloomberg News reported last spring.
“Although the task force has reviewed certain general background information on the origin of the synthetic credit portfolio and its development over time, the task force’s focus was on the events at the end of 2011 and the first several months of 2012 when the losses occurred,” the report said.
The head of the task force that produced the report, Michael Cavanagh, is the co-CEO of JPMorgan’s corporate and investment bank. So it isn’t as if there was a pretense that this was some sort of independent review. The company didn’t disclose the task force’s other members.
The report dodged important disclosure issues. The facts in the report suggest there were serious shortcomings before 2012 in the internal controls over JPMorgan’s valuation processes. Some employees manipulated the numbers to make the trading losses look smaller. And when JPMorgan restated its first- quarter 2012 results last summer, the company acknowledged it had a material weakness in its controls as of March 31. Yet the bank hasn’t amended past disclosures to show control weaknesses in any earlier periods. Why not? This week’s report didn’t address the question.
Another example: During an April 13 call with analysts, about a month before JPMorgan began acknowledging the magnitude of its losses, Douglas Braunstein, JPMorgan’s since-demoted chief financial officer, said “those positions are fully transparent to the regulators” and that the bank’s regulators “get the information on those positions on a regular and recurring basis as part of our normalized reporting.” The statement wasn’t credible then. There’s no reason to believe he had any basis for the remark. Yet the task force’s report didn’t touch it.
The report also included this bizarre disclaimer: “This report sets out the facts that the task force believes are most relevant to understanding the causes of the losses. It reflects the task force’s view of the facts. Others (including regulators conducting their own investigations) may have a different view of the facts, or may focus on facts not described in this report, and may also draw different conclusions regarding the facts and issues.” In other words, we haven’t been told the whole story.
And this is the opacity that one gets when a firm sets off to expose what should otherwise be perfectly public information in the first place. One does start to wonder: if America's banks go to such great lengths to mask how ugly the behind the scenes truth really is, is the true undercapitalization of the US banking sector in the trillions... Or tens of trillions?
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This is a bit hard to understand.
All your assets are belong to us.
At least the ones we HOLD. Lesson: hold your own.
What's hard to understand about fraud? JPM is an insolvent bank, period. They are risking taxpayer dollars and leveraging themselves to the point of no return, as they know damn well that their incompetence will be "bailed out". The truth is they just don't fucking care because caring requires responsibility and knowledge.
JPig has neither.
The simple explanation is this:
for every $100 you've deposited at JPM, you owe them another $8000.
it is all a game
how you you play?
Like this:
http://www.youtube.com/watch?v=-f5S7e5G5-Q
Or this:
http://www.youtube.com/watch?v=4AEr8LdueLo
price discovery!
and even when the price is manipulated/regulated/legislation, you still have *volume* discovery
Excuse me but is this piece of paper worth 5 or 400?
Please step into the Thunderdome and we will figure it out.
Absolutely perfectly stated TheFourthStooge-ing.
From the FT Tuesday September 25th 2012: "CDS indices gamble on swaps that do not exist"
"Wall Street financial engineers have devised a new way to combat declining trading in the credit derivatives market - they are revamping an index to add financial instruments that do not exist."
Skip to: "This week the index provider "Markit" will cross a rubicon and begin to include three companies in its North American high yield CDX index for whom no bank is offering a CDS."
It's a high stakes game of bucket shop bingo where the winners win big and the non-winners are reimbursed their losses.
The losers (depositors and taxpayers) don't even know they're a part of the game.
They are risking taxpayer dollars and leveraging themselves to the point of high return. Fixed it.
People say you can't eat Gold, but the public sure can and will eat losses doused in fraud sauce. Bon appetit.
Millions? Oh shit, I thought they said 'billions', so I guess it's ok.
Nothing to see here folks, move on.
Tylers ~ Come Monday... you can add Tom Brady & Bill Belichick to that picture collage of 'traders' with the OMG hands stuck to their faces...
~~~
Just trying to give you a 'jump' on the weekend headlines...
"risking taxpayer dollars"
And customer deposits!
I'll try to make it simpler: JPMorgan has employees that go against the law, play with their customer's and the future bailout (taxpayer's) money and don't even know how much of it they destroy. Then they lie about it, but so badly that it's utterly idiotic and shameless
Nevertheless, their company is politically too well connected, too important to prosecute and when the next bailout is needed it's too big and "systemic relevant" to fail
now excuse me, got to puke - btw, great article, Tyler
Brilliant summary Ghordius
thanks. apparently JPMorgan brings the best out of me - and my lunch, too
how long until we all realize that those Financial Tyrex are shitting all over the planet? this is not a trickle, you know?
break up whatever is above the law - works with tyrants, works with MegaloBanks
I'm sure we'll get a heart felt apology and a bunch of new laws to protect us. <sarc^88>
I repeat:
From the FT Tuesday September 25th 2012: "CDS indices gamble on swaps that do not exist"
"Wall Street financial engineers have devised a new way to combat declining trading in the credit derivatives market - they are revamping an index to add financial instruments that do not exist."
Skip to: "This week the index provider "Markit" will cross a rubicon and begin to include three companies in its North American high yield CDX index for whom no bank is offering a CDS."
What do you mean "hard to understand'? /sarc
By using a copula function (e.g., Gaussian copula), the CDS pricing model assumes a joint distribution of x1 and x2 that is bivariate normal. The “magic” of the Gaussian copula is to take as inputs marginal (unconditional) distributions and return, via the copula function, a multivariate normal distribution. Marginal distributions are “joined” via a copula function.
How many times must I explain it. Now where is my bonus???
excellent explanation, you just remember me about something: stop CDS copulation
ban that hideous stuff that belongs in proper sin-taxed casinos, not in banks
and I repeat (for the last time):
From the FT Tuesday September 25th 2012: "CDS indices gamble on swaps that do not exist"
"Wall Street financial engineers have devised a new way to combat declining trading in the credit derivatives market - they are revamping an index to add financial instruments that do not exist."
Skip to: "This week the index provider "Markit" will cross a rubicon and begin to include three companies in its North American high yield CDX index for whom no bank is offering a CDS."
I get it...
$700MM loss on paper (which never happened)
$300MM profit in real (which did happen)
$300MM - $700MM = -$400MM (ummm, don't know what to call this)
$400MM(LOSS) - $300MM(PROFIT) = -$100MM
Soooooooo... $100MM (loss on paper) = $100MM tax credit... the Govt owes/gives them more $$$
It's impossible to follow. One trader said boo to another trader, then got mad at the third trader, while the latter trader came and predicted 5 million so the former trader and the fourth trader traded trading cards.
'This is a bit hard to understand.'
One trillion, 10 trillion, what's an extra zero (or three thousand) between friends right? We're all in this together! We're just in this more than you, muppet. Its a big club . . .
It's pretty simple. They stole money from you, me, our kids, and our grandkids. There used to be police who would stop thieves like this but there aren't any more. There also used to be a government that would hire police and make sure they did their job, but it's gone too. It's been purchased by the thieves and now works for them, not us. Any questions?
"...is the true undercapitalization of the US banking sector in the trillions... Or tens of trillions?"
Answer: hundreds of trillions
Oprah: Jamie, we're going to start this interview with yes and no questions, ready?
Jamie: Yes
Oprah: Are you a lying sack of shit scumbag that should be getting gang banged ass raped in a federal pound me in the ass prison?.......
Jamie: Yes PLEASE!!!!
Truth is treason in the empire of lies - Ron Paul
What's the difference, $400 or $700 mil, the FED has more than likely covered it.
These dayz, things like this are easily dismissed as "witch hunts."
Mark to Market means whatever you want it to mean.
Yup!
Mark to Market = Mark to CMA (cover my ass) ;-)
@Cog Dis
Just numbers on a piece of paper. The essence of fiat.
Actually more like one's and zero's on a RAM chip. :)
Power failure. Now what do we do? Oh well, guess we just start all over again.
the whole thingie about markets is each protagonist choses his risk to return profile that the market then appraises and salutes or condemns. In a manipulted market it only goes one way : the way the monopolies want it to; your risk return profile has no meaning per se, as the market has no free will nor true intelligence. blind and mute!
"In a manipulted market it only goes one way : the way the monopolies want it to....."
(Mark to) markets don't move, they are moved.
yep, but there is no penalty if you don't move the mark, when you "make" the market. Whereas for the small guy who "takes" the market he is left totaly out in the cold (when he shorts the asset for not having been marked correctly).
Riskless markets with no urgency for some and risky as hell for others.
Just the way they like it.
Rigged in their favor.
apparently inspite of their impressive monetary power they still make panicky plays like this one; when you run out of bubbles to blow up you lose your grip on your already bloated P& L.
Yes but in a Level 3 asset, such as a CDS, price discovery is limited or non existent therefore the asset is marked to fantasy.
It means "mark to amount that optimizes my bonus calculation."
Is there no honor amoung thieves?
They're more guidelines than actual rules.
PARLEY!
@The_Dude
"Is there no honor amoung thieves?"
NO, not since you dropped the u in honour - put it back in. HONOUR
yes, but don't you see - he put the dropped u in among - so undude like.
as hard as he might try, Dimoned will NEVER catch on ........it will always be Corzined !
Under Capitalization? Is there an algo trading that?
The Market used to care about and discount elements such as these....now, no one cares about suce trivial matters as under capitalization.
Is it any wonder people like me want these fuckers pulled outside, lined up against a wall and shot?
No fucking accountability for any type of behavior, no matter how it affects the public at large?
These fuckers are beyond the sublime, because they are are beyond the law. This needs to be changed. These fucking idiots need a DETERENT, a DETERENT that will stop this filthy, fucking corrupt behavior. Fucking yesterday.
Cunts, each and every one of them.
You better be careful...I'm afraid your heart is going to blow up one day. I suggest silent meditaion, or heavy medication maybe some ludes (do they still make those?) which ever works best for you. :->
ludes (do they still make those?)
no
Showing my age.
Lance Armstrong is a shoe-in for a senior management position at JPM.
Why do stories like this always get me to thinking about Froot Loops?
cat crap bankers, so good at covering their stinking mess! with the help of their little kitten friends in Washington
Why fucking mark anything? Just randomly pull a number out of your ass depending on which way you want the trade to go and be done with it. Profits for everybody, no matter which side of the trade you're on.
When you have Benny printing flying carpets of cash, your wish IS his command.
the guy made 300 million in minutes who is surprised. Now, where did I leave my tulip bulbs?
A trader told a trader that a third trader told the first trader's trader.... What the heck?
That a $5M loss was a $400M loss cuz the market improved?
Someone's pulling a chain here...
Although I get the point behind how M2M is a ShamShow.
I thought it just meant the traders had no clue at all which way the market or their `p&l` was moving. Presumably because they were badly hung over and twitchy from the cocain working its way out of their systems. Probably a friday morning after a thursday evening of excessive consumption, hookers and self congatulation about how good their upcoming bonus pool was looking.
Binker Binkerton.
2008 to present: Treasury Secretary to unnmamed bankers: You hold off on foreclosures of people's homes, and the US government will not make you (enforce, snoop around,prosecute) mark to market.
What would happen if every savings account holder at JPM/Chase wire transferred their account to BMO/Harris?
We'd get to read about Jamie Dimon sharting his pants.
The Fed would accept whale turds as tier 1 capital. JPM Fixed and saved by whale turds.
Actually, ambergis is likely more valuable than much of what passes for Tier 1 capital...
You are correct!
Wonder why they wont accept the peoples capital, only liars and criminals??
"is the true undercapitalization of the US banking sector in the trillions... Or tens of trillions?"
Without a shadow (no pun intended; well, ok) it is - 10's across the board.
Fuck all the Morgans. I'm sure they even stole someone elses horses and killed the real breeders.
They can be polite until things get serious. Then they have to lie.
It's no wonder why jpm and the squid never lose. They can write down whatever numbers they want.
Well, within the rules of fight club, that is.
Pity they were forced to violate the first one.
Who said what to who ... well, he said, she said, you said, we said, they said.
Fuck off you absolute cunts. You're fuckin useless ... is that what he said? ... well if not, I SAID. Twats.
JPM confrontation training:
http://www.youtube.com/watch?v=kQFKtI6gn9Y
Of all people, they should know it's only funny money anyway.
funny how as of yet not a single person has walked into the headquarters of one of these dens of sociopath bankers and emptied all clips on the paristies attempting the bleed humanity dry...
it is a trend that deserves reversal..............
Almost certainly the traders involved in the confrontation described were males, and equally certainly this was nothing more than a primitive dick measuring contest. They should all be jailed without parole and given plenty of opportunity to have their confrontations in the shower - where they belong.
My understanding is that the head of JPMs CIO (tht "top" trader) at the time was Ina Drew and I believe she has a vagina. Should she be in the shower with the guys??
She is - er, has - an asshole doesn't she? Why not?
When this really gets serious, these guys will cannibalise each other without a shred of concern.
If not when put against the firing wall they'll cry and bitch at each other, anything to weedle out of admitting guilt.
Just shoot them all and be done.
I work in the accounting and auditing industry, and it's always amazed me that the accounting powers that be spend tons of time and effort writing and rewriting auditing and GAAP standards ever year, making it more and more difficult for anybody except for the big 4 to do a corporate audit (thereby pushing audit fees up on small businesses), but they don't do shit about mark-to-fantasy bank accounting. The FASB's behavior is shameful and they are totally complicit in this fraud.
On a related note, I'm sure Eric Holder is dilligently working on charing Dimon for violating Sarbanes Oxley, as he certified the effectiveness of JPM's internal controls /s
Exactly. An audit is about discovering the accuracy of what is recorded on the books. EXCEPT when it is an audit of government, central bank, or Wall St firm. In that case, just take their word for it! Completely sold out. I knew it when I heard about the 'suspension' of MTM some, what, 4 years ago now?
The bankers on Wall Street understand the bonus ramifications game better than the rest. The numbers drive one's compensation, so control the numbers as best you can, and you steer compensation.
Therefore, every time the audit wonks or buy-side participants or regulators think they have an answer to how the new product really works or how the product works for my needs, or hoe to account for the product or how to regulate the product, the Street "moves the goal line" by layering new features (e.g., optionality) onto the product.
By maintaining a moving goal line, the Wall Street guys cannot be challenged and control the numbers.
I wonder what the equivalent to HFT is in the judicial system? They will need to clear the wreckage when this monster jumps track.
How can a picture of such misery bring so much joy? Its the little things in life i get pleasure from these days.
.... Mark to nothing, JPM can vaporize as much money as it wants. Heads they win tails they win, its TBTF and there is no accounting for losses.
Socialized losses ..Bitchez
For Sale:
One uncirculated platinum coin. 1 Trillion $ US. market value *
* Or best offer.
ZHedgers:
JPM's Propaganda Machine is just not working at all well right now.
And with the Inauguration next week, the PPTs are going to want to goose the general market as much as possible.
Ergo, next week is a great time for those on OUR side of the market to attempt a significant Gold and Silver Rally, with the PPTs too preoccupied elsewhere to stop it. Take out a few resistance points, and we could be off to the races.
And Yes, Yes, I know it's not normal Seasonals. But we had a very ABnormal December into early January, with the PMs and Energy stocks being kept artificially quiescent while just about every Bleep stock in the market was handed a ridiculo-Rally.
Not at all fair. Rather silly. And now, it should be OUR turn for a little Market Love.
May I suggest sending, on Inauguration Day, 10 cases of Perrier Jouet to Blythe Masters Department with a note......
" Happy Inauguration Week....Thanks for all the hard work. Take the day off - Barry"
If you mean Barry Obama, I disagree strongly. I don't think the Obama-ites have any particular liking for the Alpha Bank, particularly its London branch.
Maybe you mean Barry Diller? Perhaps he is developing a new LARP called "Blythe Masters, Vault Raider?"
On the contrary most venerable one. Follow the Soetoro footsteps. JP Morgan and the rest of the big banks are Soetoro's top contributors in the initial term. He has no problem with the banks getting bailed out. He has no problem with them in essence stealing business from mid size banks, credit unions and savings and loans. He has no problem with them "not" absorbing their "fair and reasonable" loses. In fact going BK.
He may not like them in principle but he appreciates the fine work Ms. Masters is doing in "containing" alternative currencies..... Even an economic Frankenstein like Soetoro knows that a once the currency is in question, its lights out.
Masters and the rest of the department have done a fine job of creating unstable enviroments for alternative currencies like GOld and Silver. Because the minute that Gold breaks $2000 which would mean Silver at or over $50 -is the moment that the newspapers start telling everyone - YOU NEED TO OWN GOLD and SILVER BEFORE IT GOES TO $3000.
You'll have the beginning of bank runs and the begiinning of the average Joe questioning the Greenback. The last thing that Barry wants.
And the first thing that will accelerate the crumbling of the US dollar,....
So yes Barry is pleased with the work Blythe (may I call her Blythe) and JP Morgan are doing...
Could explain the 'silver shortage', the Mint halting production to keep physical buyers in check (done at the supply point of the mint itself as opposed to the bullion traders to hide the artificial shortage).
Fuck JPMorgan, they are the same fraud faggots as the rest.
I'll take a trillion dollar coin over incorporated lies of a fraud bank.
Fiat is dead.
Marked to Bullshit