What Really Happened To JP Morgan In The Market - A Simple Example

Tyler Durden's picture


On the day of the unexpected JPM conference call in May of 2012, during which the initial extent of the London Whale fiasco was revealed, Zero Hedge presented a full, visual breakdown of everything that, we thought, had happened at the CIO, without any corroborating evidence. In hindsight, our assumptions and conclusions were 100% correct. But for anyone still confused and curious how less than a year ago the most powerful bank in the world put itself at the mercy of a few hedge funds, here is the simple one page summary.

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Thu, 03/14/2013 - 18:20 | 3330981 bania
bania's picture

still confused, but I did get past the captcha.

Thu, 03/14/2013 - 18:23 | 3330985 Ahmeexnal
Ahmeexnal's picture

And now Kyle Bass is about to blow up JPig for good.

Thu, 03/14/2013 - 18:23 | 3330988 NotApplicable
NotApplicable's picture

Question is, why were they doing it in the first place? God too busy?

Thu, 03/14/2013 - 18:37 | 3331034 diogeneslaertius
diogeneslaertius's picture

"God too busy?"

i did a spit take

Thu, 03/14/2013 - 20:06 | 3331223 eatthebanksters
eatthebanksters's picture

Beautiful...great call Ahmeexnal....that is unless they buy back Bass' $50m investment for fucking billions!   Muuaaahhhahhhahhha!!

Thu, 03/14/2013 - 22:24 | 3331497 Bansters-in-my-...
Bansters-in-my- feces's picture

I thought is was $500 mil not $50
Hey eatthebankers.
If you where to do that you would get me.....
Bankster-in-my- feces.

Messed up when i made my username so ended up Bansters,

Thu, 03/14/2013 - 18:38 | 3331038 Go Tribe
Go Tribe's picture

I sometimes find it useful to turn to the English version.





Thu, 03/14/2013 - 18:39 | 3331040 McMolotov
McMolotov's picture

Zero Hedge make McMolotov brain hurt.

Thu, 03/14/2013 - 20:07 | 3331205 kaiserhoff
kaiserhoff's picture

Don't feel bad.  I'm an arb, but it doesn't help much.  Try this.

The Morgue got caught in a short squeeze, but their continued selling of "insurance" depressed the price, increasing the potential squeeze, and gave other traders a signal and an incentive to pile in.  That's kinda, sorta, roughly what happened.

In the old days, they had risk managers in the arbitrage (trading/hedging) units who knew what the fuck they were doing.

When you follow models, and always grab for a shiny short term nickel, this is what happens.

Thu, 03/14/2013 - 20:44 | 3331322 helping_friendl...
helping_friendly_book's picture

excellent analogy.

Thu, 03/14/2013 - 21:11 | 3331380 williambanzai7
williambanzai7's picture


Thu, 03/14/2013 - 21:31 | 3331425 ZeroDroids
ZeroDroids's picture

What does a $9 billion dollar brick look like, banzolo?

Thu, 03/14/2013 - 18:23 | 3330987 lolmao500
lolmao500's picture

In other news, Detroit is pledging an uprising once the state appoints an emergency manager over the city.

Thu, 03/14/2013 - 18:24 | 3330990 Ahmeexnal
Ahmeexnal's picture

That's when they roll out the RoboCops.

Thu, 03/14/2013 - 18:27 | 3331001 scatterbrains
scatterbrains's picture

with multiple mini killer drones attached to their helmets ready to be deployed.

Thu, 03/14/2013 - 18:40 | 3331043 diogeneslaertius
diogeneslaertius's picture

FEMA will protect the homeland by rounding up all white al-qaeda's


dobule plus good

Thu, 03/14/2013 - 19:46 | 3331168 lolmao500
lolmao500's picture

There's white people in Detroit? Who are they? Lost tourists?

Thu, 03/14/2013 - 20:04 | 3331215 torabora
torabora's picture

They're fair game.

Thu, 03/14/2013 - 23:23 | 3331587 willwork4food
willwork4food's picture

Alot of white Yupies downtown I hear.

Thu, 03/14/2013 - 20:08 | 3331226 eatthebanksters
eatthebanksters's picture

Ahmeenal...you're on a roll today!

Thu, 03/14/2013 - 18:27 | 3330999 NotApplicable
NotApplicable's picture

Well that should be fun. I'm guessing they're not going to riot for the alternative of bankruptcy, so...


Thu, 03/14/2013 - 18:39 | 3331041 diogeneslaertius
diogeneslaertius's picture

Fellow Executives of Omni Consumer Products,

It gives me great pleasure to intorduce you to the future of Law Enforcement, ED 209


Thu, 03/14/2013 - 18:41 | 3331046 McMolotov
McMolotov's picture

If there's any reading involved, I expect the uprising to be short-lived.

Thu, 03/14/2013 - 18:29 | 3331008 Cacete de Ouro
Cacete de Ouro's picture

I understand. Thanks for posting.

Thu, 03/14/2013 - 18:37 | 3331028 diogeneslaertius
diogeneslaertius's picture

Business as usual.

Thu, 03/14/2013 - 18:52 | 3331077 Seasmoke
Seasmoke's picture

Bet with your head. Not over it. Or Jamie should lose his.

Thu, 03/14/2013 - 19:34 | 3331141 disabledvet
disabledvet's picture

I agree with that. And I can sum up the problem far more accurately as well. "it happened in London." as AIG so it is with JP. "come here if you want to blow up your Very Large Financial Institution." on the good side it would appear The Team wasn't paid 100 million this time. "And in even better news the taxpayer wasn't ordered to shell out over 100 billion..." in the middle of a war no less. And in even better better news there doesn't appear to be a frivolous lawsuit aimed at extorting even more billions "from hapless you and me." without a doubt "this one came from the top"...to which I say "welcome to our so called recovery." the irony of course is that New York is sitting on trillions in energy wealth "in the State the Rockefellers built." just for export you say? Wow...no surprise there either. Wow...look at that dollar collapse. Right next to the collapse of the equity market...and the treasury complex.

Thu, 03/14/2013 - 19:00 | 3331092 EclecticParrot
EclecticParrot's picture

I'm sure when Whale-Man presented his plan to JPM management, it was also in the form of a single page summary -- age-old advice to follow when executives are the target audience.  However, in his case, it was simply a drawing of a killer whale with a proud, enormous erection, which he was using to surf, fins behind his back, over 30 foot waves.

Thu, 03/14/2013 - 19:05 | 3331096 Silverhog
Silverhog's picture

Lets play where's Waldo on CNBC. Can anybody find news about the Senate findings?

Thu, 03/14/2013 - 19:14 | 3331112 DollarMenu
DollarMenu's picture

The only news is here on ZH.

Thank you TD & Co.

Thu, 03/14/2013 - 20:40 | 3331308 helping_friendl...
helping_friendly_book's picture

I had to call my Senator's office to find out the hearing will be shown here at beginning 9:30 a.m. tomorrow a.m. EST:




It's the Senate Homeland Security Subcommittee......... WTF you say???? 



The Permanent Subcommittee on Investigations has scheduled a hearing, “JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses,” on Friday, March 15, 2013, at 9:30 a.m., in Room G-50 of the Dirksen Senate Office Building. 

The Subcommittee will examine matters relating to credit derivative trades made by the JPMorgan Chase Chief Investment Office.  The Subcommittee expects to issue a Subcommittee staff report in conjunction with the hearing summarizing its investigative findings and recommendations.  Witnesses will include representatives from JPMorgan Chase and the Office of the Comptroller of the Currency.  A witness list will be available Wednesday, March 13, 2013.   

Witnesses PANEL 1
    Former Chief Investment Officer JPMorgan Chase Bank NA New York, NY
    Acting Chief Risk Officer JPMorgan Chase Bank NA New York, NY
    Former Head of Market Risk - Chief Investment Office JPMorgan Chase Bank NA New York, NY
    Co-Chief Executive Officer - Corporate & Investment Bank JPMorgan Chase Bank NA New York, NY
    Current Vice Chairman JPMorgan Chase Bank NA New York, NY
    Comptroller of the Currency U. S. Department of the Treasury Washington, DC
    Examiner-in-Charge - OCC National Bank Examiners - JPMorgan Chase Office of Comptroller of the Currency Washington, DC
    Deputy Comptroller for Risk Analysis - Risk Analysis Department Office of the Comptroller of the Currency Washington, DC


Thu, 03/14/2013 - 21:13 | 3331388 williambanzai7
williambanzai7's picture

Panel 3: Feckless Douchebags

Thu, 03/14/2013 - 23:02 | 3331556 Next to Arch Stanton
Next to Arch Stanton's picture

I always think it's ridiculous how Congress calls a hearing when a company losses money.  Stupid postering by politicians who don't have the slightest clue what is going on.  Please let them fail!!!

Fri, 03/15/2013 - 01:40 | 3331732 dunce
dunce's picture

When companies lose money they stop paying taxes and politicians are very concerned and they look for ways to find criminality in the process. When the companies do most things right and make a lot of money they are called greedy and exploiters that need to be punished with excess profits taxes. Capitalism works fine, democracy, not so much.

Fri, 03/15/2013 - 03:14 | 3331769 defender
defender's picture


When companies lose money they stop paying bribes and politicians are very concerned

There, fixed it for you.

Thu, 03/14/2013 - 19:19 | 3331124 Chippewa Partners
Chippewa Partners's picture

Maybe the emergency manager of Detroit can do double-duty and fill in for Jamie. 

Thu, 03/14/2013 - 19:22 | 3331131 Downtoolong
Downtoolong's picture

Where are those HFT liquidity providers when you need them? Oh that's right, we're the liquidity providers. SHIT!


Thu, 03/14/2013 - 19:42 | 3331158 disabledvet
disabledvet's picture

Again "just the increase in natural gas is worth in excess of a TRILLION dollars for what is in storage." still not enough liquidity for you? I do find it interesting that we've never had an inventory build in this so called recovery...hmm. That's not what the EIA is showing.

Thu, 03/14/2013 - 19:25 | 3331138 Tum
Tum's picture

I consider myself pretty informed but this is still just about Greek to me. So taking that into consideration and that I'd like to be able to explain this to much less informed people than myself, would someone care to dumb this down even further for me?

Thu, 03/14/2013 - 20:41 | 3331307 tenpanhandle
tenpanhandle's picture

JPM is big thief.  US Govt is big thief also. US Govt also big cop.  Together they steal everything from everybody.  If big thief get caught, big cop does nothing because they are big thief also.

Thu, 03/14/2013 - 19:35 | 3331144 Bastiat
Bastiat's picture


NY Times on the case:

The Things Bankers Say, the London Whale Edition


Thu, 03/14/2013 - 19:45 | 3331164 thismarketisrigged
thismarketisrigged's picture

and i still ask myself everyday how the fuck jamie dimon is not in prison. what the fuck must these bankers do to go to jail?

Thu, 03/14/2013 - 20:28 | 3331277 Pseudo Anonym
Pseudo Anonym's picture

easy.  defraud the jesuit order

Thu, 03/14/2013 - 20:42 | 3331316 tenpanhandle
tenpanhandle's picture

easy. fail to fund the politicians

Thu, 03/14/2013 - 19:55 | 3331185 Yen Cross
Yen Cross's picture

      I just want to thank Tyler for having the honesty, candure, and intellectual skills enough to explain "derivatives" in a simple chart!

      [[Derivatives]] are just a bunch of cross collateralized { PAPER }. > Just like we already knew! +1 Tyler

Thu, 03/14/2013 - 20:01 | 3331200 MsCreant
MsCreant's picture

JPM tried to run a con and got conned. Seems like another day at work to me.

Thu, 03/14/2013 - 20:14 | 3331235 hooligan2009
hooligan2009's picture

looks like a standard tax avoidance structure to me! fuck main street!

Thu, 03/14/2013 - 20:31 | 3331288 Tum
Tum's picture

I consider myself pretty informed, but this is like Greek to me even still. I'd like to be able to explain this and what has happened to people who know much less than I do. If anyone would care to explain this in the most dumbed down way, it would be much appreciated. Thanks.

Thu, 03/14/2013 - 21:05 | 3331363 Bastiat
Bastiat's picture

Fuckers got marked to market, exposing the their losses and risk.   What is the real market value of the 100s of trillions in derviatives?  What is the value of derivative if the counter party fails?  Does one failure daisychain the whole thing to hell?  What is the market if the few who can trade that size are kaput?  This is the true root of the TBTF issue. 

Fri, 03/15/2013 - 03:45 | 3331786 defender
defender's picture

The important info is in the middle column.  It shows:

First line: JPM initial protection sold, no manipulation - therefore no skew (sold at "par")

Second line: JPM starts leaning on the market and sell more protection, some manipulation - therefore -10 bps skew (sold at profit, booked more profits under mark to market)

Third line: JPM is feeling their wheaties and leans hard on the market, lots of manipulation - therefore -20 bps skew (sold at higher profit, even more booked profits)

Fourth line:  JPM tries harder yet, but there is no one left to sell to, peak manipulation - still -20 bps skew (no trades performed, but all trades are marked to market at this fake profit)

Fifth line:  JPM gets taken to the cleaners by the hedge funds as they exit the position, market over compensates as hedge funds lean on JPM - therefore IG9 trades at +20 bps skew (JPM loses anywhere from 20 to 40 bps, because of the swing in skew, as they buy back the protection that they sold)

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