Ahead Of Jamie Dimon's Senate Testimony, Who Knew What, When: The Full Infographic

Tyler Durden's picture




 

One day ahead of Jamie Dimon's blockbuster appearance before the Senate Banking Committee, Bloomberg has released the definitive timeline infographic of who knew what, when, together with damning evidence that, contrary to what has been represented by JPM execs, the firm knew about the massive risk, which an in house risk manager described as "trying to land a Boeing 747 without flying lessons", as far back as 2010. Not only that but the firm was actively engaged in fudging its VaR for years in an attempt to hide the monster in the closet which we dubbed, long before the details were exposed, the "world's largest prop trading desk". Well, now the monster is out, and nobody wants to come within one bid/ask spread of it. And tomorrow, Jamie will have a fun time explaining just how he let all of this happen for years while potentially engaging in material 10(b)-5 fraud in his public filings and statements.

There is much more in the must read Bloomberg piece by Erik Schatzker et al, but here are some highlights.

First, we learn that contrary to popular folklore, not only Goldman was betting against US housing (as idiotic as that populist statement is). So was JPM, which somehow nobody mentioned over the past 3 years.

The group started making more exotic trades, betting against an index of subprime mortgage bonds in 2007 that resulted in a roughly $1 billion profit that year, according to one former CIO executive and another person briefed on the trade. 

JPM was never about ordinary banking operations. It was all about prop. Any wonder why Jamie Dimon has been so vehemently against the Volcker Rule?

Macris’s team in London, running a portfolio of as much as $200 billion in trades, had a profit of $5 billion in 2010 alone, more than a quarter of JPMorgan’s net income that year, one former executive said

But what is most relevant for the current market is that it seems that JPM is completely unable to unwind its massive prop bet.

Peter Weiland, who graduated from Princeton University with a degree in chemistry and had been overseeing risk for JPMorgan’s proprietary-trading group, was transferred in 2008 into the same role at the CIO. He immediately saw faults in the division’s risk-management system, said two former executives who worked with him.

 

Weiland became concerned that Bruno Iksil, the trader in Macris’s office now known as the London Whale, had amassed a complex and illiquid position, according to two former executives. Weiland, who declined to comment, warned Macris and Drew about the trades on numerous occasions beginning in 2010, the people said. It was a topic of frequent discussions in the CIO’s global weekly meetings, they said.

 

Weiland compared efforts to reduce Iksil’s outsized position to the difficulty of trying to safely land a Boeing 747 without flying lessons, one executive said. The position was so large and illiquid, Weiland said he couldn’t get the plane below 35,000 feet, the executive said.

 

By 2010 Iksil’s value-at-risk, or VaR -- a formula used by banks to assess how much traders might lose in a day -- already was $30 million to $40 million, a person with knowledge of the matter said. At times the figure surpassed $60 million, the person said, about as high as the level for the firm’s entire investment bank, which employs 26,000 people.

The natural response: fudge the VaR calculation of course. After all JPM is exception: the rules that apply to everyone else, do not apply to it.

Early this year, as the size and volatility of its trades were growing, the bank changed the computer-based mathematical formulas for calculating the chief investment office’s VaR. The new model had the effect of understating the risk of losses from Iksil’s trades: It showed an average daily VaR within the CIO of $67 million, about where it stood in the fourth quarter of 2011.

And this was in 2010, long before Iskil decided to delta hedge by buying up tens of billions of IG9 10 year notional. Which is why we fear that our current estimate of JPM's CIO DV01 being at about ~$200 million may well be conservative.

And the biggest problem: an offerless market for the firm's tens of billions in long IG9 10 year positions!

Drew and Macris agreed to reduce Iksil’s positions and tried to do so beginning in early 2011, according to a current and two former executives. The plan was to work down the book gradually as they found opportunities to sell the assets, these people said. The problem: No one was buying. The position was too large and illiquid and couldn’t be reduced without a loss. Drew and Macris decided the bank could hold the trades to maturity and that the risk of being forced to liquidate them under duress was low, according to the former executives.

...

Unable to unwind Iksil’s bets, the bank tried to hedge them this year with other trades, exacerbating the losses, Dimon said on May 10. Iksil had amassed positions in securities linked to the financial health of corporations that were so large he was driving price moves in the $10 trillion market.

One thing they did not anticipate was, well, reality. And the fact that in the absence of the Fed backstopping the world, holding a position to maturity would inevitably lead to massive losses on the book of a firm whose sole path to profitability for the past 3 years has been courtesy of its position as the only real tri-party repo bank, and the right-hand of the New York Fed (where Jamie Dimon is still a Class A Director). Also explains why the estimate of a $5 billion loss, which Zero Hedge calculated first, on the day of the JPM announcement, will also likely be very, very conservative, when all is said and done, and why the JPM's decision to stop its stock buyback implies a breach of the Fed's stress test loss parameters, meaning the total loss could be orders of magnitude higher as also calculated here previously.

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Tue, 06/12/2012 - 08:49 | 2517462 bullionbaron
bullionbaron's picture

Meanwhile in the land of Oz we are looking to securitize our lottery revenues to fund budgets...

https://twitter.com/bullionbaron/status/212467333753614336

Or as we like to call them CBOs (Collateralized Bet Obligations).

Tue, 06/12/2012 - 08:59 | 2517491 GeneMarchbanks
GeneMarchbanks's picture

I'm sure the Oz government is standing fully and firmly behind this so, just like Oz housing, this will all be okay.

CBOs FTW!

Tue, 06/12/2012 - 09:09 | 2517530 Colombian Gringo
Colombian Gringo's picture

Jamie.Dimon.Liar

Tue, 06/12/2012 - 09:26 | 2517608 Chief KnocAHoma
Chief KnocAHoma's picture

If it were not so sad, this would be fucking hilarious. Talk about a slippery mofo... Dimon is about to make Nixon, Obama, Clinton look like amateurs. Shit even Houdini will look like a clown act compared to what this guy is about to do. 

If you thought Regan was made of teflon, you ain't seen nothing. If you thought Corzine was a sack of shit... well you get the idea.

 

Chief.

Tue, 06/12/2012 - 10:55 | 2517961 azzhatter
azzhatter's picture

Dimon should go Japanese and commit suicide in front of congress

Tue, 06/12/2012 - 12:56 | 2518473 malek
malek's picture

Those guys are so behind the curve... California has done that years ago already.

Tue, 06/12/2012 - 08:54 | 2517475 Whoa Dammit
Whoa Dammit's picture

Vanity Fair editor Graydon Carter skewers Jamie Dimon and banks:

"The pedestal that he (Dimon)so carefully constructed for himself is now vacant."

"Now might also be the time to stop calling all banks “banks.” Only institutions that go about the old-fashioned business of taking in deposits from customer A and lending them out to customer B should be called banks. The rest should call themselves what they are. “Parlors” would be appropriate, or “dens”—words more suitable to venerable betting pursuits."

http://www.vanityfair.com/magazine/2012/07/graydon-carter-on-jamie-dimon-jpmorgan

Tue, 06/12/2012 - 08:54 | 2517476 GMadScientist
GMadScientist's picture

Clawback Jamie's $36M in salary since then for dereliction of duty!

No more Alzheimer's CEOs!!

Tue, 06/12/2012 - 08:57 | 2517480 Chaffinch
Chaffinch's picture

Bankrupt him and then put him in jail for life.

I'm against capital punishment but on second thoughts in his case maybe I would make an exception.

Tue, 06/12/2012 - 09:15 | 2517559 Seasmoke
Seasmoke's picture

You could zero the country's debt if you put a pay per view of the hanging of the 10 biggest thiefs.

Tue, 06/12/2012 - 09:31 | 2517622 GMadScientist
GMadScientist's picture

They'll just charge it to plastic, but I can think of worse stimulus plans.

Make it a live road show!

Tue, 06/12/2012 - 09:26 | 2517586 0z
0z's picture

Go to hell, facist! You're worst than he is.

 

A gun is not a God-damned argument.

Tue, 06/12/2012 - 09:31 | 2517627 GMadScientist
GMadScientist's picture

You need to stop thinking of banksters as humans. They willfully shed their humanity long ago so don't let them hide behind it as a shield now.

 

Tue, 06/12/2012 - 08:54 | 2517477 Chaffinch
Chaffinch's picture

Jamie Demon knew exactly what JPM was doing!!

Tue, 06/12/2012 - 09:03 | 2517511 lolmao500
lolmao500's picture

Eh, warlords never know what their minions are doing!

Tue, 06/12/2012 - 09:57 | 2517711 Umh
Umh's picture

It's still their fault. Not knowing what your employees are doing is at least grounds for dismissal.

Tue, 06/12/2012 - 10:09 | 2517760 lolmao500
lolmao500's picture

That was sarcasm...

Tue, 06/12/2012 - 08:55 | 2517478 ghostzapper
ghostzapper's picture

This can't be.  Jamie's personal cheerleading TV station put so much effort into trying to convince the viewers that Jamie Dimon is nothing less than a god that walks on water. 

Tue, 06/12/2012 - 10:57 | 2517966 azzhatter
azzhatter's picture

Bartiromo regularly fellates him on the air

Tue, 06/12/2012 - 08:57 | 2517484 GeneMarchbanks
GeneMarchbanks's picture

Just carry on circling, there is no reason to land. Ever.

Tue, 06/12/2012 - 09:28 | 2517618 resurger
resurger's picture

"CB Radio" ....

Radar Contact .. This is Central Bank KC-135 at 35,000 ready for QE-fueling

JPM-747 : rgrrrrrrrrrrrrr

Tue, 06/12/2012 - 11:49 | 2518218 tabasco71
tabasco71's picture

What happens when you run out of fuel?  Or is that a technical detail...?

Tue, 06/12/2012 - 08:58 | 2517486 junkyardjack
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Congressional roasting of Jamie:

Congress: Did you willingly do anything wrong?

Jamie: No

Congress: Okay, so how was your flight?.....

Tue, 06/12/2012 - 09:14 | 2517552 mayhem_korner
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The Senators may have some difficulty reading the questions (Dimon's handwriting isn't real good).

Tue, 06/12/2012 - 11:39 | 2518148 Widowmaker
Widowmaker's picture

The questions will have more to do with saving money on car insurance than the American people's interests.

Dimon will simply lie to the public patriotically and take what isn't his, and "bitch-Congress" will assure that absolutely nothing changes and no one gets any closer to truth or the common good. That is a fucking guarantee.

Tue, 06/12/2012 - 12:01 | 2518279 Raging Debate
Raging Debate's picture

I am not so sure Junkyard. Governments throw industrialists under the bus when their usefulness in getting elected ebbs. Hard to tell if that time is this election or next. The political choices regarding costs of living are narrowing. We all do like to talk about hyperinflation as an outcome but that becomes political suicide. I think we hit the wall on that one.

Tue, 06/12/2012 - 09:12 | 2517490 Cognitive Dissonance
Cognitive Dissonance's picture

Chris Whalen (a ZH contributor among many things) appeared on CNBC this morning and read them the riot act, even going so far as to use the "F" word...(failure to disclose) aka...fraud. Poor Becky (and Joe) didn't know what hit her.

Becky Quick regarding JPM - "Why didn't they get out of those positions?"

Chris Whalen - "Because this is what banks do."

http://video.cnbc.com/gallery/?video=3000095488&play=1

BTW Chris, thanks for the hat tip to ZeroHedge live on CNBC.

(at 2:30 in the video)

If you watch this video a few times and carefully examine Becky and Joe reactions and questions in particular, you'll find them to be just incredulous regarding what Chris is saying. This demonstrates to what degree they are unthinking ideologue tools of the financial system. They really do believe most of what they say.

Tue, 06/12/2012 - 09:16 | 2517563 Dr. Engali
Dr. Engali's picture

Sorkin's last comment set the stage....."one thing you learn about banks is it is just three or four people who may have just gone off the reservation." They willl say anything  to protect Jamie.

Tue, 06/12/2012 - 09:24 | 2517588 Cognitive Dissonance
Cognitive Dissonance's picture

The rogue (fill in the blank such as trader, broker, advisor, accountant, middle manager, CEO, director, regulator, representative etc) is the fall back position of the Ponzi.

One can always question the symptoms of the Ponzi. This helps create the illusion that the system is transparent because there is near universal agreement (meaning it receives our willing consent, often by saying nothing) regarding its faults and its gloriously beneficial effects.

But one must NEVER question the basis of the Ponzi itself.

Tue, 06/12/2012 - 09:48 | 2517676 Unbezahlbar
Unbezahlbar's picture

Great interview thanks for posting it. Seems like the interviewers do not fully understand hedging v prop trading (as well as many ohter issues). They also seem to try to steer Whalen away from the flame thrower...but he does not blink an eye and speaks with silver tongue---good for him!

Yes, excuses from the palybbok:

1. it was a rogue trader;

2. I had no idea---after all, I'm only the CEO;

3. everybody does it;

4. our accountants said it was ok--I was just listening to them.

Kudos to Chris Whalen for explaining it on national TV. I always look forward to his articles here in ZH.

Tue, 06/12/2012 - 10:03 | 2517728 ElvisDog
ElvisDog's picture

God I hate Becky Quick. That smug, expressionless way of talking when she insists that there is a grey area between proprietary trading and risk-hedging.

Tue, 06/12/2012 - 10:16 | 2517791 Cognitive Dissonance
Cognitive Dissonance's picture

Deeply held beliefs are defended at every cognitive gate. It is clear to me that Becky, Joe and even (especially) Sorkin are ideologues and thus virtual slaves to the system.

Tue, 06/12/2012 - 10:18 | 2517801 AnAnonymous
AnAnonymous's picture

Are they well paid?

Tue, 06/12/2012 - 10:24 | 2517826 Cognitive Dissonance
Cognitive Dissonance's picture

Enabling slaves are almost always paid at a higher rate than simple peon slaves.

Tue, 06/12/2012 - 10:58 | 2517973 optimator
optimator's picture

Pay O.K.

Benefits O.K.

Insider information: Priceless.

Tue, 06/12/2012 - 11:09 | 2518020 azzhatter
azzhatter's picture

Priceless interview. What exactly does Quick bring to the table? She is fucking clueless and the first time I've see that asshole Kernan silenced. Cub reporter Sorkin is such a jackoff, nobody takes him seriously. Whalen looked at him like he was going to swat a fly

Tue, 06/12/2012 - 12:56 | 2518475 YHC-FTSE
YHC-FTSE's picture

CD: Just watched the interview. Thanks mate.

I notice Chris calls it a trade, not a hedge as Dimon has stated (lied) again and again to investors and the press. Few people are aware that proprietary trades contravene the Volker Rule - added to the Frank-Dodd to prevent just this kind of speculative trades that do not benefit clients, and I'm surprised nobody has mentioned it yet. Funny that all this happened before the regulations come into effect on 21st July. 

Tue, 06/12/2012 - 21:00 | 2520083 General Debility
General Debility's picture

Well if Joe had only let the man speak instead of butting in all the time..Grr

 

Tue, 06/12/2012 - 09:03 | 2517494 lolmao500
lolmao500's picture

June 20 : Holder contempt charges vote...

Someone should bring this up during the hearing...

http://jhaines6.wordpress.com/2012/03/26/jon-corzine-threatened-with-dea...

Jon Corzine Threatened With Death By Jamie Dimon

Can ZH send someone over there to ask that question and film Dimon's face when he hears it??? Would be priceless.

Tue, 06/12/2012 - 09:00 | 2517500 pepperspray
pepperspray's picture

A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?

Wednesday, June 13, 2012
10:00 AM - 12:00 PM
SD-G50 Dirksen Senate Office Building, room SD-G50
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

will meet in OPEN SESSION to conduct a hearing on “A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?” The witness will be Mr. James Dimon, Chairman of the Board, President and Chief Executive Officer, JPMorgan Chase & Co.

Tue, 06/12/2012 - 09:07 | 2517513 GMadScientist
GMadScientist's picture

Apparently using a spinner with 33% of the arcs marked as "fuck it" and another 33% marked "let it ride" was not as prudent a regimen as they were lead to believe by in-house statisticians and their Matlab simulation.

Maybe Jamie can bring a poster with a picture of a dog, a picture of a large dildo, and arrows suggesting the general manner in which the pooch was screwed for reference.

 

Tue, 06/12/2012 - 09:11 | 2517534 pepperspray
pepperspray's picture

Mr James Dimon

Tue, 06/12/2012 - 09:34 | 2517636 GMadScientist
GMadScientist's picture

Not Secretary of Treasury, James Dimon...yet.

Tue, 06/12/2012 - 09:01 | 2517504 101 years and c...
101 years and counting's picture

going before senate banking committee?  rofl.  dont half these people praise ben for his "decisive actions" during and since the financial crisis he let happen...on purpose.  just another puppet show where there might be 2-3 minutes of intense questioning so it appears congress gives a fuck.

move along people.  NOTHING TO SEE HERE!

Tue, 06/12/2012 - 09:05 | 2517517 Dr. Engali
Dr. Engali's picture

If this doesn't send the message load and clear to break up the giant banks nothing will. Of course nothing will come out of this  Jamie will probably get a slap on the wrist and put in the time out chair Then back to business as usual.

Tue, 06/12/2012 - 11:43 | 2518190 Widowmaker
Widowmaker's picture

Nothing is everything to these motherfuckers. The only cure for banker fever is an unfortunate accident.

Tue, 06/12/2012 - 09:05 | 2517518 YHC-FTSE
YHC-FTSE's picture

I think that's half the story. You have to understand that Ina Drew's unit invested the deposits the bank hadn't loaned to ordinary people and businesses. That is to say, it was a funded exposure. Hence it could not be hidden away and forgotten. Both JPM and Goldman ONLY disclose funded exposures to GIIPS debt, and they are among the biggest traders of credit derivatives - You remember when they proudly told their shareholders that protection on more than $5 Trillion of debt has been sold globally? They are hiding a mountain, nay, a planet full of woes from their investors. Nobody outside truly knows the notional value of CDS sold on GIIPS, nobody knows their counterparty reliability in a default, and they are not the only ones playing the hide the truth game: BOFA, Citi and and MS do it too. 

Tue, 06/12/2012 - 09:09 | 2517529 mayhem_korner
mayhem_korner's picture

 

 

GHWBush:  "Read my lips..."

WJClinton:  "I never had sexual relations with that woman..."

RPalmeiro: "I never took steroids..."

Timmay:  "No chance..."

JDimon:  " ? ? ?..."

Tue, 06/12/2012 - 09:14 | 2517549 oddjob
oddjob's picture

"trying to land a Boeing 747 without flying lessons"

They had no intention of landing it safely.

Tue, 06/12/2012 - 09:20 | 2517575 Vince Clortho
Vince Clortho's picture

When you are TBTF, you don't worry about landing.

Do NOT follow this link or you will be banned from the site!