JPM Admits CIO Group Consistently Mismarked Hundreds Of Billions In CDS In Effort To Artificially Boost Profits

Tyler Durden's picture

Back on May 30 we wrote "The Second Act Of The JPM CIO Fiasco Has Arrived - Mismarking Hundreds Of Billions In Credit Default Swaps" in which we made it abundantly clear that due to the Over The Counter nature of CDS one can easily make up whatever marks one wants in order to boost the P&L impact of a given position, this is precisely  what JPM was doing in order to boost its P&L? As of moments ago this too has been proven to be the case. From a just filed very shocking 8K which takes the "Whale" saga to a whole new level. To wit: 'the recently discovered information raises questions about the integrity of the trader marks, and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio during the first quarter. As a result, the Firm is no longer confident that the trader marks used to prepare the Firm's reported first quarter results (although within the established thresholds) reflect good faith estimates of fair value at quarter end."

As a result of this, regulators who now are only 3 years behind the curve, are most likely snooping to inquire not only how JPM did it (call us: we can brief you in 2 minutes), but who else has been doing this? Hint: everyone.

Because in other words, we have just discovered that the two key components of the entire CDS market: the LIBOR base and market "marks" have been bogus at best, and realistically, fraud. And one wonders why no bank ever will let CDS trade on an exchange...

Full filing:

On July 13, 2012, JPMorgan Chase & Co. reported that it will restate its previously-filed interim financial statements for the first quarter of 2012. The restatement will have the effect of reducing the Firm's reported net income for the 2012 first quarter by $459 million. The restatement relates to valuations of certain positions in the synthetic credit portfolio of the Firm's Chief Investment Office. The Firm's year-to-date principal transactions revenue, total net revenue and net income and the year-to-date principal transaction revenue, total net revenue and net income of the Firm's Chief Investment Office ("CIO") will remain unchanged as a result of the restatement. The Firm reached the determination to restate on July 12, 2012, following management review of the matter with the Audit Committee of the Firm's Board of Directors on the same day.


The restatement results from information that has recently come to the Firm's attention in connection with management's internal review of activities related to CIO's synthetic credit portfolio. Under Firm policy, the positions in the portfolio are to be marked at fair value, based on the traders' reasonable judgment as to the prices at which transactions could occur. As an independent check on those marks, the CIO's valuation control group ("VCG"), a finance function within CIO, verifies that the traders' marks are within pre-established price testing thresholds around external "mid-market" benchmarks and, if not, adjusts trader marks outside the relevant threshold. The thresholds consider market bid/offer spreads and are intended to establish a range of reasonable fair value estimates for each relevant position. At March 31, 2012, the trader marks, subject to the VCG verification process, formed the basis for preparing the Firm's reported first quarter results.


However, the recently discovered information raises questions about the integrity of the trader marks, and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio during the first quarter. As a result, the Firm is no longer confident that the trader marks used to prepare the Firm's reported first quarter results (although within the established thresholds) reflect good faith estimates of fair value at quarter end.


The Firm has consequently concluded that the Firm's previously-filed interim financial statements for the first quarter of 2012 should no longer be relied upon, and the Firm will be filing an amendment to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as soon as practicable, but not later than it files its Quarterly Report on Form 10-Q for the quarter ended June 30, 2012. The financial statements included in the amended Quarterly Report on Form 10-Q will reflect adjusted valuations of the positions in the synthetic credit portfolio as of March 31, 2012, based upon external "mid-market" benchmarks, adjusted for liquidity considerations. While there are a range of acceptable values for such positions, the Firm believes this approach represents an objective valuation and is reasonable under the circumstances.


As a result of the restatement, the impact of the trading losses related to the synthetic credit portfolio on the Corporate/Private Equity sector during the first quarter will increase, as noted in the table above, but this increase will serve to reduce the impact of these losses on the Corporate/Private Equity sector during the second quarter by a corresponding amount. Accordingly, as noted above, CIO's year-to-date principal transactions revenue, total net revenue and net income and the Firm's year-to-date principal transactions revenue, total net revenue and net income will remain unchanged by the restatement.


The valuation errors had an immaterial effect on the Firm's balance sheet. CIO's Value at Risk model used, as inputs, independent marks for a majority of the positions in the synthetic credit portfolio and daily trader marks related to a limited number of positions in the portfolio. The Firm believes that if CIO's VaR were re-calculated for the first quarter of 2012, the re-computed CIO VaR numbers would not be materially different from those reported in the Firm's Quarterly Report on Form 10-Q for the 2012 first quarter. At June 30, 2012, average VaR for CIO was $177 million for the quarter then-ended, and was $153 million for the six months then-ended. For the Firm, average total VaR was $201 million for the quarter ended June 30, 2012, and was $186 million for the six months ended June 30, 2012. For the same reason, the Firm believes the valuation irregularities had an immaterial impact on the Firm's risk-weighted assets. However, as a result of the restatement, the Firm's Basel I Tier I common ratio will be reduced by 4 basis points to 10.3% and its Estimated Basel III Tier I common ratio will be reduced by 3 basis points to 8.1%, at March 31, 2012.


Management has determined that a material weakness existed in the Firm's internal control over financial reporting at March 31, 2012. During the first quarter of 2012, the size and characteristics of the synthetic credit portfolio changed significantly. These changes had a negative impact on the effectiveness of CIO's internal controls over valuation of the synthetic credit portfolio. Management has taken steps to remediate the internal control deficiencies, including enhancing management oversight over valuation matters. The control deficiencies were substantially remediated by June 30, 2012.


Management's internal review of these matters is ongoing. If the Firm obtains additional information material to its periodic financial reports, it will make appropriate disclosure.

Next up: we learn that just like Lieborgate, so was everyone else doing just what JPM admitted to doing as well.

In other news, there goes the entire CDS market.

* * *

For those who wish to learn more on this topic, here is what we said two months ago, predicting to the dot, all that was just confirmed above:

The Second Act Of The JPM CIO Fiasco Has Arrived - Mismarking Hundreds Of Billions In Credit Default Swaps

As anyone who has ever traded CDS (or any other OTC, non-exchange traded product) knows, when you have a short risk position, unless compliance tells you to and they rarely do as they have no idea what CDS is most of the time, you always mark the EOD price at the offer, and vice versa, on long risk positions, you always use the bid. That way the P&L always looks better. And for portfolios in which the DV01 is in the hundreds of thousands of dollars (or much, much more if your name was Bruno Iksil), marking at either side of an illiquid market can result in tens if not hundreds of millions of unrealistic profits booked in advance, simply to make one's book look better, mostly for year end bonus purposes. Apparently JPM's soon to be fired Bruno Iksil was no stranger to this: as Bloomberg reports, JPM's CIO unit "was valuing some of its trades at  prices that differed from those of its investment bank, according to people familiar with the matter. The discrepancy between prices used by the chief investment office and JPMorgan’s credit-swaps dealer, the biggest in the U.S., may have obscured by hundreds of millions of dollars the magnitude of the loss before it was disclosed May 10, said one of the people, who asked not to be identified because they aren’t authorized to discuss the matter. "I’ve never run into anything like that,” said Sanford C. Bernstein & Co.’s Brad Hintz in New York. “That’s why you have a centralized accounting group that’s comparing marks” between different parts of the bank “to make sure you don’t have any outliers,” said the former chief financial officer of Lehman Brothers Holdings Inc."

At this point, Zero Hedge assumes that Iksil was merely abusing the little loophole used by every CDS trader since time immemorial, which however on a TRSed position of $100 billion in notional, which based on our calculations has a DV01 of $200 million, means that the bid/ask spread itself is worth $500 million in profit (and not so much loss).

However, if what Bloomberg is implying is that Iksil was effectively overriding "real" marks, and using imaginary (or "forced") bids and asks, then that brings into question the validity of CDS marks reported by MarkIt, the same MarkIt partially owned by Goldman and... that's right, JP Morgan (more on MarkIt in a moment).

But first, back to Bloomberg:

Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, declined to comment on whether the CIO and investment bank were using different prices.


“All components of the synthetic credit portfolio in the chief investment office were mark-to-market,” she said.


The trades in question, made by a CIO group that included Bruno Iksil, nicknamed the London Whale because his positions grew so large, were on so-called tranches of credit-swap indexes, the people said.


Tranches allow investors to wager on varying degrees of risk among a pool of companies. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.


Because JPMorgan had amassed such large positions, even a small change in how the prices were marked may have generated a big difference in the value of the trades, one of the people said.

While very little is known at this point, the realization that JPM did in fact abuse mark-to-market of a Level 1 security means that if Iksil's book was marked fairly, to mid-market alone, let alone to the real exit level opposite where it is most profitable (i.e., long risk as in the case of Bruno Iksil's IG9 holdings -> mark at offer, and vice versa), the losses would be materially greater, potentially up to hundreds of millions in the remarking process itself? And any further uncertainty about JPM's accrued losses, which we now know had to be covered up by tens of billions in asset sales from its portfolio (but, but JPM certainly did not need the cash) will merely add to the toxic spiral that is the pounding of JPM stock, coupled with further widening in IG9-10, which leads to even more JPM stock losses, which further blows out IG9-10 and so on.

One thing we do know is that in a recent case of a UBS prop trader, caught mismarking his CDS book, there was some serious litigation involved, and major accusation of illegalilty. Once again, from Bloomberg:

Ramon Braga, a trader on the bank’s corporate-credit desk in London, was fired for collusion in the alteration of “marked-to-market” values of credit default swaps by Denis Minayev, UBS staff said at an employment tribunal yesterday. Minayev, a proprietary trader, “re-marked” Braga’s trading book on 66 occasions, even though he shouldn’t have had the authority to do so, UBS investigator Richard Kennedy said.


If you shift one of those markers, it can give a completely false picture,” employment Judge Graeme Hodgson said at the hearing.


Braga, who is suing for unfair dismissal, was an inexperienced trader who was “thrown in at the deep end,” his lawyer, Amy Sander, said at the hearing. He wasn’t aware of many of the changes Minayev made, she said, and thought his actions were permitted by managers. Braga was also accused by UBS of “procuring a false broker quote,” she said.


UBS is already dealing with the fallout from what the bank said were unauthorized trades by London-based UBS employee Kweku Adoboli, which led to a $2.3 billion loss, regulatory probes and the resignation of Chief Executive Officer Oswald Gruebel. JPMorgan Chase & Co. (JPM) CEO Jamie Dimon said yesterday his New York-based firm suffered a $2 billion loss after a trading unit’s “egregious” failure to manage risks.


Dominik Von Arx, a spokesman for Zurich-based UBS, said Braga “was a junior employee” in the bank’s fixed-income, currency and commodities unit.

“He was dismissed for gross misconduct in October 2011 following an investigation into alleged mismarking,” Von Arx said in an e-mailed statement. “UBS has zero tolerance for such behavior.”

During cross-examination of Braga today, UBS lawyer Bruce Carr said Braga had asked a broker friend to send him a quote that justified changes made to his valuation, after a colleague said the price was too high.


“You get an entirely unsolicited e-mail that happens to fit” the valuation, Carr said. “That’s quite a coincidence, isn’t it?”


Braga responded that his “dismissal shouldn’t be based on speculation or coincidences.”


The product being re-marked was a credit default swap on European industrial-company bonds, which was illiquid and difficult to value because it was rarely traded.


Lawyers for Braga questioned Paolo Croce, UBS’s European head of rates, at the continuation of the hearing today about the close relationship between proprietary traders such as Minayev, who trade with the bank’s money, and flow traders like Braga, who execute orders on behalf of clients.


“All the other flow traders followed the direction of Mr. Minayev,” Braga’s lawyer said.


Croce said while flow and proprietary traders exchanged information, they weren’t supposed to take instructions on pricing.


Minayev had told Braga, “I need this to move,” according to Croce. “He told him ‘I’m down $9 million today.’”

Here are some preliminary question to set prosecutors on their marry way?

  • How many times did JPM's CIO office "procure a false quote"?
  • How many times did Iksil tell his middle office or subordinates: "I need this to move" - and if he kept it to himself, how many times did Iksil "make it move" on his own?
  • How many times did the CIO "shift the IG-9 market and give a completely false picture?"
  • How many times did Iksil get an external "quote" that overrode the official closing day MarkIt price, or, far worse, did JPM ever tell partially-owned MarkIt what mark to use for a given product, which would be an act of unprecedented illegality.

And this is just the beginning. The reality is that with this revelation it likely means that JPM is probably lying about the fair value of thousands if not millions of other OTC-based products. Which goes to one simple thing: 

Non-existent internal controls!

Because while JPM can blame an entire prop trading office for a pair trade gone wrong, it will have a very tough time explaining how marks impacting billions in P&L could have sneaked past the middle and back office.

Which, however, is possible, at least in theory. 

This brings us to MarkIt - a company that has long been in the public eye for being the primary source of CDS marks, which would be great if not for one small glitch: it is also partially owned by the same banks which stand to benefit if MarkIt "nudges" the market in one way or another.

The following report from Mark Mitchell from 2009 does a great job of exposing some of the potential dirt that MarkIt may be involved in, and raises some critical questions that have never been answered, and which if addressed in the past could have spared JPM shareholders, and potentially US taxpayers, billions in losses:

Did The Markit Group, A Black-Box Company Partially Owned By Goldman Sachs and JP Morgan, Devastate Markets?


Last year, the media reported that New York Attorney General Andrew Cuomo had sent subpoenas to Markit Group as part of an investigation into possible manipulation of credit default swap prices by short sellers. This investigation, like Mr. Cuomo’s other investigations into market manipulation, have yielded no prosecutions.


The Department of Justice is reportedly investigating Markit Group for anti-trust violations. This investigation (which is reportedly focused on how Markit Group packages and sells its information) seems to acknowledge that Market Group has near-monopolistic control of information about credit default swap prices. However, if the press reports are correct, the DOJ has not considered the possible appeal of this monopolistic control to market manipulators.


Meanwhile, Henry Hu, the director of the Securities and Exchange Commission’s division of risk, has said that it has been nearly impossible for the SEC to conduct investigations into any matter concerning credit default swaps because the commission does not have access to any data on the trading of CDSs. In itself, this is a shocking admission.  It is all the more shocking when one considers that the necessary data exists and might be in the hands of The Markit Group – a black box company based in London.


A thorough investigation of Markit Group is urgently required.


Here is what we know so far:

  • Markit Group was co-founded by Rony Grushka, Lance Uggla, and Kevin Gould. Prior to founding Markit Group, Mr. Grushka’s main line of business was investing in Bulgarian property developments. He recently resigned from the board of Orchid Developments Group, an Israeli-invested company based in Sophia, Bulgaria. Messrs. Uggla and Gould formerly worked for Toronto-Dominion Bank in Canada.
  • Markit Group’s founders also include four hedge funds. However, Markit Group refuses to disclose the names of those hedge funds. In response to an inquiry, a Markit Group spokesman said it was “corporate policy” to keep the names of the hedge funds secret, but he would not say why Markit Group had such a policy. It seems worth knowing whether those hedge funds have any influence over Markit Group’s published information or indexes, and whether those hedge funds are trading on that information. It would also be worth knowing whether those hedge funds or affiliated hedge funds have engaged in short selling of public companies whose debt and stock prices were profoundly affected by the information that Markit Group published.
  • Goldman Sachs (NYSE:GS), JP Morgan Chase (NYSE:JPM) and several other investment banks also have ownership stakes in Markit Group. The investment banks received their stakes in exchange for providing trading data to Markit Group. It would be worth knowing whether these investment banks engaged in short selling ahead of Markit Group’s published indexes and price quotations.
  • Markit Group is secretive about how it creates its indexes. In early 2008, The Wall Street Journal noted that the CMBX simply “doesn’t make sense” and that Markit Group’s indexes “might be exaggerating the amount of distress” in the home and commercial mortgage markets. In 2008, the average prediction for defaults on commercial mortgages was 2%. The CMBX implied that the default rate could be four times that level.
  • When short seller David Einhorn initiated his famous public attack on Lehman Brothers, one of his central arguments was that the CMBX (the index that was likely “exaggerating the amount of distress”) proved that Lehman had overvalued the commercial mortgages on its books.
  • In March 2008, the Commercial Mortgage Securities Association sent a letter to Markit Group asking it disclose basic information about how the CMBX index is created and its daily trading volume. “The volatility in the CMBX index, caused by short sellers, distorts the true picture of the value of commercial-mortgage-backed securities,” the group said in a statement.
  • Markit Group is equally secretive about how it derives its “prices” for credit default swaps. A spokesman for the company spent close to one hour talking to Deep Capture. He did his job well and sounded like he was trying to be helpful. But he told us as little as possible.
  • However, in the course of this conversation, we did learn that Markit Group’s “prices” are not actual, traded prices. They are mere quotations. The Markit Group has what it calls “contributors” – hedge funds and broker-dealers that provide it with information. Markit Group has a grand total of 22 “contributors.” Deep Capture asked Markit Group’s spokesman for the names of these “contributors.” The spokesman said he would try to find out the names and call back later. He never called back.
  • The 22 “contributors” provide Markit Group with quotations, and these quotations become the Markit Group’s “price.” In other words, the “contributors” can quote any price for a CDS that they choose, regardless of whether anyone is actually willing to buy the CDS at that price. Markit Group looks at these quotations. Then it somehow decides which quotations make the most sense. Then it publishes information that purports to represent the actual market price of that CDS. This process is certainly unscientific. And it is ripe for abuse.
  • Consider, for example, the Markit Group “price” for CDSs insuring the debt of company X.  The Markit Group price strongly suggests that company X is going to default on its debt in the immediate future. Short sellers eagerly point to the Markit Group CDS “price” as evidence that company X is doomed. Panic ensues, and suddenly, company X really is doomed. But the fact is, nobody ever bought a company X CDS at the price quoted by Markit Group. Rather, that panic-inducing “price” was, in effect, pulled out of a hat. Who pulled it out of a hat? That is matter of immense importance. There are two possible scenarios:
  • The first possible scenario is that the 22 “contributors” report their quotations in good faith. They should be sending the actual traded price, not just a quotation, but assume they are just doing what was asked of them. From these quotations, Markit Group somehow decides what the “price” should be. It is possible that this decision is based on some secret formula (which would be worrisome); or it is possible that Markit Group executives sit around a table debating what the price should be and take a shot in the dark (which would be even more worrisome); or it is possible that Markit Group deliberately chooses the most horrifying price possible in order to assist the short sellers who are affiliated with its owners (which would be a matter for the authorities).
  • The second possible scenario is that Markit Group acts in good faith (if not scientifically), but one or more of the 22 “contributors” or their affiliates has an interest in seeing company X fail. If just one of those “contributors” sends in an astronomically high quotation, that could be enough. Markit Group factors the absurd quotation into its posted “price” and it suddenly becomes possible to convince the world that company X is about to default on its debt.  Panic ensues, the firm’s layer of debt dries up, the stock price plunges, and perhaps the “contributor” or its affiliate make a lot of money.
  • As Deep Capture understands it, CDS quotations suggested by the 22 “contributors” also help determine the movement of the CMBX and ABX indexes. The movement of these indexes did serious damage to the American economy in multiple ways. The  indexes prompted write downs at most of the major banks and mortgage companies. They were ammunition for short sellers, like David Einhorn, who claimed that companies had cooked their books by not writing down to the rock bottom prices suggested by the Markit Group indexes. They helped precipitate the decline in prices of mortgage securities, and contributed mightily to the panic that spread across the markets.  A lot of people made a lot of money as result of those indexes moving downward. So, it is rather important to know more about how those indexes are formulated, and if they can be driven by the same people who are making directional bets on their movements.

Conclusion: Ten years ago, there was no such thing as a credit default swap. Six years ago, a very small number of investors traded credit default swaps as hedges against the long-shot possibility of corporate defaults. Nobody looked to credit default swaps as reliable indicators of corporate well-being.


Then, suddenly, there were over $60 trillion in credit default swaps outstanding. That is, over the course of a few years, somebody had made over $60 trillion (many times the gross domestic product) in long shot bets that borrowers would default on their debt. As this derivative risk marbled through the system, the trading in credit default swaps was completely opaque. Nobody knew who bought them, who sold them, or at what price.



These “prices” were not prices in any meaningful sense of the term.  But, suddenly, these “prices” became perhaps the single most important indicator of corporate well-being. Assuming that those four hedge funds and the 22 “contributors” (or hedge funds affiliated with them) bet against public companies, it seems more than possible that short-sellers got to run the craps table, call the dice, and place bets, all at the same time.


So perhaps it is not surprising that a lot of long-shot rolls paid off quite nicely.

Bottom line: Jamie Dimon's "tempest in a teapot" just became a fully-formed, perfect storm which suddenly threatens his very position, and could potentially lead to billions more in losses for his firm.

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juujuuuujj's picture

Yeah? What about it, yous mugs?!

silver500's picture

"As a result, the Firm is no longer confident that the trader marks used to prepare the Firm's reported first quarter results reflect good faith estimates of fair value at quarter end."


Who would have thought that?  But its all been fixed now. "The control deficiencies were substantially remediated by June 30, 2012".

AlaricBalth's picture

Don't say I didn't warn you, twice. ;-)

From 5/30 post:
"I was pounding the table about this kind of crap occurring two weeks ago. On multiple posts I talked about the "creative" price discovery on Level 3 assets.

From 5-15-12. : These banks are able to obstruct price discovery on Level 3 assets which allows them to conceal losses. They book gains immediately as they occur, for obvious reasons, but delay reporting losses through the suspension of trading on certain Level 3 assets thereby manipulating price discovery which lets them hold back reporting of losses until they get too big.

Dr Benway's picture

The Australian listed investment company sector is manipulating similarly.

I know I go on about this but it's one of the biggest ponzis in history.

GeneMarchbanks's picture

LOL @ Crossholdings chart.

Ah, Australia...

SheepRevolution's picture

Do banksters lie?! Who could have ever thought?

I am shocked, SHOCKED, I tell you!

TruthInSunshine's picture

Jamie & Lloyd (Good 'Ole Boys)

by:  BFF of the New York Fed


Just'a good ol' boys
Never meanin' no harm.
Beats all you never saw
Been immune from any & all laws
Since the day they was born

Straightnin' their books
Flatnin' proposed bills
Someday a Core-zined muppet might get 'em
But the law never will

Makin' their way
The only way Wall Street knows how
Being parasites off the public teat
That Congress, The Prez, Geithner & Bernank allow.

(Jamie Dimon Solo)
I'm a good ol' boy
You know my momma loves me
But she don't understand
They keep on showin' my face, not the hands that I grease, on her TV

BaBaBouy's picture

Y'all Don't Worry... Mitch Ronney will solve ALL This Shit ...

He's Gonna Ship all the Banks to CHINA, let them run it with Dollar-A-Day workers, what a genious...

MUGSY will be in the UI Lines...

ITrustMyGut's picture

maybe its hopium.. but my sense is.. this is the begginning of the bell tolling... and the implosion of the derivatives markets....

go go pastor Lindsay!

Benjamin Glutton's picture
Revealed: JPMorgan Paid $190,000 Annually to Spouse of Bank's Top Regulator When will we stand up to Wall Street and their sycophants in Congress and say: “ENOUGH!”

On May 10 of this year, Jamie Dimon, Chairman and CEO of JPMorgan, announced that billions of insured deposits at his bank had been invested in high risk derivatives and had sustained at least a $2 billion loss.  The Department of Justice and FBI have commenced investigations.  Dimon is expected to announce the current extent of those losses this Friday in an earnings conference call.

Following the May 10 announcement, there were numerous calls for Dimon to step down from the Board of Directors of the Federal Reserve Bank of New York.  That organization is the primary regulator of the firm. There was widespread public outrage that the CEO of a bank had no business serving on the governing body of his regulator.  (The New York Fed has a long history of such conflicts.)

Now it has emerged that not only was Dimon conflicted in his role on the New York Fed but the President and CEO of the New York Fed had an equally dubious conflict of interest.

William C. Dudley has been employed by the New York Fed since January 1, 2007, first heading up the powerful Markets Group. That Group manages the supply of bank reserves in the banking system according to the mandate of the Federal Open Market Committee (FOMC).  On January 27, 2009, Dudley was elevated to President and CEO of the New York Fed.  Financial disclosure forms for 2008 through 2010 show that Dudley’s wife, Ann Darby, was a former Vice President of JPMorgan and had holdings of more than $1,500,000 in deferred income accounts at the firm as well as between $250,000 to $500,000 in a 401(K) plan there.

In a letter dated January 22, 2009, authored by the New York Fed’s General Counsel, Thomas C. Baxter, Jr. and Deputy General Counsel, Michael Held, two financial waivers were sought for Dudley.  One involved $1.45 million in Treasury Inflation Protected Securities (TIPS) and the other involved a small monthly pension of $124.38 that Dudley would receive from his previous employer, Goldman Sachs, at age 65.  (Dudley’s financial disclosure forms show over $1 million in his Federal Reserve Retirement Thrift Plan, which seems an extraordinary sum for his 5-year tenure.  It could be that he was permitted to roll over most of his Goldman pension into the Federal Reserve plan, explaining why his monthly Goldman benefit at age 65 is so small.)

The January 22, 2009 letter carries the following statement:

“In addition, please note Mr. Dudley’s spouse previously worked at J.P. Morgan Chase (JPMC) and as a result received certain deferred income distributions from JPMC in the aggregate amount of approximately $190,000 annually.  These disbursements will wind down and cease in 2021.  We are currently in discussions with Mr. Dudley, representatives from the Board of Governors and JPMC regarding these financial interests.  These interests would only give rise to a conflict in the event that Mr. Dudley were to work on a matter having a direct and predictable effect on JPMC’s ability or willingness to continue paying these amounts to Mr. Dudley’s spouse.  Currently, no such matter exists.  We hope to come back to you with an update on this issue in the near future to let you know how it has been resolved.”

The New York Fed carries the following statement about conflicts on its web site:

“New York Fed employees are subject to the same conflict of interest statute that applies to federal government employees (18 U.S.C. Section 208). Under Section 208 and the New York Fed’s code of conduct, a Bank employee is prohibited from participating personally and substantially in an official capacity in any particular matter in which, to the employee's knowledge, the employee has a financial interest if the particular matter will have a direct and predictable effect on that interest. Participation in a particular matter may include making a decision or recommendation, providing advice, or taking part in an investigation.”

TheFourthStooge-ing's picture


In addition, please note Mr. Dudley’s spouse previously worked at J.P. Morgan Chase (JPMC) and as a result received certain deferred income distributions from JPMC in the aggregate amount of approximately $190,000 annually.  These disbursements will wind down and cease in 2021.

"She's through! She's outta the way, that's what she is! You go back to that dame and it's suicide. Suicide for both of you."

TheFourthStooge-ing's picture

TruthInSunshine said:

Just'a good ol' boys
Never meanin' no harm.
Beats all you never saw
Been immune from any & all laws
Since the day they was born

Jamie Dimon knows what he wants:

(Jamie Dimon Solo)
I'm a good ol' boy
You know my momma loves me
But she don't understand
They keep on showin' my face, not the hands that I grease, on her TV

So I won't get away with it, huh? How many times I heard that from dumb coppers I couldn't count.

jekyll island's picture

Is this how the shadow banking system will implode?  Uhhh, we, I mean someone mismarked the price and as a result we will have to mark down 10000 basis points.  I can't believe Marklt is owned by the very banks that use it, aren't they supposed to be governed by the Fed?  Oh, wait...

CloseToTheEdge's picture

thats how overseas shadows (GE) will bring their profits 'home'

tax free

Leopold B. Scotch's picture

Buts the laws says we's suppossa only use Massa's approved market, Chicken George.

RockyRacoon's picture

"Markit Group’s “prices” are not actual, traded prices. They are mere quotations. The Markit Group has what it calls “contributors” – hedge funds and broker-dealers that provide it with information. Markit Group has a grand total of 22 “contributors.” Deep Capture asked Markit Group’s spokesman for the names of these “contributors.” The spokesman said he would try to find out the names and call back later. He never called back."

Is it me, or is this the very definition of the derivation of LIBOR?  Eerily similar.

Max Fischer's picture

The phrase, "tempest in a teapot" has its origins dating as far back as Cicero, but, in reference to J Dimon, the most ironic and notable history of the phrase comes from Lord Frederick North who used it to describe his initial reaction to the Boston Tea Party - just tax them, the little guy can't do anything about it, right? It's not unlike Wall Street's attitude about socializing THEIR losses - just add it to the public's tab, they can't do anything about it, right? History is replete with examples of aristocrats, blinded by their arrogance and self-righteousness, underestimating that wonderfully simple and reliable thing called karma. On occasion, Lady Fortune certainly has a penchant for leveling the playing field.

Joe Sixpack's picture

Possible ords uttered in Wall Street corporate boardrooms in 2008:

"Let them eat cake"

Paul Atreides's picture

Funily enough my mossbergs nick name is karma and you never want to underestimating how wonderfully simple and reliable she can be.

CloseToTheEdge's picture

We can't stop here, this is bat country!

Hunter S. Thompson

Paul Atreides's picture

One toke? You poor fool! Wait till you see those goddamn bats.

Stock Tips Investment's picture

Unfortunately, these additional losses were expected. The explanations that gave the company, they opened the possibility that "appear" additional losses. And these have begun to be revealed. If the international economic crisis worsens, we will see much higher losses.

Never One Roach's picture

Bizarre Case of Failed [PFG] Broker Gets Even Stranger


CEDAR FALLS, Iowa - Just days before Peregrine Financial Group collapsed, the firm's president sent an email to employees suggesting the crisis had passed, CNBC has learned.

"It is believed that based on current cost cuts and projections for increases in income in particular from international business ... that PFGBEST will be able to run at break even," wrote President and Chief Operating Officer Russell Wasendorf, Jr., in the July 6 email obtained by CNBC and verified by multiple PFG employees.

(Click here to read the entire email.)

The email says a ten percent across-the-board salary cut planned for this month would not be necessary.

"We have done our utmost to weather the economic difficulties presented in 2012 and the industry factors that caused all (futures brokerages) to require some restructuring," the email said.




Is that what they call it now??


(sorry, I had to post this sums up Wall Street's attitude 100%)

AcidRastaHead's picture

Yet financial reporting still requires 'good faith'

Ghordius's picture

"In other news, there goes the entire CDS market" as it should, as it should. Sadly, we are not yet there. BAN CDSs.

whenever I hear people defending the "modern" crop of derivatives I get sick. "blablabla "free market" blablabla"

Fiat currencies are just leveraging mechanisms - they all still have gold (yes and commodities/military power) as an underlying.

Fractional banking is another leveraging mechanism - that has currency as an underlying.

CDS are nothing more than bets. They are not insurance, otherwise they would have to be treated as such and history and experience has shown how to regulate insurance in a way that you don't get to insure the houses you plan to burn down.

Now it's finally coming out that CDSs are also one of the many banking accounting scams, too? It's about time.

Nevertheless: BAN THAT HIDEOUS STUFF. If you want to get a casino licence, go honest, get one, preferably with your own money.

Banking in the CB-and-State-supported-because-systemic-relevant way we have currently is not compatible with derivatives like CDSs.

Open your eyes, neo-liberal propaganda "free-marketers" victims.

bob_dabolina's picture

whenever I hear people defending the "modern" crop of derivatives I get sick. "blablabla "free market" blablabla"

I respectfully am disinclined to agree with that.

Had the U.S government and Federal reserve not intervened in 2008-2009 there probably would be no J.P Morgan existing today to make these trades.

INSTEAD what happened was J.P Morgan got BIGGER by acquiring WAMU and Bear Stearns with implicit tax payer guarantees ensuring a free market DOES NOT exist. A free market would have prevented this. 

Don't forget, when profits are privatized and losses socialized to the tax payer, you get a fundamental pillar of an economy driven with fascit principles.

The Final Countdown's picture

Free markets and deregulation preventing financial institutions from parasiting on everyone else, and destroying real wealth created or accumulated by real businesses and real people. Where did I hear that before again?...

Ghordius's picture

Read again the part with the banking system: the way it is set up, it's systemic relevant. If you have this status, you will be bailed out with tax payer money. That simple.

FIVE MEGABANKS holding 80% of hundreds of TRILLIONS of derivatives/BETS and so DEFINING who is TooBigToFail and who has to bite the dust. If this is not enough to understand the whole concept I don't know what will ever do. 

THIS IS THE TRUE ENEMY. And it's a system. An unspoken CARTEL made out of BETS.

AnAnonymous's picture

you will be bailed out with tax payer money.


US citizens do not bail themselves out with tax payer money since the tax payer is broke.

They are bailing themselves out with what their fiat can buy. And that is mostly anything on the face of the world.

The consumption of planet Earth to sustain US citizens in their US citizen dead end way of life keep going.

US citizens consume and consume... until nothing left to consume.

Ace Ventura's picture

Yes, the other 5.7 billion people on planet Earth are paragons of pious resource/financial stewardship. It's only those infernal Americans who 'consume' stuff.

AnAnonymous's picture

This is a US world order. The world is organized so that US citizens residing in the US of A can consume as they consume.

Human beings must consume to support themselves. Therefore, no matter the order, an extorted, a farmed has to consume.

US citizens have risen from the ranks as the best extorters of the weak, farmers of the poor ever but they did not manage to solve that issue.

Second, production is consumption. When you want a car, the production process will consume.

The whole world consumes in order to sustain US citizens in their standard of life.

It is erroneous to limit US citizen consumption to US citizen nations as all most consumption in other countries is constrained to favour US citizen consumption.

Inthemix96's picture

Here amanomylous,

How many minutes a day does your boss at foxconn know that you are on his interwebs connection?

Is it not time you fucked back off to work for 30 cents an hour for 26 hours a day?

You my illegibleyas friend are checking hard earned down the pan posting here.

Fuck off

AnAnonymous's picture

My boss knows every single minute I am on the web.

akak's picture

Does that include the time you spend squatting on the side of the road in defecation?

Or does your keyboard's cord not reach quite that far?

TheFourthStooge-ing's picture


My boss knows every single minute I am on the web.

Of course he does. You log your activity in your TPS reports and get paid 3 yuan for every Chinese citizenism comment that you post.

JimBowie1958's picture

Your antiAmerican bullshit is tired and boring, numbnuts.

If we ran the world as you seem to psuedo-think, why is Assad still in power? Why are so many countries leaving the USD as a reserve currency? Why do we regularly get our asses handed to us by China in trade?

Grow the fuck up or do better agit-prop.

Your not even a good laugh any more.

AUD's picture

That's true but what are you going to do about it? Your comrades in the Chinese government are one of the biggest bidders for US fiat.

Using the blood of you workers of course.

AnAnonymous's picture

People around the world have to hold USD. With USD, no entry to the resource markets, including the domestic resources.

It is not China limited, it is the case for every country out there and the way US citizens are bailing them out.

Including long term friends to this site, Zimbabwe.

AUD's picture

Evidently you don't know enough to know that the USD is given its status by the bid of other nations, nothing more. China being one of the biggest bidders of all. Your own glorious government giving you the shaft.

So what are you going to do about it, other than bitch on 'bitch club'?

AnAnonymous's picture

The bid of other nations?

Nope. The US military at the ultimate point.

China can not bypass USD as it is needed to access the commodity world market.

And commodity rich countries were entangled in a web of debt, with actual repoing process, which force them to import USD to hope repaying on their debt and avoid repoing.

You know, contrary to the example given currently by US citizens, which seems to indicate that laxity is the only policy possible, austerity had been applied by US citizen world institutions on countries whose situation had much less consequences on the world scale.

And finally, the volunteerism bit. What would it change to the depiction of the situation?

What would US citizens recommand to US citizens though? Probably to phone your lawyer, write you representative... That would be helpful, apparently.

AUD's picture

As I said, you don't know enough to know. No bid, no value.

AnAnonymous's picture

To know what?

Human beings and therefore human societies have to consume to support themselves.

US citizens would like to make anything a matter of will but it is not the case.

Consequently, societies have to bid for resources to support themselves.

As US citizens have cornered the market making sure that resources have to be traded in USD, any bid happening on resources (and these kind of bids can not be bypassed) give value to USD.

So what?

akak's picture

The totalitarian Chinese Communist regime, #1 polluting nation and #2 (and gaining on the USA) blobber-up of world resources, indeed knows all about consuming, particularly in the most short-term and unsustainable manner.  Just ask the Tibetans, who along with their homeland have been consumed by rapacious Han Chinese greed and ethnic arrogance.  But they are, after all, just another bunch of "foreign devils".

Joe Sixpack's picture

I guess we have to apologize for winning WWII and ending up the only nation standing om its own feet. This is how the US dollar became almighty. This is ending now.

History moves at a much slower rate than liberal's imagiNations.

HardAssets's picture

Fact is, all the people of the world get scewed over by their 'leaders'/politicians.

They love to play the 'them versus us' game. Sometimes they can use propaganda to build up enough emotion in all us serfs that they can get us to go to war against each other. (Lots of flag waving and slogans help.)  At ground level its a bunch of guys shooting at other guys who never stole their money, took away their liberties, forced them to do anything without their consent, or did a damned thing to harm them.

Its really amazing when you think about it.

jekyll island's picture

It is a brilliant ponzi.  CDS are not insurance, don't have to be regulated and will not be allowed to be traded on a real market where true value would be determined.  Collect millions in premiums, if the system collapses get bailed out by gubmint.  It's like having your rich parents pay off your gambling bets.  

disabledvet's picture

if you CAN be bailed out. I was truly surprised that Treasury even came up with the 750 billion back in 2008. "All repaid now" of course. What happens when there isn't the money period Ghordius? You more than anyone should know: right now it's called Spain. To me "it's the scam of the Century" not because "it's the end of the world and we're all gonna die!" but because it somehow convinces entire nations that "you owe us so much money you must turn over your gold to us." In short while giving all the appearances of being "beyond belief complex" the ultimate goal seems to be nothing more than "trading" pieces of paper for actual physical gold on a MASSIVE scale.

AnAnonymous's picture

On what ground? US citizenism provided other examples showing that the privatization of gains and socialization of losses could happen without a FED as it was created in 1913.

The whole history of US of A is about privatizing gains and socializing costs.

'Americanism' has proven its worth in privatizing gains and socializing costs, no matter a FED or not.