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This Is What Happens When A Mega Bank Is Caught Red-Handed

Tyler Durden's picture


Back on May 10, when JPMorgan announced its massive CIO trading loss (which may or may not have been unwound courtesy of a risk offboarding to another hedge fund which may or may not be backstopped by the Fed as the massive IG9 position was not novated but merely transferred) JPM also disclosed something else which may have bigger implications for the broader, and just downgraded, banking sector. As a reminder, in the 10-Q filing, the bank reported a VaR of $170 million for the three months ending March 31, 2012. This compared to a tiny $88 million for the previous year. According to the company, “the increase in average VaR was primarily driven by an increase in CIO VaR and a decrease in diversification benefit across the Firm.” What JPM really meant is that after being exposed in the media for having a monster derivative-based prop bet on its books, it had no choice, as it was no longer possible to use manipulated and meaningless risk "models" according to which the $2 billion loss, roughly 23 sigma based on the old VaR number, was impossible (ignoring that VaR is an absolutely meaningless and irrelevant statistical contraption). Turns out it is very much possible. Which brings us to the latest quarterly Office of the Comptroller of the Currency report, and particularly the chart on page 7. More than anything it shows what happens when a big bank is caught red-handed lying about its risk exposure. We urge readers to spot the odd one out.

Another way of visualizing the change:

That's correct: the 93% increase in JPMorgan VaR from Q1 2011 to Q1 2012 is solely due to the sudden "realization" that the world's biggest bank by derivative holdings (at just about $73 trillion) is in reality nothing but a glorified hedge fund.

Which brings up three important questions:

  1. Now that the "trading desk" that was responsible for up to 25% of JPM's net income has been effectively closed, how will Jamie Dimon succeed in creating recurring profits in line with historical average and future expectations?
  2. What will happen to the other "VaRs" once they too are exposed, either after the loss is uncovered, or when regulators actually dare to do their job for once and truly dig through the banks' books?
  3. Which other bank has a huge and heretofore undisclosed multi-billion derivative "easter egg" on its books?

For Question 3 we may have a suggestion.

Below we present a chart showing the historical distribution of derivative holdings at Morgan Stanley HoldCo, and Morgan Stanley Bank NA, also per the OCC.

What is notable is that MS is aggressively shifting derivative exposure from its HoldCo to its Deposit unit Morgan Stanley Bank NA. Why? The below summary chart from Thursday's Moody's downgrade of the bank should provide a hint:

What is happening is that Morgan Stanley is moving ever more derivatives from its just Baa1-downgraded (the third lowest investment grade rating) HoldCo to its still A-rated (even if at the lowest A3 rating) depositor entity (yes, Morgan Stanley apparently has deposits, but don't look for ATMs). The simple reason being that MS' counterparties are increasingly reluctant to transact with Morgan Stanley unless they get the implicit backing of some real cash as opposed to just promises by a bank that may be the next in line after JPM to report of a VaR "glitch."

In other words: more and more depositors are being involuntarily placed on the hook to allow the bank to even have the remote chance of generating the same kinds of "hedge fund" type-profits as it did in the past 3 years. Because without its derivative book, MS is just another non-prop trading bank, whose return on equity in a ZIRP environment is at best laughable thanks to a Net Interest Margin which is, well, non-existent.

We just wonder: in light of the recent JPM fiasco, and in light of what is a creeping transfer of trillions in derivatives exposure to an entity where depositors, and eventually taxpayers, would be stuck footing the bill, and more importantly, in light of a 31% drop in Y/Y VaR even as JPM's has nearly doubled after being exposed for being nothing but a glorified Fed-backstopped hedge fund (as we suggested back in April before anyone knew the scope of the JPM derivative-based exposure), shouldn't someone: the Fed, the SEC, the OCC, or anyone for that matter, be finally asking Mr. Gorman just what he has going on in his books?


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Sun, 06/24/2012 - 13:09 | 2555931 jomama
jomama's picture

there are only crumbs left in the cookie jar, bitchez.

Sun, 06/24/2012 - 13:12 | 2555937 SilverTree
SilverTree's picture

I've been caught wacking-off a few times. It sucks.

Sun, 06/24/2012 - 13:17 | 2555951 ghengis86
ghengis86's picture

Don't stop, just look them in the eyes and finish like a beast

Sun, 06/24/2012 - 13:27 | 2555978 LetThemEatRand
LetThemEatRand's picture

"I always yell 'I'm not masturbating!' when someone knocks on my office door so they know I'm not masturbating."  Rob Delaney.

Sun, 06/24/2012 - 13:33 | 2555995 Albertarocks
Albertarocks's picture

A little off topic but I still think this is funnier than hell...

How to set fire to a cop car: "Easy. You just pour kerosene over a ferret, light it on both ends, put it in." [Alan, The Hangover]

Sun, 06/24/2012 - 14:05 | 2556061 nope-1004
nope-1004's picture

JPig is going down.  The body is too fat for the head - management doesn't have the brain power to handle the huge exposure and structure of that bank body.  They've gobbled up the world without care and attention, soon to have a heart attack and collapse.

When the body gets too big for the brain, even the smartest in the world can't save an out-of-date POS dinosaur.

JPig will be extinct soon.


Sun, 06/24/2012 - 14:32 | 2556123 AldousHuxley
AldousHuxley's picture

Insolvent US banks busy pointing fingers at European banks to deflect attention as they resuscitate themselves with free money from Club Fed.


It is like unemployment insurance benefit recipient pointing fingers at welfare recipient. "HAHA! my welfare benefit is better than yours"



Sun, 06/24/2012 - 16:05 | 2556312 redpill
redpill's picture

Let me guess, their net exposure was zero, right?  lol.


Sun, 06/24/2012 - 17:14 | 2556393 macholatte
macholatte's picture



This Is What Happens When A Mega Bank Is Caught Red-Handed


Let's have a look....... I see they get a red mark on a chart and that's it. Jamie still gets paid $100,000/day plus benefits, corp jet, corp credit card, butler, chaufeur, free lunch, free dinner and so on. No human has any personal liability for anyting.

Or did I miss something?

Mon, 06/25/2012 - 02:13 | 2557034 jeff montanye
jeff montanye's picture

you are correct sir; no human has any personal liability, just a red mark on a chart.

still history shows that, in prior similar situations, the red marks migrate to locations nearer and dearer, as it were.

Sun, 06/24/2012 - 18:06 | 2556459 jekyll island
jekyll island's picture

"when it becomes serious, you have to lie."



Sun, 06/24/2012 - 20:51 | 2556736 rocker
rocker's picture

It has been serious for way too long.  Eh.

Mon, 06/25/2012 - 01:19 | 2557002 Squid-puppets a...
Squid-puppets a-go-go's picture

"shouldn't someone: the Fed, the SEC, the OCC, or anyone for that matter, be finally asking Mr. Gorman just what he has going on in his books?"

 "You always were an asshole, Gorman"

Sun, 06/24/2012 - 14:33 | 2556129 Popo
Popo's picture

Oh I wish you were right.  But unfortunately, management has this under control:  They'll bonus themselves at obscene levels until the ship finally starts to go under, and then they'll call it a "crisis" and you and I will be forced to bail them out.   There will at no point be any mention of clawbacks, jailtime,  or blame.   And most of the public will go on believing that the collapse was an act of god.

We've all seen this movie 100 times before.   It's not some sideshow to the business of banking -- it *is* the business of banking.


Sun, 06/24/2012 - 19:34 | 2556606 Mad Mad Woman
Mad Mad Woman's picture

I think the people will not allow any more bailouts. People will start blowing them up. I am not going to condone any more bailouts. I will revolt!

Sun, 06/24/2012 - 20:52 | 2556737 rocker
rocker's picture

You really believe the people are in charge.   Please......... 

Sun, 06/24/2012 - 15:16 | 2556210 Sudden Debt
Sudden Debt's picture

They're all going down.
Look at the size of ms! Bigger than gs and c, who would have known!

Sun, 06/24/2012 - 18:16 | 2556481 AnAnonymouses
AnAnonymouses's picture

US citizenism banks fat just like US citizenses!  Whole world looking forward to fat American citizenism heart attack!  China like to eat corpse!  US citizenism babies make great longevity powder!

Sun, 06/24/2012 - 21:18 | 2556774 Ms. Erable
Ms. Erable's picture

Almost junked you, then did a double-take on the user name. Nice. :)

Sun, 06/24/2012 - 23:51 | 2556936 Tom Servo
Tom Servo's picture

Avatar is win, and i about skipped past your post as well since he doesn't make much sense...


Sun, 06/24/2012 - 18:30 | 2556512 ParaZite
ParaZite's picture

JP Morgan going down you say? 

4 words. Too Big to Fail. 

The elite didn't allow them to fail before. I doubt they will allow them to fail now. 

Sun, 06/24/2012 - 22:37 | 2556874 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

The different parts of the body were having an argument to see which was most important and who should be in charge.

The brain said, "I do all the thinking so I'm the most important and I should be in charge."

The eyes said, "I see everything and let the rest of you know where we are, so I'm the most important and I should be in charge."

The hands said, "Without me we wouldn't be able to pick anything up or move anything. So I'm the most important and I should be in charge."

The stomach said, "I turn the food we eat into energy for the rest of you. Without me, we'd starve. So I'm the most important and I should be in charge."

The legs said, "Without me we wouldn't be able to move anywhere. So I'm the most important and I should be in charge."

Then the asshole said, "I think I'm the most important and I should be in charge."

All the rest of the parts said, "YOU?!? You don't do anything! You're not important! You can't be in charge."

So the asshole closed up.

After a few days, the legs were all wobbly, the stomach was all queasy, the hands were all shaky, the eyes were all watery, and the brain was all cloudy.

They all agreed that they couldn't take any more of this and agreed to put the asshole in charge.

And the moral of the story is?

You don't have to be the most important to be in charge, just an asshole.

Read more: Which part of your body is most important part? | Answerbag
Mon, 06/25/2012 - 00:45 | 2556984 analyzer_66
analyzer_66's picture

mhm, reminds me of the story of the bank that taught its asshole to speak, pretty soon it started shouting and demanding equal rights, and the bank would punch itself in the asshole and stuff things in it to make it shut up, pretty soon the eyes glazed over and the mouth closed up and the brain died

Sun, 06/24/2012 - 17:35 | 2556409 vast-dom
Sun, 06/24/2012 - 15:56 | 2556292 vast-dom
vast-dom's picture

there's no more banking! it's pure ponzi all the way till armageddon! fed are crooks along with laughable sec et. al gaming the planet with reckless abandon masked as thoughtful concern.

trust that you will be fucked over and invest, or not, accordingly. there is little justice left. all that's left is the nature of cycles, physics and collapsed lung breathes a doubt in everyone.....


SHORT THE PLANET (as a matter of principle)!

Sun, 06/24/2012 - 16:01 | 2556307 DoChenRollingBearing
DoChenRollingBearing's picture

And the easiest way to do that?  Buy gold!

Sun, 06/24/2012 - 13:24 | 2555970 Beam Me Up Scotty
Beam Me Up Scotty's picture

By your girlfriends mom?

Sun, 06/24/2012 - 14:03 | 2556056 Bananamerican
Bananamerican's picture

"more and more depositors are being involuntarily placed on the hook"


4 years on, if you still have money in a TBTF, you got it coming....

Sun, 06/24/2012 - 15:13 | 2556204 buckethead
buckethead's picture

The vast majority of Americans are blithely unaware of the monetary system we are subjected to. I am among them. I don't know what made me start seeking information other than being proven wrong in internet debates.


Too much time on my hands having been a builder of housing.


I can't revel in the fact that so many are going to get burned. People actually believe they are doing the "right" thing by playing by the (farcical) rules. 


not every one will have the time or inclination to discover truths of banking. We too often take things at face value, but that makes us naive, but not deserving of being robbed.

Sun, 06/24/2012 - 16:45 | 2556310 vast-dom
vast-dom's picture

don't be naive keep paying your taxes and don't ask questions lest anyone disturbe the Fed and the gov from distributing monies for Wall St bonuses and fake ponzi market subsidies. GDP? Productivity? Flow of capital to generate real growth? Fundamentals? No that's not in the interest of the gov or the fed....don't be naive.....just watch Bernank feign thoughtful concern, listen to the nobel peace prize winner as his drones break inter nation conventions at a direct cost to you, read the laureate OPINION peaces of aliens stimulating the economy.......and the sheeple cheer of their respective binary-candidates. it's worse than a farce!


(PS a banker gets paid and gets bonuses by taxpayer funded bailouts and ZIRP and QE, then did that banker pay taxes?)

Sun, 06/24/2012 - 21:33 | 2556797 Cathartes Aura
Cathartes Aura's picture

naive works until it doesn't, then you've got to catch up on informed - as you did - never too late to read ZH!

is this your song?   

Meat Puppets - Buckethead

Sun, 06/24/2012 - 17:11 | 2556388 Not Too Important
Not Too Important's picture

Somewhere I read, it may have been ZH the other day, I'm too tired to look, about how the bulk of JPM's 'profit' is nothing more than a giant government subsidy, that they aren't really too profitable at all.

If JPM get this 'government subsidy', then you can bet the other four all do, too.

I tried to find it later that day and couldn't, but I sure think someone should do a full story on it. Just a simple comparison between what each Big 5 bank makes as a subsidy, and what their P/L looks like without the subsidy. That would very simply show whether they really make any money or not.

It may be possible that the big five only exist because of a permanent subsidy, and not any banking/investment profits. I know this has been discussed before, but not with specific charts breaking this out.

Farmers paid not to grow, bankers paid only to give themselves bonuses. No wonder Congress buys a lot of farmland and Big 5 bank stock for themselves.


Sun, 06/24/2012 - 19:38 | 2556617 Mad Mad Woman
Mad Mad Woman's picture

I think there are a lot of people that know that these banks are really insolvent. If you take into account the derivative trade at each bank, they ae insolvent. These banks don't have that kind of cash. The jig is soon up. They will die. They MUST die. We cannot bail out any banks period. They MUST die.

Mon, 06/25/2012 - 00:15 | 2556962 BotMightFly
BotMightFly's picture

"We cannot bail out any banks period." Uh, we did not bail them (the banks, etc.) out.  The banks, the fed, the congress bailed out the banks........We........had nothing to do with it.  

A boycott, commodities buy, moving money out of checking  or at least downsizing it, a real estate tax moritorium.....then, they may take notice - if you are not chipped out of existence.

Sun, 06/24/2012 - 13:20 | 2555947 DoChenRollingBearing
DoChenRollingBearing's picture

JP Morgan took a big hit in the "100 Most Respected Companies" in Barron's this weekend.  So did other TBTF banks.  And who is Number One?  Apple, again.

Read about this and "guar gum" and lithium all at my new blog piece "Review of Barron's -- Dated 25 June".  Hey, some of you may not want to spend the $5.00!

Sun, 06/24/2012 - 13:22 | 2555962 spentCartridge
spentCartridge's picture

More like dust ...

Sun, 06/24/2012 - 15:45 | 2556280 Piranhanoia
Piranhanoia's picture

and roaches.

Sun, 06/24/2012 - 13:14 | 2555943 old naughty
old naughty's picture

the "exposures" just never end...

Sun, 06/24/2012 - 13:16 | 2555944 GeneMarchbanks
GeneMarchbanks's picture

'ignoring that VaR is an absolutely meaningless and irrelevant statistical contraption'

That's correct: the 93% increase in JPMorgan VaR from Q1 2011 to Q1 2012 is solely due to the sudden "realization" that the world's biggest bank by derivative holdings (at just abnout $73 trillion) is in reality nothing but a glorified hedge fund.

According to Taleb taking 10 to 15 times the risk of a 'regular' hedge fund.

Sun, 06/24/2012 - 13:50 | 2556029 dannyboy
dannyboy's picture

The real mafia pays far better ;).

Sun, 06/24/2012 - 13:43 | 2556019 Centurion9.41
Centurion9.41's picture

Great work, Mandlebrot should be required reading for all undergraduate students.

Sun, 06/24/2012 - 13:54 | 2556041 trebuchet
trebuchet's picture

Great Article! 


The punchline is LOST because of the writing style... Look at the paragraph below, which is  one long sentence with two colons, many "and this, "and that", "and  xxx "

It only takes two minutes to break it into sentences.  Or try using bullet points..  PLEASE!


I'm not being a grammar nazi, just asking for a little more clarity coz Im a muppet and dont think at the speed you guys write. 





We just wonder: in light of the recent JPM fiasco, and in light of what is a creeping transfer of trillions in derivatives exposure to an entity where depositors, and eventually taxpayers, would be stuck footing the bill, and more importantly, in light of a 31% drop in Y/Y VaR even as JPM's has nearly doubled after being exposed for being nothing but a glorified Fed-backstopped hedge fund (as we suggested back in April before anyone knew the scope of the JPM derivative-based exposure), shouldn't someone: the Fed, the SEC, the OCC, or anyone for that matter, be finally asking Mr. Gorman just what he has going on in his books?

Sun, 06/24/2012 - 15:27 | 2556239 No Euros please...
No Euros please we're British's picture

Hey, trebuchet, I bet you're the guy that reported Egan-Jones to the SEC!

Tue, 06/26/2012 - 04:26 | 2560729 trebuchet
trebuchet's picture

duh, your logic fails

Sun, 06/24/2012 - 20:31 | 2556694 Nobody For President
Nobody For President's picture

I know exactly what you are saying, used to be there. Just work at and you #will# get up to speed.

As the old saying goes: "Keep up or get drug."

Sun, 06/24/2012 - 15:02 | 2556190 resurger
resurger's picture

JPM Backtesting the VaR actually showes bigger losses ...

Gene, you know the moon walk, i thought so lol


Sun, 06/24/2012 - 13:20 | 2555945 Beam Me Up Scotty
Beam Me Up Scotty's picture

If there is another "Lehman" event, I hope its JPMorgan thats the one.  Then in the future, we can be on the lookout for the next "JPMorgan" event

Sun, 06/24/2012 - 13:29 | 2555981 Albertarocks
Albertarocks's picture

I'd love to see those evil skunks crash and burn as well but in reality, with the single biggest derivatives risk exposure of any bank in the entire world (100 freakin' trillion $ worth), if JPM has a Lehman event we can 'literally' expect lights out.  Check out this outstanding graphic showing how much risk they have put themselves and therefore the entire world to.  Prepare to have your mind blown:

Sun, 06/24/2012 - 14:05 | 2556066 cossack55
cossack55's picture

If/when that occurs, the US $100 bill will be worthless anyway.  They may as well used mounds of refuse or acres of landfill.  No longer possible to blow my mind.  The global criminality that are banks destroyed my imagination long ago.

Sun, 06/24/2012 - 14:16 | 2556080's picture



if JPM has a Lehman event we can 'literally' expect lights out.


"When you see those lights go out," said Galt, "then you will know that our job is done."  

Sun, 06/24/2012 - 15:00 | 2556180 TNTARG
TNTARG's picture

I've seen this infograph before. That's why there's no solution, no Merkel's austerity, no fucking collateral to back this up.

They MUST fail. Quickly, otherwise everybody is gonna fail. Trial and prison for them and the corrupt politicians and press agents, all of them the biggest mafia ever, an "association to commit crime", crimes against humanity. Including IMF and WB, BIS, ECB, the FED.

Am I dreaming? Perhaps. Anyway either it's Justice or long years of deep struggle around the World.


Sun, 06/24/2012 - 21:13 | 2556765 Mad Mad Woman
Mad Mad Woman's picture

There has to be justice. If there isn't, there will be an uprising, I guarantee it. And it will not be good.

Sun, 06/24/2012 - 14:48 | 2556158 Sudden Debt
Sudden Debt's picture

Why not all 4 of them?
And declare them all bankrupt and merge them into one big ass monster that will finally break all this fraud when also that one goes bust (alias: when all taxpayers money is gone for the next 2000 years)

Sun, 06/24/2012 - 15:37 | 2556261 Caviar Emptor
Caviar Emptor's picture

Government had to take over the old nuclear materials plants from the cold war era because they were leaking radiation so badly. Then taxpayers had to pay into the uperfund used to clean them up.

Sun, 06/24/2012 - 15:23 | 2556231 seek
seek's picture

If JPM goes, it could very likely take the entire banking system with it.

In either case, though, given JPM's notorious and massive PM short positions, it will be lighting Saturn V engines under PM prices -- short PM price suppression goes away and/or counterparty risk goes to the moon. I'm presuming they're mostly naked on the PM side, because I can't believe anyone would be retarded enough to loan JPM even paper PMs to short.

Of course, JPM being necessary to the survival of the free world, etc, a rescue will be attempted, but the magnitude of that undertaking scares the shit out of me.

We're getting closer to the main event.

Sun, 06/24/2012 - 18:10 | 2556470 jekyll island
jekyll island's picture

JPM is acting as a proxy for Uncle Ben.  They will have unlimited liquidity to cover their naked silver shorts.  Can't be having loss of confidence in gubmint fiat now, can we?  

Sun, 06/24/2012 - 13:15 | 2555946 ATG
ATG's picture

This insightful analysis highlights the problem with theoretical models.

Thus sold SPY Jul 133 calls at profit toward Friday close and bought QQQ Jul 65 and SPY 134 puts...

Sun, 06/24/2012 - 13:21 | 2555957 Bay of Pigs
Bay of Pigs's picture

Matt Taibbi and Yves Smith destroy the Bankster sociopaths.

Sun, 06/24/2012 - 14:23 | 2556094 blindman
blindman's picture
Minsky moment
"..Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers." .....
Published on Wednesday, June 20, 2012 by Common Dreams
Why Congress Won’t Touch Jamie Dimon: JPM Derivatives Prop Up US Debt
by Ellen Brown

.."The derivatives casino itself is just a last-ditch attempt to prop up a private pyramid scheme in fractional-reserve money creation, one that has progressed over several centuries through a series of “reserves”—from gold, to Fed-created “base money,” to mortgage-backed securities, to sovereign debt ostensibly protected with derivatives. We’ve seen that the only real guarantor in all this is the government itself, first with FDIC insurance and then with government bailouts of too-big-to-fail banks. If we the people are funding the banks, we should own them; and our national currency should be issued, not through banks at interest, but through our own sovereign government." ...
“Was Dimon trying to send any particular message by wearing the presidential cufflinks?”

Posted on June 24, 2012 by maxkeiser

Sun, 06/24/2012 - 15:00 | 2556186 Milestones
Milestones's picture

Thank you for posting that interview. The depth of the con being run is breathtaking. Time to clean the 12 gauge.      Milestones

Sun, 06/24/2012 - 16:01 | 2556308 cosmictrainwreck
cosmictrainwreck's picture

love those clips of Jamie at hearings - you gotta hand it to the boy, he sure got balls, albeit merely the arrogance of immunity. too bad "teflon don" handle already taken

Sun, 06/24/2012 - 13:22 | 2555964 Seasmoke
Seasmoke's picture

looks like Morgan Stanley is running out time !!!!!!!!!!!!

Sun, 06/24/2012 - 13:24 | 2555968 williambanzai7
williambanzai7's picture


Sun, 06/24/2012 - 13:26 | 2555977 Beam Me Up Scotty
Beam Me Up Scotty's picture

That picture makes me want to run out and buy another coffee can, stuff it with freshly withdrawn funds from my account, and bury it in the backyard.  My funds will be safer.

Sun, 06/24/2012 - 14:49 | 2556160 malikai
malikai's picture

Good Idea, you'll need to keep it dry though. Can't have wet/moldy kindling.

Sun, 06/24/2012 - 14:01 | 2556057 Skateboarder
Skateboarder's picture

Brb, stealing from the well-being of the population 50 years from now to move myself up the elite ladder a couple of rungs at the present.

Sun, 06/24/2012 - 15:41 | 2556270 Caviar Emptor
Caviar Emptor's picture

Take your time. There are still a few sheep out there with some woll left on their backs

Sun, 06/24/2012 - 15:04 | 2556194 krispkritter
krispkritter's picture

F'in Dumbasses In Charge...nuff said...

Sun, 06/24/2012 - 13:24 | 2555969 Conman
Conman's picture

But it was only 2 nothes.... 2 NOTCHES! Wahhhh/

Sun, 06/24/2012 - 13:25 | 2555973 Rainman
Rainman's picture

Bank of Lynch pulled a similar stunt 8 months ago. Attention TBTF Depositors !.... grab yer ankles.


Sun, 06/24/2012 - 15:33 | 2556249 unununium
unununium's picture

Attention, grab yer ankles


[TBTF depositors]

Close, but no...

US dollar holders worldwide.
We have a winner!



Sun, 06/24/2012 - 13:26 | 2555976 buzzsaw99
buzzsaw99's picture

Did Corzine take the helm at MS?

Sun, 06/24/2012 - 15:33 | 2556255 Urban Roman
Urban Roman's picture

No I think he's busy advising RBS on how to manage Ulster Bank.

Sun, 06/24/2012 - 13:27 | 2555982 timbo_em
timbo_em's picture

Come ride with me through the veins of history, I'll show you how REGULATORS fall asleep on the job...

Sun, 06/24/2012 - 14:19 | 2556086's picture

Regulators only fall asleep on the job when that's the order of the day.

Sun, 06/24/2012 - 15:10 | 2556199 Umh
Umh's picture

We'd all fall asleep if we had to hang out all day like them doing nothing because the bosses won't let them do their jobs. It's no wonder that they went wankers.

Sun, 06/24/2012 - 13:32 | 2555994 orangegeek
orangegeek's picture

Primary wave three down -


Monday should be interesting.

Sun, 06/24/2012 - 13:35 | 2555999 luna_man
luna_man's picture





And,  NO!...MY MAIN MAN, canNOT, be bought off!!

Sun, 06/24/2012 - 13:36 | 2556000 slewie the pi-rat
slewie the pi-rat's picture

of course, it is in the value-at-risk accounting and regulatory bullshit wherein the true problem/solution lies

var is crap;  everybody knows it;  and yet it was allowed in, at the end, after the last "bankster clean-up" was almost completed without it, was it not?

rinse.repeat. [X $50 Tri] = "economics"

p.s.:  law & accounting = FBI = D0J imprimatur & "over-site" of the options of reckless parameters = political control at a very high level

if slewie knows this,  jamie & benzelbub know this, too...?

Sun, 06/24/2012 - 17:09 | 2556386 Skateboarder
Skateboarder's picture

Slew, you know that accounting is entirely a culinary art these days, yeah?

Assets + Secret Spice Mix = Liabilities + Equity

Sun, 06/24/2012 - 22:50 | 2556882 slewie the pi-rat
slewie the pi-rat's picture

i hear that!

this was the second derivative (to the basesquid sauce) of the secret spice mix, the variable unicorn-LindyRi-skittleshit2

just the ticket, really...

Sun, 06/24/2012 - 13:40 | 2556010 I should be working
I should be working's picture

Man these 23 sigma events just keep piling up.

It's almost like they didn't properly quantify the risks.  


Sun, 06/24/2012 - 14:58 | 2556178 post turtle saver
post turtle saver's picture

Pretty soon we'll have 23 sigma black belts.

Sun, 06/24/2012 - 15:02 | 2556187 geekgrrl
geekgrrl's picture

Even using a normal distribution, I calculate a 23 sigma event has a probability of 5 x 10^-116, or

To me, this takes being wrong to a whole 'nother level. There is a higher probability of 100 monkeys sitting at typewriters and typing 100 words a minute to duplicate Shakespeare's Hamlet. (this isn't a joke, I had to work that one out years ago and the number was something like 10^-50.)

I can hardly wait to see what the models do when the derivatives ripcord is finally pulled.



Sun, 06/24/2012 - 15:41 | 2556273 cosmictrainwreck
cosmictrainwreck's picture

that being said, it begs the question of an intentional act... inverse probability being a sure thing. question being, WTF?

Sun, 06/24/2012 - 16:08 | 2556314 knukles
knukles's picture

Well fuck, everybody knows that the ripcord will be pulled so it is neither a black swan nor an outlier.... in fact, it's kinda median/mode/mean stuff...


(get the joke, like reversion....)

Sun, 06/24/2012 - 20:06 | 2556660 geekgrrl
geekgrrl's picture

Actually, you're right for ZHers. But I don't think the general public has any idea they are now on the hook for trillions in derivative losses that are guaranteed to explode.

Maybe a better metaphor is that Wall Street is wearing a suicide vest and threatening to blow-up the world financial system, so nobody dares mention the detonator in their hand. Paulson's Martial Law threat to Congress sure bears a striking resemblance to a suicide bomber. These people are insane.

Sun, 06/24/2012 - 13:41 | 2556013 tony bonn
tony bonn's picture

"...just what he has going on in his books?..."

jpm, ms - to be confused with muscular dystrophy, and db - to be confused with douche bag, are all deeply mired in ir swap hell - a black hole from which they will not escape....the next 2 years will be very revealing....

Sun, 06/24/2012 - 13:46 | 2556023 potlatch
potlatch's picture

"...just what he has going on in his books?..."



"My God, It's full of stars!"

Sun, 06/24/2012 - 13:41 | 2556014 Crash2012
Crash2012's picture

When we needed Glass-Steagall, we got Dodd-Frank.


Unnoticed in Dimon's testimony was his overall admission that 'risk is in the eye of the beholder'.


We still need Glass-Steagell!

Sun, 06/24/2012 - 14:08 | 2556069 cossack55
cossack55's picture

Too late. We need 1793.

Sun, 06/24/2012 - 14:21 | 2556090's picture

The question isn't to which period of time we should return but how long will we have to wait until we find ourselves free in the present moment. Perhaps waiting itself is the problem.

Sun, 06/24/2012 - 15:23 | 2556230 cossack55
cossack55's picture

You are probably quite right.  However, I feel no compunction, whatsoever, to put myself (and family) "out there" in order to assume a mantle of "leadership" for those who are quite happy being presently led to slaughter.  I have heard that only 3% of the population actively supported Washington and the Continental Congress.  I would be surprised if today 3% of the population has a clue.  They can pay their own dues for stupidity. 

Sun, 06/24/2012 - 15:31 | 2556253's picture

The revolution will not be lead.

Sun, 06/24/2012 - 13:42 | 2556016 tony bonn
tony bonn's picture


Sun, 06/24/2012 - 13:43 | 2556021 El
El's picture

I just added 365 rolls of toilet paper to my stash.

Sun, 06/24/2012 - 14:01 | 2556054 Uncle Remus
Uncle Remus's picture

I thought it was an apple a day...

Sun, 06/24/2012 - 15:18 | 2556221 Sudden Debt
Sudden Debt's picture

Why would you wipe your ass with apples?

Sun, 06/24/2012 - 15:23 | 2556232 Tinky
Tinky's picture

It's refreshing. I recommend using Macouns.

Sun, 06/24/2012 - 15:51 | 2556290 Likstane
Likstane's picture

oranges are better. you can still eat the fruit and wipe with the peel

Sun, 06/24/2012 - 16:11 | 2556317 knukles
knukles's picture

Eat the fruit
Scrape the rind
Smoke the scrapings
Wipe with the outer skin side up
Soothe with the inside remains
Kiss your sweetie and dosey do...

Sun, 06/24/2012 - 15:59 | 2556305 roadhazard
roadhazard's picture

Lets hope there is enough food that we even need to wipe our ass.

Sun, 06/24/2012 - 13:47 | 2556024 darkpool2
darkpool2's picture

Shoud be obvious to all but the simplest of rubes that deposits at the large banks are NOT SAFE, and you deserve what you get when one day the gate comes down and you cannot get at your funds or they are otherwise diminshed. But of more importance, we can to a degree impact their financial flexibility by not giving them cheap deposits in the first place.

Personally when i deposit risk averse funds at an institution that pays me nothing, that does NOT imply i am giving them licence to prop trade with my money.

Sun, 06/24/2012 - 15:41 | 2556271 No Euros please...
No Euros please we're British's picture

As customers of the TBTP bank RBS are now finding out. A 5 day computer glitch freezing all accounts, who could have predicted that?

Sun, 06/24/2012 - 19:30 | 2556596 chump666
chump666's picture

Ah yes the "glitch"  excuse to freeze accounts.

Bank bailout season is about to hit off.

Now Obama you let these ass-wipes fail now. 

Sun, 06/24/2012 - 13:52 | 2556034 The Axe
Sun, 06/24/2012 - 13:53 | 2556036 yabyum
yabyum's picture

Depositors will back stop the madness The Gubmint will TRY to backstop the public. Privatize the gain, stick the losses with the saps. Welcome to America!

Sun, 06/24/2012 - 14:38 | 2556140 TNTARG
TNTARG's picture

Well, to be fair, it's not just the US. Almost same players and "socialism of the loses" game in Europe too.

Sun, 06/24/2012 - 18:47 | 2556541 ljag
ljag's picture

I'm sorry if this sounds cruel but just how much begging, pleading and out-right threats have to be made for the sheeple to understand what is going on? I have been talking up gold/silver/crony capitalism deceit for years now and just about everyone looks at me like I have snot hanging from my nose. Being the extremist that I am, I say go for it BofA. Take these suckers for every penny and laugh at them as they exit the bank with empty pockets. Maybe a good wiping of the bank balance slate will divert their eyes from AI or 'lost' long enough for them to get hip.

It is a sad state of affairs for anyone to even suggest this but what does it take for people to wake the fuck up?


Sun, 06/24/2012 - 13:53 | 2556037 Mad Max
Mad Max's picture

roughly 23 sigma based on the old VaR number, was impossible

Overheard at JPM on May 9:


"I do not think that word means what you think it means."

Sun, 06/24/2012 - 14:00 | 2556052 Uncle Remus
Uncle Remus's picture

Paging St. Anselm, please pick up a white courtesy phone.

Sun, 06/24/2012 - 13:53 | 2556038 Heroic Couplet
Heroic Couplet's picture

When JP Morgan is limited to giving out food stamps only, that will be hilarious and Dimon will be another government flunky. Limit New York City to credit unions only, and you have to bank wtihin walking distance.

If the credit union only approach works, extend it to American cities in distress. There is no reason for any bank to stockpile houses, tulip bulbs, or monkey wrenches. Get the Finance sector jobs, bonuses, bailouts, government charters done away with. If the private bank cartel families, the IMF and BIS don't like it, they're not elected at a ballot box anyway; they're parasites.

Sun, 06/24/2012 - 15:46 | 2556284 Caviar Emptor
Caviar Emptor's picture

On the bright side: with all the unemployed bankers we van have another WPA and rebuild the roads and bridges

Sun, 06/24/2012 - 18:11 | 2556472 OneTinSoldier66
OneTinSoldier66's picture

In this environment, I recommend that everyone be their own Central Bank.

Sun, 06/24/2012 - 13:55 | 2556045 Uncle Remus
Uncle Remus's picture

Think I'll start towing a trailer-mounted guillotine mockup behind my truck with a "Lend/Lease Available" sign on it, with the number of a burn phone on it - just to see what happens.

Sun, 06/24/2012 - 14:16 | 2556053 Looney
Looney's picture

Morgan Stanley is a bank, right?

Chart #3 shows that MS Hlds has been shifting the derivatives exposure to the MS Bank. So, my question is - how many branches does this FDIC member have? Don't even bother lookin' it up, boyZ and girlZ! They have exactly (get ready!) ONE branch!

I'm wondering if I could open a regular checking account? I'm gonna try it tomorrow and if they refuse, some lawyers will have a field day with it...


Sun, 06/24/2012 - 14:55 | 2556172 Matlock
Matlock's picture

I was interested in this, so I found this tidbit, but it's from 2010:

In it is a sentence that MSBNA had no branches and does not engage in retail deposit operations. But yes, other sites now state one branch in Salt Lake City.

What is a bank with NA status required/not required to do? Yes, the OCC oversees them, but don't they have to provide certain things?

Sun, 06/24/2012 - 16:20 | 2556331 knukles
knukles's picture

Yes, no, and maybe.
Same with GS, etc.

Long ago in a society far, far away....
It was stated and enforced stringently that;

A Bank must have a charter
And a physical orifice... er office.
A Bank is supposedly in the deposit/lending business
And is supposed to service some form of "community"

The regs have been... ah, bent a little?

GS, MS, etc., have banks that have orifices, but do not offer any fucking banking operations to any fucking body to service any fucking community, for any fucking reason whatsofuckingever, other than for the very same fuckers to have access to the Fed's Discount Window and the Full Panoply of Fucking Subsidy Programs.

Quite simple really, is it not?

Sun, 06/24/2012 - 19:06 | 2556568 azusgm
azusgm's picture

Took a peek at MS's financial statements. Really nothing there about commercial banking activities. Really, they should at least pretend, shouldn't they?

Sun, 06/24/2012 - 14:06 | 2556064 ZeroPower
ZeroPower's picture

Most (all?) existing risk models break down in times of crisis. Granted, the trades of the London whale were not a crisis time, but for all intents and purposes, they were for the CIO unit of JPM. The stochastic process of market prices is endogenous to the actions of market participants...if this risk (process, trades, etc) becomes the actual target of risk control, the dynamic thus changes, and so risk forecasting becomes unreliable.

Its quite laughable how i've been reading white papers from just after the time of the Russian collapse, LTCM, dot com, and even as most recent as around subprime collapse, and all of them constantly bring up the shortcomings of VaR.

And yet, here we are today, still using it basically across the board at any financial firm. Probably a tad hippocritical since the firm I'm at uses it as well, but I digress.

Sun, 06/24/2012 - 17:04 | 2556380 verum quod lies
verum quod lies's picture

Actually, at least since the original TARP fiasco and related silliness, banking is like so many other industries these days: that is, a quasi-government industry (call it fascist if you like; others include healthcare, etc.). The point is that finance is just high end government work, backstopped by the taxpayers, but with sweet calls and puts given to the executives in positions of power within their respective levered ponzis. Note that before the TARP thing, it was less government reliant but still backstopped by the government depending on institution and specific sub-industry.

Regarding VaR models and VaR modeling, they are what they are; if you put garbage in you’ll get garbage out. Most humans have a strong psychological tendency to underweight statistics and overweight their subjective or “gut” feelings. In reality using some kind of statistical model would be helpful if: (1) they were systematic across the industry with respect to model, (2) the source of inputs were the same & correct (and accounting methods were honest and correct), and (3) enough was known about their weaknesses to adequately weigh the output. Alas, none of the three hold, let alone all three required conditions. In addition, any realized result that is statistically impossible should largely invalidate the model used (e.g., Goldman’s 17+ standard deviation issue, and the aforementioned JPM 23+ move – the world isn’t even old enough for these kinds of moves to be possible). Anyway, we are not even to the garbage-in garbage-out stage today, more like magical & wishful thinking based.


Sun, 06/24/2012 - 14:08 | 2556070 Amish Hacker
Amish Hacker's picture

"a decrease in diversification benefit across the Firm.

Translation: pretty much everybody here at JPM has been making wild hare bets without any offsetting hedges in place, and it has cost us a ton of money.

Sun, 06/24/2012 - 14:24 | 2556098 rsnoble
rsnoble's picture

And just how are trillions going to be paid by taxpayers? Their not broke yet.........they still have bank accounts, pensions and property.

Response: Tanks on streets. They WILL take everything.

Sun, 06/24/2012 - 14:31 | 2556117 valkir
valkir's picture

FYB oh,JPMorgue is mention here-Jamie,you too

Sun, 06/24/2012 - 14:36 | 2556134 Grand Supercycle
Grand Supercycle's picture

DOW weekly chart shows uncertain market & fluctuating consensus with likely bullish pattern contained within megaphone wedge.

Sun, 06/24/2012 - 14:39 | 2556144 Tinky
Tinky's picture

Really? I see an inverted hammer, suggesting a strong likelihood of further gibberish.

Sun, 06/24/2012 - 15:29 | 2556250 Umh
Umh's picture

Croquet mallets?

Sun, 06/24/2012 - 16:22 | 2556334 knukles
knukles's picture

I thought those were the birds from Alice in Wonderland.

Sun, 06/24/2012 - 16:32 | 2556343 Hulk
Hulk's picture

bring back the scary clown...

Sun, 06/24/2012 - 19:54 | 2556640 Baldrick
Baldrick's picture

I second that. I liked the flashie eyes.

Sun, 06/24/2012 - 14:49 | 2556161 trollin4sukrz
trollin4sukrz's picture

Damn..starting to think maybe this direct deposit paychecks might be a abd idea.. Better front run the bank runs possibly?

Sun, 06/24/2012 - 14:53 | 2556167 walcott
Sun, 06/24/2012 - 14:57 | 2556177 BlankfeinDiamond
BlankfeinDiamond's picture

Excuse my ignorance, but what the fuck is a VaR?

Sun, 06/24/2012 - 15:16 | 2556218 Umh
Umh's picture

Value at risk.




Virtually meaningless.

Sun, 06/24/2012 - 15:27 | 2556240 TNTARG
TNTARG's picture

Value at Risk.

Pay attention to negative-positive on the numbers. Negative VaR portfolio is likely to make a profit market to market. 1% is one day horizon, 5% is a week horizon but there are other figures.

Sun, 06/24/2012 - 14:58 | 2556179 blindman
blindman's picture

"..The IRSwaps act like giant buttresses to support the evergrowing USTreasury Tower of Babel that stretches to the sky. Every year, the expansive tower grows another $1.5 trillion higher. Every year, the challenge grows exponentially for the JPMorgan master financial engineers to apply their control panel magic to achieve equilibrium. Every year, the degree of difficulty becomes more arduous. Every year, the tower must withstand the high winds from Europe, where the bond market is doing more than undergoing stress. It is crumbling before our eyes. In a way, Europe helps to conceal the great strains from the broken USTreasury Bond market, held together by interest derivatives. Few analysts connect the failure of the Draghi LTRO funds to the JPMorgan losses. They do not grasp the gravity of the USTBond problem. They prefer to focus on FINREG for regulatory changes centered on the Volcker Rule, or on the division of proprietary trading. They focus on the personalities of the so-called Whale. Now a new verb has entered the lexicon, as a firm was just "Iksil-ed" to mean they suffered massive leveraged losses in a high risk game of playing god in the financial markets. JPMorgan cannot hedge since THEY ARE THE MARKET. What the Whale or JPMorgan do is attempt to maintain balance of the USTreasury Tower of Babel, which grows every year to try to touch the sky, to achieve the perfect world. They scrape the devil's attic door instead.

Without any doubt whatsoever, the ultimate problem is that the bond market cannot defy the natural forces (gravity on the tower) from enormous new supply coming to the USTBond market (higher tower) in the form of $1.5 trillion deficits, and keep the bond yield at 0% for the FedFunds and under 2.0% on the TNX. Essentially the 0% rate is an engineering display of the most extreme arrogance. It is tantamount to placing the buttress support structure at a very low position. The sovereign bonds of Southern Europe with their 5% or 6% bond yields have the equivalent of buttresses place in very high positions, sufficient to endure the whips and sways from the high winds and routine vagaries dealt by the never-ending global financial crisis. In my opinion, the global financial crisis is far more than that. It is instead a global monetary war, to preserve the USDollar supremacy at all costs, with victims being the Western banking systems and the Western economies. The entire platform that supports the major fiat currencies is collapsing, namely the sovereign bonds. The platform is breaking at its weakest points, where it has non-homogeneous planks in Southern Europe that do not fit together. Imagine how the USTreasury Bond market would look if all 50 states had their own sovereign debt as components to the entire USGovt. Imagine each year the $1.5 trillion in debt were apportioned as 15% to California, 4% to Texas, 8% to New York, 8% to Florida, in shared responsibility. Imagine each state had its own bond traded in a market that strived for equilibrium, each with a unique bond yield, all tethered to the USDollar. The United States would fracture in six months from the stress, not the least factor for which would be the apportionment of syndicate banker benefit and divvying up the war costs. That is Europe in parallel."
U.S. Treasury Bond Teetering Tower Of Babel, Fed Stuck At 0% Forever
Interest-Rates / US BondsMay 24, 2012 - 02:54 AM
By: Jim_Willie_CB
notre dame flying buttresses

Sun, 06/24/2012 - 15:28 | 2556245 Seer
Seer's picture

The ULTIMATE PROBLEM is that our entire structure is based on perpetual growth and Mother Nature ain't handing out any more.  Everything else is just games to skirt around this reality.

Sun, 06/24/2012 - 18:29 | 2556510 blindman
blindman's picture

when someone says that perpetual growth is required
to maintain stability they are saying soon i will
come to consume, eat, you for a snack.

Sun, 06/24/2012 - 15:16 | 2556215 CharlesH
CharlesH's picture

As of now, i think every country on the planet needs to have the power to downgrade banks like fitch and moody do.

Sun, 06/24/2012 - 15:22 | 2556229 Seer
Seer's picture

Seeing as we're really talking about the mafia then we might look to use its "solutions."  If we need to decrease the heights then this can be accomplished using cement and deep water...

Sun, 06/24/2012 - 15:19 | 2556223 Seer
Seer's picture

the 93% increase in JPMorgan VaR from Q1 2011 to Q1 2012 is solely due to the sudden "realization" that the world's biggest bank by derivative holdings (at just about $73 trillion) is in reality nothing but a glorified hedge fund.

Geez, they say that like it's a BAD thing! </sarc>

Sun, 06/24/2012 - 15:39 | 2556233 Zero Govt
Zero Govt's picture


We urge readers to spot the odd one out.


  1. Now that the "trading desk"  ...has been ..closed, how will Dimon succeed in creating recurring profits..?
  2. What will happen ...when regulators dare to do their job for once?
  3. Which other bank has a huge... undisclosed multi-billion derivative "easter egg" on its books?

1 "recurring profits" and 2 "regulators doing their jobs" ain't going to happen leaving by Sherlock Holmes deduction, 3. "huge Easter Eggs" as the correct answer (ok question) which the answer is ALL big banks have huge Easter Eggs (ticky ticky time-bombs) on their books because they've all been dumb bunnies (gambling junkies) going high-finance ape-shit for the past 20 years plus

Does the ZH 'winner'  also get a ticking time-bomb Easter Egg, if so i may pass the prize on!!!

...anyone got Bernanks PO Box No.? ...he's got one (quite a few actually) coming to him

Sun, 06/24/2012 - 15:25 | 2556235 localpacific
localpacific's picture

They are all a part of the PPT anyways -- PPT Methodology Proves Perfect 

Sun, 06/24/2012 - 15:33 | 2556256 alfred b.
alfred b.'s picture


      JPM being kept afloat by Fed's version of the "food stamp program".


Sun, 06/24/2012 - 15:38 | 2556262 Zero Govt
Zero Govt's picture

Yes indeedy ..and where do all subsidies in history lead? an even more expensive problem.

Sun, 06/24/2012 - 15:47 | 2556286 Seer
Seer's picture

"to an even more expensive problem"

Or to an even more expensive solution LOOKING for a problem (someone to pin the costs on)...

Sun, 06/24/2012 - 15:40 | 2556269 blindman
blindman's picture
The Greatest Hoax Ever Perpetrated on Mankind
..."First reported by Dawn Kopecki back in 2006 when she reported in BusinessWeek Online in a piece titled, Intelligence Czar Can Waive SEC Rules,

"President George W. Bush has bestowed on his [then] intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye."

What this means folks, if institutions like J.P. Morgan, Citi, B of A, Goldman or Morgan Stanley are deemed to be integral to U.S. National Security - can be "legally" excused from reporting their true financial condition – including KEEPING TWO SETS OF BOOKS. The entry in the Federal Register is described as follows:

The memo Bush signed on May 5, which was published seven days later in the Federal Register, had the unrevealing title "Assignment of Function Relating to Granting of Authority for Issuance of Certain Directives: Memorandum for the Director of National Intelligence." In the document, Bush addressed Negroponte, saying: "I hereby assign to you the function of the President under section 13(b)(3)(A) of the Securities Exchange Act of 1934, as amended."

A trip to the statute books showed that the amended version of the 1934 act states that "with respect to matters concerning the national security of the United States," the President or the head of an Executive Branch agency may exempt companies from certain critical legal obligations. These obligations include keeping accurate "books, records, and accounts" and maintaining "a system of internal accounting controls sufficient" to ensure the propriety of financial transactions and the preparation of financial statements in compliance with "generally accepted accounting principles."


The U.S. Bond market has been “gamed” beyond belief and the only institution in the world with the means and motive to conduct this business is the U.S. Treasury [ESF] in conjunction with/acting through the New York Federal Reserve. As such, U.S. bond pricing and interest rates are set 100 % arbitrarily and today represent the BIGGEST FINANCIAL HOAX ever perpetrated on mankind.

Rob Kirby"

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