05/22/2012 archive

That $2 billion failed London Whale has burgeoned up to a hefty $7 billion:

The crisis at JP Morgan escalated yesterday as it emerged its trading losses in London could rise to as much as $7bn (£4.5bn) and the US bank cancelled a share buyback. Fears were growing that the losses could spiral from an initial $2bn, which was declared on 10 May, as JP Morgan struggles to unwind the massive bets made by the so-called “London Whale” trader Bruno Iksil. [..]

The main index on which Mr Iksil’s credit default swaps trades were based has calmed down in recent days, which suggests that JP Morgan has decided to trade out of its positions gradually rather than take one massive hit. Mr Dimon originally said the bank would deal with the positions to “maximise economic value”. But there is a danger in taking the long view. Mr Iksil was betting on the credit-worthiness of corporate America and if that starts to fall JP Morgan’s losses could mount further.

But in the meantime, Dimon decided to suspend the $15 billion stock buy back:

Two months after announcing a $15 billion share buyback program, JPMorgan Chase reversed course on Monday, saying it was halting the repurchases after the bank’s multibillion-dollar trading loss. [..]

Mr. Dimon said the bank intended to keep its dividend of 30 cents a quarter unchanged. Bank officials have repeatedly emphasized that the company has no plans to reduce it despite the trading loss. Initially estimated by the bank at $2 billion, the trading loss on credit derivatives now stands at more than $3 billion, according to traders and regulators. [..]

The decision to halt the repurchases – a move the company said it made on its own, not at the behest of regulators – sent JPMorgan’s shares sliding again Monday, closing at their lowest level since late last year.

As the losses from London Whale increase and Dimon’s reputation as the “saviour” of JP Morgan is tarnished, the calls for better and tighter regulations for banking increase. That’s the problem faced by the Senate Banking Committee as they consider the “Volker Rule”. As David Dayen pointed out today the rule should not so complex that it just creates more loopholes:

The Fail Whale trades showed that massive, as-yet unregulated risk still exists in our financial system, with the potential to bring down the economy once again and trigger massive taxpayer bailouts. Since the Administration already passed a law that was supposed to deal with that, they’re scrambling to restore what little of value existed in those laws. [..]

The article intimates that independent regulators have authority over writing things like the Volcker rule, and that the White House and the Treasury Department have limited ability to ensure that the rule properly follows from the legislative mandate. Given that a senior Administration official told reporters just yesterday that the losses at JPMorgan Chase would “inform… how the ultimate contours of the Volcker ruler come out-make sure that it is strong,” it’s clear that not even the Administration believes that. They appointed the regulators, and Treasury has plenty of control over almost everything related to Dodd-Frank. If they want a stronger Volcker rule, they’ll get it.

But will the Banking Committee come out with strong, simple rules regulating the gambling that banks are doing with depositor funds? There is a lot of doubt considering that not only are the Senators on the banking committee “financed” by the banks and lobbied heavily, a former lobbyist for JP Morgan Chase, Dwight Fettig is the staff director for the Senate Banking Committee. As our friend watertiger at Dependable Renegade observed “Well, isn’t that conVEEEEENient”:

The Senate Banking Committee is responding to outrage over the news that J.P. Morgan lost some $3 billion in customer money because of a risky trading strategy. The committee is preparing for two hearings with regulators, and Senator Tim Johnson (D-SD), chair of the committee, is hoping that Jamie Dimon will testify in the near future. “Our due diligence has made it clear that the Banking Committee should hear directly from JPMorgan Chase’s CEO Jamie Dimon,” Johnson said in a statement last week.

Luckily for Dimon, the professional staff in charge of managing the banking committee will be quite familiar to him and his team of lobbyists. That’s because the staff director for the Senate Banking Committee is none other than a former J.P. Morgan lobbyist, Dwight Fettig.

In 2009, Fettig was a registered lobbyist for J.P. Morgan. His disclosures show that he was hired to work on “financial services regulatory reform” and the “Restoring American Financial Stability Act of 2009″ on behalf of the investment bank. Now, as staff director for the Senate Banking Committee, he will be overseeing the hearings on J.P. Morgan’s risky proprietary trading.

I agree with Yves Smith in her NYT op-ed opinion that “for starters, reinstate Glass – Steagall”:

Preventing blow-ups like the JPMorgan “hedge” that bears no resemblance to any known hedge isn’t difficult. What makes preventing it difficult is that banks that exist only by virtue of state-granted charters – and more recently, huge transfers from the public – have persuaded public officials and regulators that they have a God-granted right not just to high levels of profit but also high levels of employee and executive compensation. [..]

Maybe it’s time to recognize that these firms are too big and in too many complex businesses to be managed. Jamie Dimon was touted as a star who could supervise a sprawling firm running huge risks, and he fell short because no one can do the job adequately. A less disaster-prone financial system requires more simplicity and redundancy. Re-instituting Glass-Steagall or other variants on the narrow banking theme isn’t a full solution, but it would make for a good start.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

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New York Times Editorial: Their Learnable Moment

On Tuesday, the Senate Banking Committee is holding a hearing on reforming derivatives – not a topic one would expect to draw a lot of energy or attention. But in the wake of JPMorgan Chase’s stunning trading loss, now reportedly at $3 billion and counting, committee members need to push the regulators testifying – and each other – to explain why, four years after the financial meltdown, speculative trading in these risky instruments has not been reined in. [..]

The committee’s ranking Republican, Senator Richard Shelby of Alabama, has vowed to repeal Dodd-Frank altogether. The panel’s chairman, Senator Tim Johnson of South Dakota, and Senator Charles Schumer, a Democrat of New York, have called for looser rules on banks’ international derivatives trades.

After JPMorgan’s losses came to light, Mr. Johnson issued a statement saying that it shows “why opponents of Wall Street reform must not be allowed to gut important protections for the financial system and taxpayers.” He is right. Now and he other committee members, and the regulators, need to show what they have learned.

Richard (RJ) Eskow: JPMorgan Chase: Break Up the Big Banks Now. Here’s How.

When Jamie Dimon revealed that JPMorgan Chase had lost billions through risky and legally questionable trading, he said the losses would be about $2 billion and maybe more. Apparently it is more — a lot more. People in a position to know are saying the real figure is probably in the $5-7 billion range.

The JPMorgan Chase scandal — and yes, it is a scandal — shows us why we need to break up the big banks as quickly as possible.

But that won’t happen unless we can get our hands around the real scope of the problem, which is probably far greater than we’re being told. That means cutting through the enveloping shroud of jargon, euphemisms and double talk — “crap,” if you will — that keeps us from seeing the situation as it really is.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

On this day in 1843, the Great Emigration departs for Oregon

A massive wagon train, made up of 1,000 settlers and 1,000 head of cattle, sets off down the Oregon Trail from Independence, Missouri. Known as the “Great Emigration,” the expedition came two years after the first modest party of settlers made the long, overland journey to Oregon.

Great Migration of 1843

In what was dubbed “The Great Migration of 1843” or the “Wagon Train of 1843”, an estimated 700 to 1,000 emigrants left for Oregon. They were led initially by John Gantt, a former U.S. Army Captain and fur trader who was contracted to guide the train to Fort Hall for $1 per person. The winter before, Marcus Whitman had made a brutal mid-winter trip from Oregon to St. Louis to appeal a decision by his Mission backers to abandon several of the Oregon missions. He joined the wagon train at the Platte River for the return trip. When the pioneers were told at Fort Hall by agents from the Hudson’s Bay Company that they should abandon their wagons there and use pack animals the rest of the way, Whitman disagreed and volunteered to lead the wagons to Oregon. He believed the wagon trains were large enough that they could build whatever road improvements they needed to make the trip with their wagons. The biggest obstacle they faced was in the Blue Mountains of Oregon where they had to cut and clear a trail through heavy timber. The wagons were stopped at The Dalles, Oregon by the lack of a road around Mount Hood. The wagons had to be disassembled and floated down the treacherous Columbia River and the animals herded over the rough Lolo trail to get by Mt. Hood. Nearly all of the settlers in the 1843 wagon trains arrived in the Willamette Valley by early October. A passable wagon trail now existed from the Missouri River to The Dalles. In 1846, the Barlow Road was completed around Mount Hood, providing a rough but completely passable wagon trail from the Missouri river to the Willamette Valley-about 2,000 miles.

Crossposted from DocuDharma

Nato talks security and peace, Chicago has neither

Gary Younge, The Guardian

Sunday 20 May 2012 16.00 EDT

When the city mayor Rahm Emanuel brought the summit to Chicago he boasted: “From a city perspective this will be an opportunity to showcase what is great about the greatest city in the greatest country.” The alternative “99% tour” of the city, organised by the Grassroots Collaborative that came to Brighton Park, revealed how utterly those who claim to export peace and prosperity abroad have failed to provide it at home.

The murder rate in Chicago in the first three months of this year increased by more than 50% compared with the same period last year, giving it almost twice the murder rate of New York. And the manner in which the city is policed gives many as great a reason to fear those charged with protecting them as the criminals. By the end of July last year police were shooting people at the rate of six a month and killing one person a fortnight.

…

Chicago illustrates how the developing world is everywhere, not least in the heart of the developed. The mortality rate for black infants in the city is on a par with the West Bank; black life expectancy in Illinois is just below Egypt and just above Uzbekistan. More than a quarter of Chicagoans have no health insurance, one in five black male Chicagoans are unemployed and one in three live in poverty. Latinos do not fare much better. Chicago may be extreme in this regard, but it is by no means unique. While the ethnic composition of poverty may change depending on the country, its dynamics will doubtless be familiar to pretty much all of the G8 participants and most of the Nato delegates too.

(h/t lambert strether @ Naked Capitalism)

Whose Firebombs? Inside the Alleged "Conspiracy"

By Curtis Black, Truthout

Sunday, 20 May 2012 13:32

Chicago police have a long history of infiltrating peaceful protest groups and fomenting violence – it’s one reason the Red Squad was banned by a federal court order (later lifted at the request of Mayor Daley) – and infiltration of protest groups seems to be standard operating procedure for “national security events.”

And nationally since 9/11, an embarrassing proportion of “anti-terrorism” cases have involved plots proposed, planned, and enabled by police agents. That seems to have been the case – in just the past month – with the Wrigley bomber as well as the alleged bombing plot of a group of Cleveland anarchists who supposedly “discussed” disrupting the NATO summit. Sometimes you wonder whether such efforts are directed at keeping us safe or “putting points on the board” – or, when big protests are planned, generating scare headlines.

(h/t SouthernDragon @ Firedog Lake)

Men accused of plotting attacks around NATO summit

By MICHAEL TARM, Associated Press

1 day ago

Documents filed by prosecutors in support of the charges in Chicago painted an ominous portrait of the men, saying the trio also discussed using swords, hunting bows and knives with brass-knuckle handles in their attacks.

…

But defense lawyers shot back that Chicago police had trumped up the charges to frighten peaceful protesters away, telling a judge it was undercover officers known by the activists as “Mo” and “Gloves” who brought the firebombs to a South Side apartment where the men were arrested.

“This is just propaganda to create a climate of fear,” Michael Deutsch said. “My clients came to peacefully protest.”

On the eve of the summit, the dramatic allegations were reminiscent of previous police actions ahead of major political events, when authorities moved quickly to prevent suspected plots but sometimes quietly dropped the charges later.

(h/t SouthernDragon @ Firedog Lake)

The Preemptive Prosecution of the NATO 5

By: Kevin Gosztola, Firedog Lake

Monday May 21, 2012 2:02 pm

The alleged plot hangs on the fact that Betterly, Chase and Church allegedly went to a BP gas station for gasoline that could be used in the production of “Molotov cocktails.” However, the attorneys for the three men have been shown no evidence of any “Molotov cocktails.” Instead, it appears the FBI, Secret Service and Chicago police want to claim a home-brewing beer kit could have been used to produce “Molotov cocktails” and, therefore, these men are “terrorists.”

The authorities assert the three men charged in the first plot intended to “destroy police cars and attack four Chicago Police district stations with destructive devices, in an effort to undermine the police response to the conspirators’ other planned actions for the NATO Summit.” The prosecutor claims defendants possessed and/or constructed “improvised explosive-incendiary devices” (IEDs) and “various types of dangerous weapons including a mortar gun, swords, a hunting bow, throwing stars, and knives with brass-knuckle handles.” But, these claims made at a bond hearing were all claims the attorneys for the three men heard for the first time. To Deutsch, the charges sound like completely “fabricated charges” that came from the work of “police informants and provocateurs,” which have been used against movements before.

As for the additional two men, NLG attorney Sarah Gelsomino finds the charges are “sensational, politically motivated, and meant to spread fear and intimidation among people protesting the NATO summit,” just like the terrorism-related charges against Betterly, Chase and Church. The charges are trumped-up charges based on fabrications, as the city has not shown any “actual evidence of criminal activity or any weapons, though prosecutors have callously made several serious criminal allegations.”

Thers @ Whiskey Fire–

As soon the word “ninja” appears in a story about the police, it’s a bullshit story. “Ninja knives.” Fuck you.