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Thursday, June 14, 2012

THE TROUBLE WITH BIG BANKS - I told you so



The CEO of JP Morgan today testified to congress on what went wrong in their recent multi-billion dollar trading loss.  Below are reporter’s excerpts of Mr. Dimon’s explanation. 

To summarize:  Traders are too big for their britches, they have everything to gain and little to lose for trading errors, and Risk Management Officers are afraid to rein in traders who are producing profits regardless of the risk…WHICH IS THEIR JOB!!

OR

Dimon to explain trading losses

Dimon's opening statement provided a brief sketch of what the company now believes went wrong, starting with a trading strategy within the firm's chief investment office that was "not carefully analyzed."

(OOPS 12 billion dollars lost by people paid multi-million dollars a year to understand what the FRICK they are doing!)

Some of the blame also fell on the traders themselves, who Dimon said "did not have the requisite understanding of the risks they took."  (See above!)

As trading losses started to mount in March and early April, Dimon said, the traders attributed the losses to temporary market movements, and not a flawed strategy. (See above…AGAIN!)

Dimon, the only scheduled witness on Wednesday, also said that the unit's risk managers fell short, and that personnel in key roles "were generally ineffective in challenging the judgment of CIO's trading personnel."

(See above…ONE MORE TIME!)

While most of the blame falls on the personnel and activities of the chief investment office, Dimon allowed that senior managers should have more closely scrutinized the group. (HELLO…see above!)

"CIO, particularly the synthetic credit portfolio, should have gotten more scrutiny from both senior management and the firm wide risk control function," Dimon said.  (Ya Think!!)

What makes anyone think that a product called a "SYNTHETIC CREDIT PORTFOLIO" might be risky.  These guys were NOT trading to hedge against risk, they were TAKING HUGE RISKS AND THEY DAMN WELL KNEW IT!!

Here is my stupid idea about how to run a profitable bank – Pay depositors 1% to hold their money, and then lend it out at 6% to credit worthy investors who put up collateral which is worth the same or more than the actual loan.  I guess that is a boring concept!

6 comments:

  1. Amen Joe! Remember Glass-Steagall and those other Depression-era laws that allowed AND ENFORCED only those banking concepts you propose? We need 'em back. It was because the financial service industry got so big and consolidated and powerful that they lobbied themselves into having virtually no effective oversight. They were given the green light to blow and go! Kinda blew up in their (and the taxpayer's) face, didn't it?

    They need to be broken up into their various parts, with only the ones that accept consumer deposits (the old fashioned bank) getting a government (FDIC) guarantee. The rest...if they do something dumb, they fail. Let their shareholders, not the taxpayers, take the hit.

    S

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  2. How dare you apply logic and common sense to an issue as big as that which affects the US economy.

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  3. Reminds me of trying to close out my account at JPMorganChase to move to a local bank. The manager hounded me to the door with sweetners to stay at JPMorganChase and queries on why I was leaving. My explanation of how they had screwed up my account did not register. Finally, at the door, I turned and yelled for all to hear: I Hate New York Banks. I hope the manager understood that.

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  4. What on earth is this blog. hehehe.So funny. Obviously banks switch me off but you made me laugh so that's a bonus!

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  5. Correct me if I'm wrong, but I thought this recent loss at JP Morgan did not involve customer funds, only the bank's capital. If so, then the only people who have any right to complain are the share owners of JP Morgan stock. I'm not sure why the government is even involved since JP Morgan appears to be well capitalized even with the loss.

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