Guess what, a JP Morgan hedge went bad….
Those who live by the sword….
A JP Morgan trading desk in London has lost $2bn – possibly more – on deals involving corporate credit derivatives, or insurance against the danger of loans to companies going bad. The Slog posted about the dangers only yesterday (Thursday) afternoon.
Slogpost, Thursday May 10th, 2012, 3.51 GMT
‘the nine largest U.S. banks have a total of $228.72 trillion of exposure to derivatives….around three times the size of the real global economy that doesn’t involved worthlessly ‘leveraged’ paper. That’s an average of $25.4 trillion each. 2500 times more than the cap of Bank of America. 12,500 times bigger than JP Morgan-Chase. 25,000 times the size of Capital One.’
BBCNews Robert Peston, May 11th 2012 at 08:06 GMT:
Strikingly, he [CEO Jamie Dimon] has not said that these transactions were unauthorised or down to a putative “rogue trader”…..These deals were supposed to be a so-called hedge, an attempt to reduce the risks taken by the bank. That is why the incident is more than a big embarrassment for JPMorgan, although it will put a dent in the bank’s profits for 2012.’
A futher extract from yesterday’s Slogpost:
‘Now over and over, I am told that “all these obligations are hedged”. But frankly, this is the inconsequential thinking pattern of an infantile delinquent: global banking is by definition a closed circle. To every reaction there will be a reaction. No one bank knows how their ‘bettee’ has hedged – or who with: but in the end, one comes back full circle to a bank already hedged one way and unable to hedge the other.’
Once again, you read it here first.
Like I said, this is just the start: hold tight.
The Slog 