JP Morgan Debacle Reveals Fatal Flaw In Federal Reserve Thinking

By Simon Johnson

Experienced Wall Street executives and traders concede, in private, that Bank of America is not well run and that Citigroup has long been a recipe for disaster.  But they always insist that attempts to re-regulate Wall Street are misguided because risk-management has become more sophisticated – everyone, in this view, has become more like Jamie Dimon, head of JP Morgan Chase, with his legendary attention to detail and concern about quantifying the downside.

In the light of JP Morgan’s stunning losses on derivatives, announced yesterday but with the full scope of total potential losses still not yet clear (and not yet determined), Jamie Dimon and his company do not look like any kind of appealing role model.  But the real losers in this turn of events are the Board of Governors of the Federal Reserve System and the New York Fed, whose approach to bank capital is now demonstrated to be deeply flawed.

JP Morgan claimed to have great risk management systems – and these are widely regarded as the best on Wall Street.  But what does the “best on Wall Street” mean when bank executives and key employees have an incentive to make and misrepresent big bets – they are compensated based on return on equity, unadjusted for risk?  Bank executives get the upside and the downside falls on everyone else – this is what it means to be “too big to fail” in modern America.

The Federal Reserve knows this, of course – it is stuffed full of smart people.  Its leadership, including Chairman Ben Bernanke, Dan Tarullo (lead governor for overseeing bank capital rules), and Bill Dudley (president of the New York Fed) are all well aware that bankers want to reduce equity levels and run a more highly leveraged business (i.e., more debt relative to equity).  To prevent this from occurring in an egregious manner, the Fed now runs regular “stress tests” to assess how much banks could lose – and therefore how much of a buffer they need in the form of shareholder equity.

In the spring, JP Morgan passed the latest Fed stress tests with flying colors.  The Fed agreed to let JP Morgan increase its dividend and buy back shares (both of which reduce the value of shareholder equity on the books of the bank).  Jamie Dimon received an official seal of approval.  (Amazingly, Mr. Dimon indicated in his conference call on Thursday that the buybacks will continue; surely the Fed will step in to prevent this until the relevant losses have been capped.)

There was no hint in the stress tests that JP Morgan could be facing these kinds of potential losses.  We still do not know the exact source of this disaster, but it appears to involve credit derivatives – and some reports point directly to credit default swaps (i.e., a form of insurance policy sold against losses in various kinds of debt.)  Presumably there are problems with illiquid securities for which prices have fallen due to recent pressures in some markets and the general “risk-off” attitude – meaning that many investors prefer to reduce leverage and avoid high-yield/high-risk assets.

But global stress levels are not particularly high at present – certainly not compared to what they will be if the euro situation continues to spiral out of control.  We are not at the end of a big global credit boom – we are still trying to recover from the last calamity.  For JP Morgan to have incurred such losses at such a relatively mild part of the credit cycle is simply stunning.

The lessons from JP Morgan’s losses are simple.  Such banks have become too large and complex for management to control what is going on.  The breakdown in internal governance is profound.  The breakdown in external corporate governance is also complete — in any other industry, when faced with large losses incurred in such a haphazard way and under his direct personal supervision, the CEO would resign.  No doubt Jamie Dimon will remain in place.

And the regulators also have no idea about what is going on.  Attempts to oversee these banks in a sophisticated and nuanced way are not working.

The SAFE Banking Act, re-introduced by Senator Sherrod Brown on Wednesday, exactly hits the nail on the head.  The discussion he instigated at the Senate Banking Committee hearing on Wednesday can only be described as prescient.  Thought leaders such as Sheila Bair, Richard Fisher, and Tom Hoenig have been right all along about “too big to fail” banks (see my piece from the NYT.com on Thursday on SAFE and the growing consensus behind it).

The Financial Services Roundtable, in contrast, is spouting nonsense – they can only feel deeply embarrassed today.  Continued opposition to the Volcker Rule invites ridicule.  It is immaterial whether or not this particular set of trades by JP Morgan is classified as “proprietary”; all megabanks should be presumed incapable of managing their risks appropriately.

Dennis Kelleher and Better Markets are right about the broad need for implementing Dodd-Frank and they are particularly right about the problems that surround non-transparent derivatives (follow them @bettermarkets for some of the smartest lines and best links as the JP Morgan debacle continues to develop).  The Better Markets press release on Thursday night put the entire situation in a nutshell:

“Jamie Dimon and JP Morgan Chase just proved what anyone not getting a paycheck from a Wall Street bank already knows: gigantic too-big-to-fail banks are too-big-to-manage.”

Anat Admati and her colleagues at Stanford (and her growing band of supporters in the US and around the world) are right about bank capital.  The people in charge of Federal Reserve policy in this regard are dead wrong – perhaps because they spend far too much time talking to Jamie Dimon and his fellow executives, while consistently refusing to engage with their better informed critics.

Ms. Admati skewered Jamie Dimon at length and in detail 18 months ago on exactly these issues.  You must read her original Huffington Post piece.  She has been relentless ever since – see this material.  She was right then and she is right now: we need much higher capital requirements and much simpler rules – focus on limiting leverage.  Big banks should be forced to become smaller – small enough and simple enough to fail.

It is time for the Federal Reserve to move its policy on these issues.

155 responses to “JP Morgan Debacle Reveals Fatal Flaw In Federal Reserve Thinking

  1. Robert W Madden

    Hi Simon,

    Keep speaking the truth!

  2. JPMorgan, you haven’t learnt anything, have you?

  3. watt d fark

    what incentive does Dimon and JP Morgan have to change? He gets paid the GNP of a small country no matter what he does, and the bank will get bailed out if they totally eff up.

  4. Conscience of a Conservative

    Banks should not be engaged in proprietary trading. Volcker is right, and what JP Morgan engaged in was not hedging, but speculating. I do agree that banks do find creative ways to get around the regulations, and as such we need to create more market based discipline, perhaps forcing banks to issue more subordinated debt and bring back double liability of bank stock

  5. have you not heard the current meme? volker & dodd-frank [esp volker] CAUSED this debacle. i saw it on cnbs so it must be true.
    michaelD

  6. Michael Purcell

    Arrogance, ignorance, incompetence. Bankers, regulators, congress. Casey Stengal asked the right question, “Can anyone here play this game?”

  7. I guess they still haven’t learned a thing. Boo-hoo.

  8. Dan Humfeld

    “all megabanks should be presumed incapable of managing their risks appropriately.”
    Wow. Holy arrogance, Batman!
    Perhaps a better way of stating this is that you disagree with bank management about what is appropriate in terms of risk management and escapes from the system. Every company in every industry has had risks escape their risk management system, ones they didn’t recognize early enough to mitigate to a comfortable level. It has nothing to do with being in banking or another industry, or being a large or small company. If you disagree, please provide one example of a company that has never had an event for which they misunderstood or misevaluated the risk. Just one.

  9. Conscience of a Conservative

    I think the point is that unlike most industries the ultimate risk is the banking industry is borne by the tax-payer.

  10. Having traded bonds for JP Morgan for 12 years, I’d like to add an even simpler lesson: as financial theory and reams of empirical studies (and just reading the newspaper) tell us, it’s not possible for a large bank, even with “great risk management systems,” to consistently beat markets. Yes, they may make huge “trading” profits when their central bank announces that they will: 1) not let them fail, 2) provide zero-cost funding for as long as is necessary to restore their capital base, and 3) buy trillions of mortgage and other long-term assets in order to reduce their risk premiums. But the danger is that such profits may lead the traders (and their managers) to think of themselves as market wizards rather than recipients of a wonderful gift. They may therefore stray from the three Wall Street activities that are reliably profitable: toll-collection, zero-sum gaming of regulations and taxes, and cheating customers through front-running (trading ahead of the Fed is legal; trading ahead of customers sometimes is not: http://ustreasurymarket.com/ ) and other unethical and illegal practices.

    While you’re surely right that banks that are too big to fail shouldn’t exist and should have more capital and tighter regulation as long as they do exist, even a less concentrated and better capitalized Wall Street would persist in these three activities. As I wrote the FCIC in 2010:

    “Making money in transparent, commoditized markets is difficult. Securities firms therefore constantly create new products to distribute and trade in order to collect fees, wider bid-offer spreads, and front-running profits. This, not the pursuit of risk, is what led to the mortgage crisis and, more importantly, doubled the financial sector’s share of GDP over the last few decades. Prosecuting securities law violations such as front-running and fraudulent underwriting while fostering exchanges that disintermediate Wall Street would reduce both the chance of future bubbles and finance’s tax on the productive sectors of our economy.”

  11. not only Dimon, but the head of risk and the head of market risk need to go and be banned from the industry, along with the trader and anyone else who signed off. managers who sign off on these idiotic trades need to suffer the corporate death penalty.

  12. not_a_JPM_fan

    Someone should look into why this was not disclosed along with their quarterly earnings report on April 13th. Investors rely on that information to make informed decisions, and not disclosing a billion dollar future liability smells like a crime.

  13. The Volcker Rule was essentially a watered down version of Glass-Steagall that tried to segregate activities rather than institutions.

    Instead of a watered down version of Glass-Steagall, what we needed was Glass-Steagall on steroids. Divide the financial sector into the following institutions:
    – Commercial Banks, that take deposits and make loans
    – Investment Banks, that underwrite securities and provide M&A type advisory services
    – Asset Management firms, that actively and passively manage wealth for customers and provide retail/institutional brokerage type services
    – Insurance Companies, that provide life/property/casualty insurance

    Put up wall between these types of companies and allow no overlap. Build another wall around them, and strictly regulate everything inside that wall. Call it the financial system

    Then call everything outside that wall the financial casino. This includes hedge funds and all other manner of firms engaged in any type of proprietary trading. They would be free to do as they please, subject only to the following 3 rules:

    1. They can have no dealings with the firms inside the wall apart from utility trade execution services (no margin accounts either).
    2. No leverage permitted. None. All firms must be 100% financed through their owner’s equity.
    3. They may not be legally organized as corporations or other types of limited liability entities, stricly sole proprietorships and standard partnerships.

  14. I am not in favor of a quick reaction to this development. I have watched many hearings with senate members on one side, and the Wall Street guys on the other, and clearly the senate is just chasing the players. For most, what happens at JP Morgan is way above their pay grade.

    My questions for Jamie would be how on earth does one guy, or even one unit cause such chaos? So if risk management systems were in place, were they ignored? If so, how does that happen? Is anybody supervising those doing the trading? Was it not 100 billion in question being traded?

    I like the idea of simplicity because I am a big believer that rarely is big better. That is why I get so perplexed when so many want to reduce the size of these regional banks and yet desperately want to expand the size of government that clearly doesn’t know what the right hand is doing from the left hand.

    Mountains of pages of regulations on top of already existing regulations doesn’t make any sense to me because it provides amply opportunity to concoct even more profit schemes.

    I am not fond of Jamie Dimon, but I strongly dislike the consistent bashing of banks/Wall Street because I want business and government to work together and respect each other which is not happening now. I do not for a minute think Dimon wants to risk another financial meltdown. I do think he is arrogant because often people with super intelligence, or super knowledge of a particular industry, discount the voices of well meaning average folks that see danger ahead. Dimon is not alone with the arrogance flaw. I see many of the movers and shakers the same way.

    Maybe it is time to stop blaming and instead call a truce and begin mending fences and finding solutions before it is too late.

  15. Simon, way to go, a whole lot of courage displayed in your writing.

    Now, this…..Simon declares DIMON MUST GO…..BRAVO!

    http://finance.yahoo.com/blogs/daily-ticker/jamie-dimon-resign-over-jpm-big-loss-simon-142308640.html

    With more VOICES like Simon registering concern, maybe this banking mess gets sorted out, finally.

  16. Small enough to fail, small enough to go to jail! Bring back Glass-Stegall.

  17. Glass–Steagall Act

  18. @Dan Humfeld… Name one company outside of the financial industry where risk errors expose assets valued at 2/3 of US GDP?

    You seek to equate soaring irresponsibility and potential catastrophic economic implosion on massive scales to something like a generic company’s poor decision in buying a machine. Your challenge is beyond deceptive, it’s silly and juvenile.

  19. Conscience of a Conservative

    Interesting that the Federal Reserve has engaged in a zero interest rate policy followed by two rounds of quantitative easing designed to promote investment in risk assets and higher prices of risk assets and now we see our that our nations largest bank has stumbled by doing exactly that.

  20. markets.aurelius

    Well done, Simon.

    At a very profound level, neither the banks nor their regulators understand the probability space in which they presently operate. JP clearly does not. Its regulators clearly do not: They have no idea what they are looking at when the bank (or former investment bank) presents its risk metrics for review. Neither has any idea what is spinning out when they run their own programs. The prob-space dynamics are beyond their ken and models.

    What we hear daily from the banks and their regulators is de jure risk management. What we see and experience daily is the de facto risk-management strategy of the banks and their regulators — seeking and gaining control of the law-writing and -enforcement process, so that, when the fact of their complete and total ignorance becomes manifest, the malefactors on both sides (regulators and regulated) are bailed out: Both the regulators and regulated entities are equally at fault for these massive blow-ups, and both require the TBTF guarantee else they’d both be ravaged by the irate taxpayers being pillaged every time an emergency response is required.

    At present, we have 4 financial institutions (JPM, BAC, C, GS) that account for 95% of the total derivatives risk calculated by the OCC, a number and metric that is, itself, suspect, since, arguably, the OCC does not know what it is measuring. Nor do the banks or the other regulators. (See the OCC’s Dec 2011 report on bank exposures, “OCC’s Quarterly Report on Bank Trading and Derivatives Activities, Fourth Quarter 2011.”) They have transformed their joint exposure into a black hole of risk. It is no longer a financial problem, it is a physics problem. Nothing the regulators do or say, nothing the banks do or say really means anything. The risk is far beyond anything either side can comprehend. Or do anything about. The models used by JP either were deliberately subverted, resulting in a massive fraud that was missed entirely by the bank’s risk folks and the regulators, or the risks in JP’s CDS book (and the other 4 “banks” books’) have gone completely non-linear, and they’re experiencing a collapse in those books they can’t explain, which also was missed by the bank’s risk folks and regulators. Which is it, Jamie? Ben? Tim?

    If JP’s in this condition, imagine how badly the other 3 banks are positioned. Imagine the horror show awaiting anyone peeling back the lid on the Euro banks’ positions and exposures. Their leverage to the unknown is completely unknown.

  21. Amendment (S.Amdt.3733) to S.3217: To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail,” to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.

    Total Republicans who voted for this: 3 out of 41
    Total lobbyist donations from the Finance industry provided to the senators who voted:
    AGAINST this legislation: $31.2M
    FOR this legislation: $13.5M

    Summary: The US congress and Republican Party specifically, do NOT have the best interests of Americans at heart on these issues. At best, they are unduly influenced by the banks, and at worst, they are simply corrupt!

    Definition of corruption: “Dishonest or fraudulent conduct by those in power, typically involving bribery”

    Sources:

    http://www.opencongress.org/vote/2010/s/136

    http://209.190.229.100/industries/summary.php?ind=F&cycle=2010&recipdetail=S&mem=Y

  22. markets.aurelius

    The Dems are no better, Cicero. From David Rohde in today’s Atlantic online:

    “An analysis by researchers at Syracuse University found that under the Obama administration federal financial-fraud prosecutions have dropped to 20-year lows, Peter Boyer and James Schweizer wrote in The Daily Beast last week. Prosecutions are down 39 percent from 2003, when executives at Enron and WorldCom were convicted in high-profile cases.

    Today, the number of financial-fraud cases is at one-third the level it was during the Clinton administration. (Obama administration officials argue that the number would be higher if new categories of crimes were counted.)

    “Casting Romney as a plutocrat will be easy enough,” Boyer and Schweizer wrote. “But the president’s claim as avenging populist may prove trickier, given his own deeply complicated, even conflicted, relationship with Big Finance.”

    http://www.theatlantic.com/business/archive/2012/05/the-lesson-of-jp-morgans-2-billion-loss/257050/#bio

  23. Agreed, some Democrats in Congress are also unduly influenced by the banks, however, not to the degree that the Republicans are. This doesn’t vindicate the Democrats so much as it condemns the US congress as a whole.

    Secondly, there aren’t laws on the books to prosecute these people. The real fight is whether to regulate or not – and Republicans have consistently favored financial deregulation. Remember that the Gramm–Leach–Bliley Act, which repealed the Glass–Steagall Act – did come under the Clinton administration, but the bill was passed by a Republican majority in Congress.

    Third – Congress enacts legislation, not the president. The president can instruct the Justice Department to focus resources on prosecuting specific crimes – however, again, these were not crimes according to our current law.

    Sources: http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

    http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

  24. I’m going to keep saying this forever. It’s not about probability and it never has been. It’s dangerous to think it is. The best the statistical predictors can do in this “space” such as it is, is give you a measure of the excursions the trading system takes on one wing of this dynamical system’s attractor. That’s useful till it isn’t. Once it slips off that wing the distribution your working with is useless.

    So traders hammer each other and you get crashes and major excursions, and runs – all measured in milliseconds. That isn’t a risk-measurable environment, it’s a high-speed free-for-all. Ever since these systems got pumped up with networked computing power, everything happens on the pulse, in the blink of an electronic eye. Your strategy is up in smoke and your career on fire before you know what hit you.

    This will keep happening over and over again till we start asking serious questions about the scope and scale of the changes we’ve induced into this system. It’s well-known in mathematical ecology that the sum is not only greater than the parts, but that the interaction of those parts produces behaviours that aren’t intrinsic to any of the constituents. They’re emergent – they show up once all the species go into interactive motion.

    That’s what happening to the trading system. It’s an ecological bestiary of financial species. We need to stop pretending that statistics will do us a damn bit of good. The realm is that of complex systems.

  25. Desi Girl - Doing God's Work

    Self-Righteous Academic Apologists Advocate the Madoff Rule:

    As expected, the academic elite pounced on the JPM announcement to advocate their fear mongering. The only financial institution that has won on every position for several decades in a row was run by Bernie Madoff.

    Simon and Admati want to pass a law that requires every financial institution to make a profit every year, every quarter. Hey Madoff did it, why can’t you?

    Here is Simon’s first lie for the day: “ There was no hint in the stress tests that JP Morgan could be facing these kinds of potential losses”

    Ha ha. If simon boy took a few seconds to read the results of the stress tests, he would see that the stress tests found that 1) Projected Net Income before taxes for JP Morgan in a hypothetical stress scenario = -$22.9Billion and 2) Profitability as % of Net Assets = -1.00%.

    Today’s loss was $2B and less than 0.15% of Net Assets

    • In twisting and turning the story, simon purposely ignore several facts
    • The UNREALIZED $2B loss at JPM has already been offset with over $1B in REALIZED gains. And there is another $8B UNREALIZED gain in the unit.
    • Contrary to their perverse sense of truth, this $2B loss did NOTHING to the markets today.
    • Everything functioned normally without a hiccup.
    • All this because of the large ‘fortress’ balance sheet that was barely penetrated. $2B is 0.2% of their balance sheet
    • In Simon and Admati’s world of 10,000 small, inefficient banks, this would not be possible. A loss of this magnitude would have roiled markets.
    • Yeah baby, 10,000 banks will be easier to regulate!! Ha Ha.
    • You can-not regulate everything to the maximum possible extent – All institutions SHOULD BE ALLOWED TO FAIL. Bankruptcy is the basic tenet of capitalism.
    • Once the upcoming SEC investigations and possible congressional hearings are said and done,
    • JPM controls its risk systems, not the markets – even though the academic elites will do their very best to convince you otherwise. The CDX market has experienced 3 standard deviation moves in which you should EXPECT to lose money, very quickly, if you are in the wrong position. This is not for the faint of heart. This is exactly why you run a large balance sheet.

    MORE IMPORTANTLY:
    • Today’s loss at JPM is at ZERO cost to the taxpayer
    • The only losers were JP Morgan employees and shareholders that lost 9% of their worth, as they should
    • This incident actually proves that Admati’s paper is applicable only in a university research setting and should be ignored in the real world.
    • A risk-free society is only possible on paper, in the lab, in a university.

    The only position in this world that is bullet-proof and 100% secure is that of a tenured professor like simon and admati – they are accountable to nobody and can be fired by nobody – no matter what they say or do even if they are blatantly wrong.

  26. Freedom Shield

    Desi girl – this is a canary in the coal mine – not the smoking gun. Your comments also lose merit for your blatant, unbalanced and misguided lack of respect for Mr. Johnson’s life work.

  27. Tenured professors are not gods – they can still get hauled into the courts for crimes against humanity – theft, murder, slander, rape….and the less interested that the courts appear in applying the rule of law equally among the citizens of the country, the more likely it becomes that a flash mob takes the matter into their own hands…so don’t anyone get cocky about being a god just yet….

  28. On a wheeled horse I ride. i.am.rollerman

    some good news: the government found the flaw in their stress management software, they forgot to hit the F9 recalc key in the Visicalc spreadsheet.

  29. The greedy rich have been flushing our society down the toilet for years, meanwhile stuffing their pockets with loot. How will it end?

  30. Robin Thomas

    I can tell you “what it means.” It means that they, the pricks on Wall St., are greedy and stupid and reckless beyond anyone’s imagination, while at the same time claiming to be doing God’s work and helping us! A more full of shit crew you could not find anywhere on planet earth. It still amazes me that the American people have allowed these bastards to live.

  31. Desi Girl - Doing God's Work

    @Freedom Shield – i respect simon as much as he respects banks.

    “unbalanced” is a good way to think about simon’s “life work”.

  32. My own opinion is that the smartest guys – and gals – in the room really don’t have a clue what they’re doing. The losses at JP Morgan only reinforce that for me.

    Simon’s absolutely right. These outfits need to be taken apart before their collapse leaves all of us to clean up the mess – if we can. There comes a point where there simply won’t be the will or the money to keep bailing out these disastrous moves. Investments do incur losses, it’s true it’s the nature of the game. But the enormous bets being made can and will collapse companies, maybe even countries, at some point.

    Without putting real stops in place, including the barring of certain types of trades, tremendous damage can and will be done. This will keep happening, that should be obvious.

  33. Dan Palanza

    Looking back at Anat Admati’s well intended words, her argument would be improved if she took the time to understand the simplicity in the double-entry bookkeeping framework of rules, and its twin reports: The Statement of Profit [loss], and The Balance Sheet.

    The Statement of Profit [loss] is a measure of assets, as value that is in the care and control of the business entity.
    The Balance Sheet is an expression of liability, as rights to the ownership of that entity’s assets.

    ‘Value’, set equivalent to ‘rights’, follows one same pattern in bookkeeping, as the ‘axiom’ in mathematics that is set equivalent to its logical ‘proof’. Bookkeeping, like the mathematics, is a hermeneutic: production ‘system’, set equivalent to an ownership’s control ‘language’. Each change in the physical production system gets a corresponding change in the intellectual control language. That is the meaning of ‘double-entry’. In the proper book-of-accounts, entity’s interpreted state of physical value is always in balance with entity’s compiled composition of intellectual rights to the ownership of that value.

    Once today’s financial experts come to understand the seven centuries old simplicity in bookkeeping’s method of protecting a society’s monetary system — which must be held in common — how to fix the problem will be as easy as shooting fish in a barrel.
    Dan

  34. Per Kurowski

    In May 2003, as an Executive Director of the World Bank I addressed over a hundred bank regulators, working on Basel II, in a risk management workshop at the World Bank, with the following words: Voice and Noise of 2006.

    “There is a thesis that holds that the old agricultural traditions of burning a little each year, thereby getting rid of some of the combustible materials, was much wiser than today’s no burning at all, that only allows for the buildup of more incendiary materials, thereby guaranteeing disaster and scorched earth, when fire finally breaks out, as it does, sooner or later.

    Therefore a regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises. Knowing that “the larger they are, the harder they fall,” if I were regulator, I would be thinking about a progressive tax on size”

    And, to this day, I was never invited back to speak on bank regulations… and so you´ve got to excuse me if sometimes I feel that Simon Johnson is nothing but a big Monday morning quarterback.

    But, that said, JP Morgan´s current woes are real peccata minuta of childish insignificance when compared with such fundamental issues that when banks lend to “infallible sovereigns” they are allowed to have immensely less capital than when lending to “fallible small business and entrepreneurs” even if the latter already pay much higher interest rates, even if the latter already have much less access to bank credit.

    “The Federal Reserve– it is stuffed full of smart people” Well that might precisely be the problem because a regulators role is not to believe in risk models, credit ratings, VARs or now Expected Shortfalls, and what have you… when all those are correct they have no problem, their role is to prepare for when all that knowledge fails… as it will sooner or later, because competition and human spirit forces some to try to break the boundaries of prudence, and, don´t get me wrong, thank God for that.

  35. David Canuel

    So JPM makes $4 billion this quarter instead of $5 billion, and that’s supposed to cost Dimon his head according to you. I did a search on your blog for anything — anything at all — about MF Global, where Corzine’s outright theft of OPM caused real harm to innocent people, and apparently that bit of wrongdoing couldn’t attract the least interest from you. That pathetic double standard is the perfect excuse to stop giving to MIT.

    David Canuel
    SM ’87

  36. Per Kurowski

    Indeed, only navel gazers incapable of understanding the real risks out there would make such a big noise out of this little JP Morgan blip.

  37. @Per – this was a derivatives trade, right? With depositor’s money, right?

    So bring back Glass-Steagall with a twist – separate out derivatives, investment, and commercial. The 2 billion loss will never be a loss to the bank, as everyone is noting. Privatize the profits, socialize the losses.

    New Orleans was demolished by Katrina during the height of USA dollars being transferred to the Middle East for constructing those cities in the deserts and Iraq, and also to pay off the expensive mercenaries participating in Iraq and erecting predatory stalking protections ala the Patriot Act in USA.

    So whatever bs excuse there was for derivatives protecting against risks like *Act of God* hurricanes has been blown away. All that happened was a MASSIVE land and housing grab in USA….a destroyed city (New Orleans) destroyed real estate value in the rest of USA!

    No matter which part of the commercial economy (Main Street et al) you take a look at – the bookkeeping is the SAME – EXTRACTION – skinning everyone alive.

  38. Freedom Fries

    @Per Kurowski, @Desi Girl – obviously both fit into the category of “getting a paycheck from a Wall Street bank”. Also a quick Google search on David Canuel shows he’s in “investment management,” so we’ll go ahead and put him in that category too. Com’on people… obviously you have a conflict of interest when saying the things that you are saying. How can we listen to you, when you are clearly part of the Wall St. machine? You’re just scary smarter than us, right? Just like Hank Paulson?

  39. Fascinating. This post is bringing out the earliest commenters on this blog, ones that I thought had long since given up on it. I realized that I had missed Per Kurkowski’s commentary for several months, and it’s been a while since Dan Palanza has weighed in. Welcome back, your thoughts have been good food for thought in the past. The issue of risk management brings out new (at least new to me) commenters as well. 85mdw pointed out something interesting – that transparency=reduced profits, and the problem lies as much in the creation of opaque new financial instruments solely for the purpose of profit rather than for facilitating concrete economic activities. Supporting admonitions as to the ineffectiveness of statistical risk measures in an opaque and too-rapid computer-enabled exchange system abound. But on this particularly piece I note Desi Girl and Per Kurkowski are rather in agreement about the relative size of this JPM gaffe and the opportunistic stridency of Simon’s response.
    The solution to our economic malaise will be one that addresses ALL of the single imperfections that this blog’s commenters repeatedly raise with rising bitter emotions. Simon, as the prime poster of this site and a professor with a charter for revealing the subtle and non-obvious so as to enlighten and reduce the noise that smothers our national discource, appears in this post to have become a one-point commenter himself.

  40. markets.aurelius

    @ Norm Cimon: Very insightful re excursions. It truly is a quasi-Brownian motion, in that the actions of the participants in the system are constantly blowing out what where thought to be the parameters describing the process, such that the blowouts themselves come to dominate the process, ad infinitum. So the parametrizations of the models the banks are using are always spurious. They’re all flying blind at increasing speeds.

  41. Dan Palanza

    @Annie – “No matter which part of the commercial economy (Main Street et al) you take a look at – the bookkeeping is the SAME – EXTRACTION – skinning everyone alive.”

    True Annie. But when the rules of a proper double-entry bookkeeping are not being followed, the derivative trading poses a particular problem relative to our medium of exchange. A medium of exchange plays a double-role. Playing the role of ‘cash’ money measures value and carries that value into future transactions. As money plays the role of capital, such money expresses capital, as potential value that will prove true [false] in future marketplace trades.

    For example if your business buys inventory that inventory’s cash value will be determined by future marketplace transaction that include that inventory. You may gain or you may lose capital’s value in those transaction.

    But when JPMorgan places a derivative bet using client cash, the gain [loss] will be against capital, or for capital. But because JPMorgan, or its bank account holders, have a legitimate JPMorgan cash account, the capital won in the bet becomes spendable cash for the bettors that are splitting the proceeds.

    Now when such betting takes place in a Las Vegas casino, the casino puts a private medium of exchange at risk. as chips to be used to gamble. If the casinos get their odds on winning wrong, it is the casino’s problem to solve and not the citizens who must back the dollar as a medium of exchange that we the citizenry hold in common.

    Even if derivative betting does not lose money, most citizens have no access to the game. Therein those with access, and quasi-legal bank accounts, can create spendable dollars that puts the common folks on the short end of an increasingly lavish lifestyle supplied to the derivative player winnings. Wall Street Journal reported the number of $700 Trillion being gambled.

    The practice exists because our cultural leaders don’t understand the role played by double-entry bookkeeping that is designed to protect the citizenry from such unconstitutional behavior. Imagine a Las Vegas casino being issued the right to take deposits as a bank and play their games with U.S dollars. They would be hiring card counters and splitting the take, as J.P. Morgan is doing with The London Whale, as their designated Quant.

    Dan

  42. Per Kurowski

    Oh so JP Morgan is dealing with our capital? Horror! Was it that which produced this crisis? Or was it not the ridicule low capital requirements that allowed the banks to leverage us all up on triple-A rated securities, loans to Icelandic banks, real estate in Spain, public debt in Greece and all the other elements of that AAA-bomb that went off?

    And so now Professor Johnson and many of you scream in horror when JP Morgan is suffering some losses, after keeping silence when JP Morgan was making profits without even reflecting on how related these are?

    And I have not heard Professor Johnson utter a word about the sad fact that allowing the banks to lend out to the “infallible sovereigns” against no capital at all, signifies putting all our and our children’s´ and our grandchildren’s’ funds in a truly mindboggling huge hedge fund where the operators is not a Jamie Dimon, but some government bureaucrat…but of course that is obviously not on Professor Johnson´s agenda.

    Frankly sometimes I feel the urge of picking up the phone and calling a Mr. Dimon (whom, just in case, I have never met) and beg him, or someone like him, to manage my small savings… that is as long as he agrees to do that in the shadows, as far away as possible from our current loony banks regulators.

  43. A cautionary note for all you who so quickly act as apologists for JP Morgan: the $2 billion is the loss we know about. The company pointed out there may be more, much more. And while a doubling may still only amount to a fraction of the overall profits of JP Morgan, there’s something much more disturbing going on. From the NY Times:

    “Soon after lawmakers finished work on the nation’s new financial regulatory law, a team of JPMorgan Chase lobbyists descended on Washington. Their goal was to obtain special breaks that would allow banks to make big bets in their portfolios, including some of the types of trading that led to the $2 billion loss now rocking the bank.”

    The government and the banking behemoths are really yoked to the same plow at this point. Everyone in and out of finance knows it That’s what the early 21st century has brought us to, a banking system where the government guarantees against failure. What twists us all out of shape is fact that the giants are also allowed to lobby so as to increase the likelihood of such a failure. That’s financial perversion incarnate.

    JP Morgan, Bank of America, Wells Fargo, all of them would go flaccid tomorrow if Fed guarantees were pulled. You bet that window’s still open for Jamie and his minions, even after these losses. Meanwhile, many of the moral dwarfs in these organizations have no compunction about lobbying to do away with money for government services to anyone but them.

    The Fed is the banker’s tool, not ours. The arrogance and stupidity of these greedy fools and their pimps at the Fed, merits them abject failure in another lifetime, one that doesn’t have such a morally corrupt framework to protect them from the realities of their own failures.

  44. Good for Desi and Per. Anyone who takes the time to glance at their balance sheet will see that JPM Chase has shareholder equity of about $190 billion. So this loss is about 1% of that. Insignificant.

    Btw, there is no surer way to betray one’s ignorance than to whine, ‘Glass-Steagall, Glass-Steagall’. The two provisions of which that were repealed in 1999 would have had nothing to do with this hedging strategy. Nothing.

    If you really want to end ‘too big to fail’, that would take actually repealing Glass-Steagall (aka, The Banking Act of 1933) and ending the FDIC. Be careful what you wish for.

  45. Glass-Steagall Act of 1933 — “An Act to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes.” What a novel idea to separate commercial and investment banking! In 1933! I would like to hear what Simon thinks about re-enacting this (and keeping FDIC).

  46. Patrick, you forgot to include in your calculation the additonal collateral JPM must now post as a result of their downgrade yesterday.

  47. @Dan – thanks for your observations – I actually understand them :-))

    I also get the game theory conversation (YIKES!) from Markets.Aurelius to Norm:

    “@ Norm Cimon: Very insightful re excursions. It truly is a quasi-Brownian motion, in that the actions of the participants in the system are constantly blowing out what where thought to be the parameters describing the process, such that the blowouts themselves come to dominate the process, ad infinitum. So the parametrizations of the models the banks are using are always spurious. They’re all flying blind at increasing speeds.”

    So it is, OBVIOUSLY, the derivatives portion that needs to be separated out from investment and commercial because as Dan lucidly points out – it’s pure game theory (betting against tulips growing and winning when they don’t grow because you get to steal all the tulips that actually still exist somewhere and those existing tulips are what you used to place the bet against tulips growing – okay, that’s just nutz). Not only are you getting something for nothing, you used nothing to place a bet to get something.

    A local Main Street experimented with issuing their own currency, and even though not all businesses participated, it kept the businesses alive that did participate when others on other Main Streets failed. As time goes on, everyone on Main Street will finally get in on using new currency. And Dan, you’ll be happy to know they’re using double entry bookkeeping :-)

    So little is supposedly known about these people other than that they are *family men*, eh? Iksil – Russian refugee…

    http://www.dailymail.co.uk/news/article-2142866/JPMorgan-Chase-trader-Bruno-Michel-Iksil-thought-2bn-loss.html

    “Just War” is getting re-written on Wikipedia since I last visited it – heading, psychologically and philosophically to Nihilism – basically setting the stage for perpetual war. It USED to be simple:

    “….four strict conditions for “legitimate defense by military force”:
    1. the damage inflicted by the aggressor on the nation or community of nations must be lasting, grave, and certain;
    2. all other means of putting an end to it must have been shown to be impractical or ineffective;
    3. there must be serious prospects of success;
    4. the use of arms must not produce evils and disorders graver than the evil to be eliminated. The power as well as the precision of modern means of destruction weighs very heavily in evaluating this condition….”

    I think we can agree that the “precision of modern means of destruction” definitely includes *derivative* trading by Voldemorts!

  48. Great observations Annie. Anyone who thinks there should be war with Iran this year or next, needs to answer each one of the above points in an honest and transparent way, with the lessons learned from America losing the Korean, Vietnam, Iraq, and Afghanistan wars in mind.

  49. Dan Palanza

    Nice work Annie. I hope other readers see a hidden point in your solution to the puzzle that is of the greatest interest to me.

    I experienced a proper book-of-accounts as a 19 years old apprentice at GE’s Medium Steam Turbine, Generator and Gear division in West Lynn, MA. The division had seven departments, each run by a shop superintendent. Each shop superintendent had a personal secretary, always female, who handled the weekly reconciliation of that department’s paperwork. These seven women were the best and the brightest; they held the place together. They each earned little more that I did as a pieceworker, after graduating from the apprentice program.

    The internal bookkeeping’s medium of exchange at GE was a system of mimeograph cards. Each Superintendent had a General Foreman for each of the three shifts. And each General Foreman had 6-7 foreman. The Superintendent’s personal secretary reconciled the flow of mimeograph cards that acted as the bookkeeping vouchers that kept the place honest, and profitable. This duty for her, was a ‘side-job’ to her regular secretarial duties

    Here’s the point: takeaway these seven secretaries to the seven shop superintendents, and the place would have been in chaos. My life’s lesson learned at GE is in the superiority of feminine reasoning when the task at hand is a fair and equitable handling of the complexities of simultaneous reasoning. You, sweet person, have that gift of the feminine completeness, fully endowed.

    Our monetary system is a colossal mess today. It will not be functional until our best and our brightest minds of both genders are properly set into the natural balancing of gender balanced authority.

  50. ‘Patrick, you forgot to include in your calculation the additonal collateral JPM must now post as a result of their downgrade yesterday.’

    Really. What’s that number…and how do you know?

  51. “Good for Desi and Per. Anyone who takes the time to glance at their balance sheet will see that JPM Chase has shareholder equity of about $190 billion. So this loss is about 1% of that. Insignificant.”

    Where on the JPM CHASE Balance Sheet are their derivative holdings?

    What is the overall valuation of such holdings, and how does this relate to shareholder equity?

    It’s all a closely guarded secret, since the TBTF’s operate in the greatest opaque cloak in all of Christiandom.

    Dimon intimated more losses are forthcoming, too.

    These banks are the ROOT of the financial debacle of 2008, and the subsequent malaise and rot that has plagued so much of this planet.

    I suggest compassion, empathy, mercy, and forgiveness misses what these people have visited upon so many and overlooks what real sonsabitches these banksters are at the core level of being.

  52. ‘Where on the JPM CHASE Balance Sheet are their derivative holdings?

    ‘What is the overall valuation of such holdings, and how does this relate to shareholder equity?’

    Knock yourself out, look on page 209 of their 2011 10K

    http://investing.businessweek.com/research/stocks/financials/drawFiling.asp?docKey=136-000001961712000163-2S9ORAKBJPMTKN9I9DS6E6MKD2&docFormat=HTM&formType=10-K#CORP10K2011_HTM_S877B4C8D05165B394F377F9DD37FCF0C

  53. Freedom Shield

    Patrick how can you possibly refute what he just said… do you believe in the common good, or Wall St? They are mutually exclusive at this point

  54. “No matches found for JPMorgan Chase & Co. in the United States region.”

    Sure you posted the correct link, there?

  55. Not sure why that link doesn’t work, but go here;

    http://investing.businessweek.com/research/stocks/financials/secfilings.asp?ticker=JPM:US

    Click on the 10K for Feb 28, 2012, scroll down to page 209.

  56. Freedom Link, what’s wrong with recognizing that without Wall Street we’d all be poorer. No investment, no progress. We’d all be living in caves and foraging for food. The bitter accompanies the sweet.

  57. @ Patrick, don’t be remiss by failing to mention all those illicit DRUG PROFITS. The drug kingpins would have one helluva tough time laundering those hundreds of BILLIONS $$$ USD without the TBTF’s making everything smell like roses. Occasionally, they get caught, but no one goes to jail.

    Did those profits enter into the income statement or the Balance Sheet?

  58. Oh, you’re one of those.

  59. One of what? Someone with integrity and willing to tell the truth?

  60. David Canuel

    Freedom Fries,

    Sounds from your post like you’re projecting a bit.

    You don’t know me, and you apparently don’t know the difference between buy side and sell side in the investment business. They’re different.

    I’m not voicing an opinion on Glass Steagall, the Volcker Rule, Dodd-Frank, or too big to fail. And just because I don’t think Dimon should be fired doesn’t mean that I would agree or disagree with him, or anyone else in particular, on those issues.

    I’m simply pointing out an inconsistency and double standard in the response by this blog’s author — and many other commentators — to JPM’s derivatives markets loss vs. Jon Corzine’s destruction of MF Global, where they are still looking for clients’ monies and haven’t found them yet. I mean I’m just saying that with all the regulations that have been put in place over the past year, that establishing safeguards against co-mingling of client and proprietary monies ought to be a no-brainer, and there should be pretty harsh penalties in place for breaking those rules.

    Why the pushback? Are you actually going to tell me that there’s no double standard here?

  61. Nice post. I used to be checking continuously this weblog and I am impressed! Very useful information particularly the final phase :) I handle such info a lot. I was seeking this particular information for a long time. Thank you and best of luck.

  62. @Barclay: Your handle suggests you have just come out from a hole in the ground and started trading at the top. There is really nothing interesting with JP hot pants that was not known before their like minded people began heating their own hot water, simply to jump in. Once in, they swim like geese cooking their own broth.

  63. Per Kurowski

    What could be the expected real-term losses for society of the over 5 trillion dollars new US debt accumulated the last 3-4 years? I mean, such a calculation, could help us to place other losses in a more realistic perspective.

    With Basel II, the regulators, instead of mistrusting the risk models and credit ratings, as they should have done, bet our banks on these being correct… and, sadly, they still do, but that seems to be of no concern to Professor Johnson… I guess because they are his colleagues.

  64. Per Kurowski

    By the way, with respect to JP Morgan´s losses, one important question is then… who made the corresponding profits? If those profits were capitalized by a bank weaker than JP Morgan, then, as a system, we might even be better off.

  65. markets.aurelius

    @ Per: Most likely a hedge fund on the other side. Blood’s in the water now, so JP’s likely to feel even more pain.

  66. Per Kurowski

    And so if JP’s losses are another hedge funds profits… whats wrong with that! I thought we were all supposed to be for redistribution :)

  67. markets.aurelius

    It’s all good. The HFs will eat JP’s lunch on this.

    What’s somewhat problematic is the exposures will circulate back to those 4 banks that hold 95% of the derivs exposure (JPM, BAC, C, and GS), as the HFs trade out of it and lay it off. The Bloated 4 end up warehousing the risk, and pretty much living each others’ exposures. So one small fail at one of them could easily cascade thru the other 3. Don’t know that anyone’s thought that through yet. The net exposures of the Bloated 4 might be orders of magnitude less than their gross exposures, but — and this is important — the world has credit risk to these 4 bloated entities, so if one fails it would quickly transmit thru the rest of the economy as payments failed. We’d be back at 2008-09 when everything shut down. The individual credit exposures of ALL counterparties to the Bloated ones is probably somewhere between the gross exposure and net exposure of the 95%’ers. That’s huge.

  68. Per Kurowski

    What could also be a problem is that the profits will re-circulate back, net of bonuses :)

  69. Problem circulating this:

  70. The London Whale……..harpooned~~

    Breaking News Alert
    The New York Times
    Sunday, May 13, 2012 — 4:49 PM EDT
    —–

    JPMorgan Banker Who Led Unit That Had $2 Billion Trading Loss Expected to Resign

    The $2 billion trading loss at JPMorgan Chase will claim its first casualty
    among top officials at the bank as early as Monday, with chief executive Jamie
    Dimon set to accept the resignation of the executive who oversaw the trade, Ina
    R. Drew.

    Ms. Drew, a 55-year-old banker who has worked at the company for three decades
    and serves as chief investment officer, had repeatedly offered to resign since
    the scale of the loss became apparent in late April, but Mr. Dimon had held off
    until now on accepting it, several JPMorgan Chase executives said.

    Read More:

    http://www.nytimes.com/2012/05/14/business/jpmorgan-chase-executive-to-resign-in-trading-debacle.html?emc=na

    To unsubscribe, go to:

    http://www.nytimes.com/gst/unsub.html?

  71. Per Kurowski

    Son, don´t ever become a scientist, because if while developing a Virus II resistant strain, you sin, in arrogance and in negligence, and come up with one that kills millions, they will pursue you till the end of earth, but, if instead you become a bank regulator, and for the same sins you commit the mistake of developing a Basel II, which will kill off the means of living for millions, then you will be either promoted, or commissioned to come up with a Basel III.

    Senseless automatic solidarity, primarily among academics, is killing us all.

  72. Per, the PETER PRINCIPLE, it’s just not the title of an interesting book. :)

  73. @Patrick Sullivan, “Freedom Link, what’s wrong with recognizing that without Wall Street we’d all be poorer. No investment, no progress. We’d all be living in caves and foraging for food. The bitter accompanies the sweet.”

    You got math and stats to back up that statement?

    We’d all be still living in caves and foraging for food if cannibalism was the driving force of evolution – it certainly is on Wall Street!

    More misery for others = More money for ME ME ME

    Done and done.

  74. @woop – when it’s a trickle, lots gotta go – giddyup Wells Fargo…

    http://www.huffingtonpost.com/2012/05/13/monterrey-drug-war-bodies-highway_n_1512811.html?ref=world

  75. “Sorry bro, just lost $2,300 thousand million!”

  76. Robin Williams

  77. Robin Williams

    @ 8:44: “Aww my man listen… I just need some liquidity, you know what I’m sayin’? I just ran into some bad subprime, ya know? I just need $805 billion dollars… by Tuesday!”

  78. Per Kurowski

    @Robin Williams “I just ran into some bad subprime, ya know? I just need $805 billion dollars… by Tuesday!”

    “And by the way, do not forget that this was precisely the kind of paper you allowed me to leverage 62.5 times to 1… as it never ever could be bad!… so we’re in it together!”

  79. hea hea Oohh look out:

  80. Robert Till

    Simon, check your numbers the government did not lose money on the big universal banks, in fact didn’t they make money on their investments in JPM, B of A, Citi, Wells Fargo etc. I am not against regulation, but GM has lost a lot more than$2 billion for mistakes they have made, and the government is certainly going to lose money on GM.

  81. Per Kurowski

    And come on, just a Solyndra represented more than a quarter of that, and this in real taxpayers’ money losses

  82. @Per – no offense, but you should stick your nose out of USA *debt* and how people “feel” about it and who is losing taxpayer $$$$. And if you insist, everytime a bullet gets shot or a plane goes down, that’s a *loss* on many levels…so there’s the 2 Billion – no one has it – go collect the shells in the desert and send them to Sudan to recycle into kitchen pots and pans

    Not a single disagreement exists among everyone – “….they’re LOOTING the country….”

    Thanks for the Robin Williams – LOL!

  83. Per Kurowski

    @Annie “@Per – no offense, but you should stick your nose out of USA *debt*”

    Oh so you mean that as a small holder of some USA debt I have no right to opine? Or is it that my holdings of it, when compared to yours, are just ridicule small?

  84. @Per – sorry to hear you own *debt* – but I guess you like to invest in *risk* since the usury charge is at least 7-8%…

    Even Clinton said not to bet against USA people – here’s just one *idea*:

    “…It is absurd to say that our country can issue $500 Million dollars in Bonds to the International Banking cartel of the Federal Reserve Bank, but we cannot issue $500 Million Dollars in currency.
    If our nation can issue a Dollar bond, it can issue a dollar bill free of interest and debt.

    It has been done several times throughout this nation’s history beginning with the early days of colonial America when the colonies began using “Colonial Scrip”.

    The element that makes the Bond good makes the Dollar bill good also.

    Difference between the Bond & the bill is the Bond let’s money brokers collect twice the amount of the Bond, & an additional 20%, whereas the Dollar Bill as U.S. currency issued directly by the U.S. Government & backed by the full faith & credit of the United States of America, doesn’t pay anyone, but to those who contribute directly in some useful way through their own productivity in the marketplace.

    Both are promises to pay, but one promise that is issued as Debt with interest in the Bond to the American people, allows the Federal Reserve System to accumulate our wealth as “usurers”, while the other is issued directly by the United States Government to the American people to keep that wealth for the prosperity of the American people.

    If you wish returning wealth & prosperity to American people than the answer is simple repeal the Federal Reserve Act, & begin reissuing our own currency again…”

  85. Per Kurowski

    Annie…and so you mean that they should just print us 15 trillion and more US debt holders, out of the picture… and then perhaps they should proceed to do the same with your pension?

    By the way the “usurers” are currently on the inflation adjusted US bonds taking about a minus 1.5 percent return… I wonder what happened to all those good old time usurers… I guess they must be off financing credit cards… perhaps yours Annie?

  86. @Per – sorry, have no idea what you are talking about this time around…

    USA changes the money around, not the country. That’s why USA has been around since the Declaration of Independence – and lots of different colored money over the years.

    Debt takes away the RIGHT of the human being to make their lives less miserable through honest work. Going into trillions of dollars of debt to support perpetual war in the Middle East…? You betcha it’s gonna get ugly who wins the booty from that delusional plan…

    I can’t possibly pay for YOUR lifestyle – with or without a credit card.

  87. ‘@Per – sorry, have no idea what you are talking about this time around…’

    It isn’t just this time.

  88. Per Kurowski

    Yes Patrick… and let us pray she will not have to figure it out the hard way when she as a retiree goes to the market and they don’t want to give her anything for the worthless paper she carries.

  89. The Bond Man

    It’s plain WRONG for a bank to be operating, in part, as a gaming casino, no matter what profits are forthcoming. This activity was proven wrong and malignant with the financial derivative collapse of 2008, and these sonsabitches still haven’t learned the lesson.

    The insolvencies facing the big banks are still present, but owing to the off-balance sheet presentation of derivatives data in the notes, the accounting equation is obscured and buried under a pile of data, that renders third party inspection a very arduous chore.

    Question: how can you tell when a CEO is LYING?

    Lips are moving.

  90. Bruce E. Woych

    Richard (RJ) Eskow wrote a new post:
    Jamie Dimon’s JPMorgan Chase: Why It’s the Scandal of Our Time
    Posted: 05/14/2012 12:41 pm

    http://www.huffingtonpost.com/rj-eskow/jamie-dimons-jpmorgan-cha_b_1515185.html

    “Predictably, the pundits who aid and abet people like Jamie Dimon are dismissing this story’s importance, pointing out that $2 billion (it could become much more) pales against the $19 billion in profit Chase reported last year.

    But it was potentially $2 billion earned through crime. And more importantly, this story isn’t just about Chase’s errors and crimes. It’s much bigger than that.

    Besides, $19 billion in a single year? That’s a big part of the story, too.

    The Case Against Chase, its CEO, and its accomplices is too big to cover all at once. Here are the aspects of this under-reported story we plan to address in the days and weeks to come….

    http://www.huffingtonpost.com/rj-eskow/jamie-dimons-jpmorgan-cha_b_1515185.html

    ================================================
    Elizabeth Warren
    2 video clips @ with full article:

    http://www.huffingtonpost.com/2012/05/13/elizabeth-warren-jamie-dimon_n_1513528.html?utm_source=DailyBrief&utm_campaign=051412&utm_medium=email&utm_content=FeatureTitle&utm_term=Daily%20Brief

    Elizabeth Warren: Jamie Dimon Should Resign From New York Fed Board
    The Huffington Post | By Mollie Reilly Posted: 05/13/2012 10:55 pm Updated: 05/14/2012 10:00 am
    “Elizabeth Warren called on JPMorgan Chase CEO Jamie Dimon to resign from his post on the Federal Reserve Bank of New York’s board, citing the need for “responsibility and accountability” in the financial industry.”

  91. Dan Palanza

    @ The Bond Man said: “It’s plain WRONG for a bank to be operating, in part, as a gaming casino, no matter what profits are forthcoming.”

    This point must be stated again and again until it sinks in. Bookkeeping’s number one goal is to prove the validity of the medium of exchange, which is the government supervised monetary-system. If a casino-bank wants to play a derivatives game, let that special form of bank play the game with their own chips. A bettor buys chips and bets. The casino-bank covers the bets, by buying back the unspent chips. The game would never get out of hand and you can bet that the bets would seldom reach a billion dollars, say nothing like the $700 trillion that the Wall Street Journal reported, as bets in circulation, as of last Friday, after the JP Morgan news.

    Any math person that takes the time to study the seven centuries old bookkeeping framework of rules will see in bookkeeping the very same pattern that occurs in mathematics. Mathematics is a study in axioms that are proven true by their complementary theorem. Where the mathematician proves his axioms with a theorem for each individual axiom, the bookkeeper proves the validity of the money that his entity puts into circulation by the creation of marketplace value’s work in trade.

    The bookkeeper’s proof is a summation of all transactions within a given time period (the closing of a balanced set of books). The meaning of balancing the books is a proof that for every creation of dollar-value there is a corresponding contribution of work.. Money is created by creating marketplace value, and in no other way. The derivative gaming has no more marketplace value than a roulette table. Its a game the risk lovers play, and so let that be; but not using the citizens hard-earned contributions of work’s value traded in the legitimate marketplace

  92. The Bond Man

    @ Dan Palanza: eloquence becomes you! BRAVO!

  93. Per Kurowski

    So let us start with the first roulette bet that should be prohibited… that which allow banks to lend to “infallible” sovereigns operated by human politicians, against no capital at all… in other words to leverage up to the stars…

  94. Robert Till

    I do not understand how some think that all derivatives are evil, it is like saying all people are bad. An oil company locking in the price for their product, or a airline locking in the price of fuel thought an jet feul swap is not evil. Neither is a bank using an interest rate swap if they want more or less floating or fixed rate funding.

  95. http://www.blogger.com/profile/14948365865741313524

    That’s Patrick’s bona-fides…he just needs to commit enough crime every day to cover his bar tab…

    Like *derivatives* aren’t worthless paper, Per. But thanks for the heads up, I’ll drive to the market in a tank I got cheap at auction, same tank I used to bulldoze the olive tree in my neighbor’s yard…..

    Good luck collecting on your *debt*:

    http://www.huffingtonpost.com/2012/05/10/mara-kafarela-texas-homeoner-debt-collection-agency_n_1507421.html?ref=business&ir=Business

  96. The Bond Man

    @ Annie, had that been tried on my grandpa, that debt-collector fella would have exited the premise with a load of shotgun pellets in his britches.

  97. Dan Palanza

    @Robert Till | May 14, 2012 at 5:14 pm |
    “I do not understand how some think that all derivatives are evil, it is like saying all people are bad. An oil company locking in the price for their product, or a airline locking in the price of fuel thought an jet fuel swap is not evil. Neither is a bank using an interest rate swap if they want more or less floating or fixed rate funding.”

    It seems to me that a bartered swap is quite different from betting that a contract will fail. Particularly while a number of gamblers are betting for or against one same contracts outcome.

    The world is a complex place, but the principle of work’s value set equivalent to ownership’s rights has worked smoothly for six and a half centuries. The computer came into play and changed the business environment setting a new speed at which money moves. We’ve seen how well the computer can corrupt, but my experience tells of another side of electronic computation waiting to be developed that shows how magical the computer can keep things honest and fair.

    We all have a stake in getting computer-driven goodness up and running in the free marketplace.

  98. Hiltzik wrote, “In an unguarded population, measles, like risky derivatives investments, can kill.”

    When is everyone going to acknowledge that the derivatives we are talking about (not bartered swaps) were DESIGNED to *kill*? Eugenics against the *Middle Class*. We’re not retards who can’t put two + two together.

    No one regulated the concentration camps, either, other than to say go ahead and do what you want to get what you want…

    The effects on BILLIONS of people now and into the future – their RIGHT to make their lives less miserable through HONEST WORK – has been replaced by brazen skin-‘em-alive global LOOTING to fund a perpetual WAR MACHINE in the Middle East!

    It can’t go on. And it won’t go on.

  99. Dan, if you have a long position in a debt obligation for a foriegn country and you are concerned about your exposure you have two choices sell a portion of your position at a loss or use a credit derivative to insure (hedge part ofy our exposure). Why not have the option to do either? I simply do not understand the use of analogies like products designed to kill or reguating concentration camps has any place in a discussion about derivatives. You should consider taking a course in finance so you understood the use of derivatives. I can understand someone who calls for more regulation or more capital or limint proprietary trading, but to talk about killing, and funding a global war machine makes your arguement look a bit extreme.

  100. Bruce E. Woych

    William Black on Derivatives

  101. Bruce E. Woych

    Meltdown (pt 1-4) The Secret History of the Global Financial Collapse 2010

  102. Bruce E. Woych

    Frontline – Breaking the Bank

  103. Bruce E. Woych

    Brooksley Born
    Derivatives Warning – Michael Greenberger interview

  104. Bruce E. Woych

    CFTC Commissioner: “A Hair Trigger Away from Economic Calamity”

  105. Bruce E. Woych

    The World Exchange Congress: The world’s largest strategy congress for global exchanges and trading venues:: Published on May 8, 2012 by thetraderblog
    Region-wide circuit breakers: Are we closer & are they really the answer? World Exchange Congress

  106. The Bond Man

    UT HO! FBI opening investigation into $ 2 billion loss at JP Morgan Chase. Sneeze, ACHOOOOOOO…………….WOOOOOOOOOO……..BAWAAAAAAAA……….STOP IT ALREADY!!

    These guys have difficulty finding a street without GPS!! ZING DRUM ROLL!

    http://www.latimes.com/business/money/la-fi-mo-jpmorgan-fbi-inquiry-20120515,0,672725.story

  107. Bruce E. Woych

    Best overall review: Seeking Alpha:
    Michael T. Snyder

    http://seekingalpha.com/article/584531-jpmorgan-s-2b-loss-a-preview-of-the-coming-derivatives-market-collapse

    JPMorgan’s $2B Loss: A Preview Of The Coming Derivatives Market Collapse by Michael T. Snyder
    May 13, 2012
    The entire article is well coordinated with facts and figures but this is of direct interest:
    “According to the Comptroller of the Currency, the “too big to fail” banks have exposure to derivatives that is absolutely mind blowing. Just check out the following numbers from an official U.S. government report….

    JPMorgan Chase – $70.1 Trillion

    Citibank – $52.1 Trillion

    Bank of America – $50.1 Trillion

    Goldman Sachs – $44.2 Trillion

    So a 2 billion dollar loss for JPMorgan is nothing compared to its total exposure of over 70 trillion dollars. Overall, the 9 largest U.S. banks have a total of more than 200 trillion dollars of exposure to derivatives. That is approximately 3 times the size of the entire global economy. It is hard for the average person on the street to begin to comprehend how immense this derivatives bubble is.”
    Michael T. Snyder

    http://seekingalpha.com/article/584531-jpmorgan-s-2b-loss-a-preview-of-the-coming-derivatives-market-collapse

    ===================================================
    ….repeat:
    “That is approximately 3 times the size of the entire global economy.”

  108. The Bond Man

    And Bruce, the dopes defending these financial weapons of mass destruction don’t seem to GET IT!!

    Brainwashed suckers, hey.

  109. Bruce E. Woych

    Washed, Dried…and left out in the sun, Bond MAN. The Monopoly game is a mind game and they rule the board. Regards: Bruce

  110. The Bond Man

    @ Bruce, LMAO.

  111. @Dan, “…The world is a complex place, but the principle of work’s value set equivalent to ownership’s rights has worked smoothly for six and a half centuries…”

    Looky at what the *consumers* own via tax $$$ in Chicago – they’ll take photos immediately after the noise and use that image of dumbstruck people (ear drums are PERMANENTLY DAMAGED) as photo-proof of how dirty smelly and stupid the protesters are…engineered MORAL HIGH GROUND, Hollowood (Dodd) style:

    http://www.huffingtonpost.com/2012/05/15/chicago-police-sound-cannon-lrad-nato-summit_n_1518322.html?ref=topbar

    Riddle me this – you think that other engineers and scientists can’t come up with weapons against “protesters” that the current crop of toy makers have yet to dream about (or get as *visions* from higher powers)…? Why aren’t they doing it if it will make the filthy rich? Or will it, anymore?

    Did they ever give a chance for steel mills to re-invent themselves based on an infrastructure maintenance and new product development business model? No siree – just slice ‘em, dice’em and pocket the $$$$ after it was built – “creative destruction”. Makes you want to rip out the silver tongues that coin such phrases….at least the NY boyz call their antics “rip their face off”…

    And, seriously? 3 times the total world economy? How is that swapping to make prices stable? And gee, what could go wrong there when dealing derivatives IN THE DARKNESS of a LAWLESS state?

  112. Dan Palanza

    Annie wrote: “Riddle me this – you think that other engineers and scientists can’t come up with weapons against “protesters” that the current crop of toy makers have yet to dream about (or get as *visions* from higher powers)…? Why aren’t they doing it if it will make the filthy rich? Or will it, anymore? Did they ever give a chance for steel mills to re-invent themselves based on an infrastructure maintenance and new product development business model? No siree – just slice ‘em, dice’em and pocket the $$$$ after it was built – “creative destruction”. Makes you want to rip out the silver tongues that coin such phrases….at least the NY boyz call their antics “rip their face off”… And, seriously? 3 times the total world economy? How is that swapping to make prices stable? And gee, what could go wrong there when dealing derivatives IN THE DARKNESS of a LAWLESS state?”

    I think often about the things above that trouble you, Annie, but I don’t let it affect my focus on living a life that I feel has meaning and purpose. In bookkeeping the measure of work takes the form of a network of contributors: teamwork. The expression of rights to ownership takes the form of a hierarchy of distributions: responsibility. The society of cultures that persons like you and I seek is a gentle blending to the two, the network of friends getting life’s work accomplished, and the hierarchy of responsible leaders maintaining an administration of ownership that is fair and equitable.

    I’m with Gandhi, relative to non-violence. I bought my first computer in fall of 1979. I knew the importance of bookkeeping, having experienced a well run example when I was a teenager. I knew by the spring of 1980 that the microprocessor computer posed a potential monster endangering our cultural civility. I never dreamed that computer technology, typical of The Internet, would develop a the speed that it has developed. Bringing the computer’s punctuation of our equilibrium into the disequilibrium that you describe above is a task filled with challenges.

    I accepted, a long time ago, that nothing is going to get accomplished in Washington D.C. The rules of commerce, hence government, are written by microprocessor software, ordered up by The Venture Capitalist. If civility is to be in that leagure, it is up to you and me. I’m certain of the pattern of success, but I have found no way to implement the pattern that I know is possible. In simple words, I believe that a small group will figure out a successful way, and get the healing process working. Others will see the example, however small, and join the pattern of success. And so goodness will grow, as a seed bearing plant turns its seed into a forest supporting life’s societies of cultures.. There are many kind and gentle persons contributing to the success of this blog. Perhaps we can set a tone that will influence the group toward what is the right thing to do.

  113. @Dan – the space and place that was *sacred* enough to lend power to teamwork based on “goodness” is not there in society anymore and hasn’t been for a long time. That’s why it took an army to storm the barricades and tear down the camps of “them” erected by the “us” who were armed with the delusional materialistic and nihilistic *isms* of the 20th century and backed by a lot of killing mechanized metal. It’s got nothing to do with math and computers, per se. I agree they are the modern weapons of economic destruction that are coupled with Jim Jones psychobabble which is far worse than the bad religion that starts a social relationship with someone based on exerting immediate power over them with the pronouncement to the stranger in front of you that, “you are a sinner that needs to be saved”….or “we are the chosen ones and you are not”.

    http://www.msnbc.msn.com/id/3096434/#47435902

    There was no reason why the *ists* of the 20th century needed to do what they did to prove the superiority of their *way*, was there? So why did they cooly and deliberately decide to do what they did instead of just set up the utopian “Jonestown” as an example – build it and they will come…?

    There is real evil in the world, my friend. You can’t out-civilize it when it’s in the stage it is in now – armed, cold, ruthless, focused, RELIGIOUSLY fanatical, and in total control. It a WAR and war is the suspension of civil law.

    Every HUMAN BEING has the right to make their lives less miserable through honest work. How many of us are ALLOWED to live that way without unreasonable search of our personal goals to mock and steal our identities and the brute force seizure of the fruits of our labor? We have NO PEACE or SECURITY as good people!

  114. Dan Palanza

    Nice essay Annie: and sadly filled with unfortunate truths. I believe that we can reconcile these unfortunate truths that you bring to light.

    Annie Said: “@Dan – the space and place that was *sacred* enough to lend power to teamwork based on “goodness” is not there in society anymore and hasn’t been for a long time.”

    Correct, Annie. My life’s story knows this problem well.

    Annie Said: “That’s why it took an army to storm the barricades and tear down the camps of “them” erected by the “us” who were armed with the delusional materialistic and nihilistic *isms* of the 20th century and backed by a lot of killing mechanized metal.”

    My first brush with the ‘isms’ was Sunday dinner at my grandmother’s house. My uncles would get into house-rocking debates about big words that end in ‘ism’. The difficult then,and now, is that words ending in ‘ism’ is only half of any good story: the subject without its predicate; the predicate without its subject. Computer hardware driven by software put that picture in place for me. Alan Turning distinguishes hardware-ism from software-ism, using the metaphor: ‘machine’ set equivalent to ‘tape’, where the tape is the hardware’s essential data store.

    Annie Said: “It’s got nothing to do with math and computers, per se.”

    Sorry Annie, it has everything to do with computers. The Math enables the computer’s hardware to interpret models of real-world physical behavior in the computers memory field. Simultaneously, a grammatical code enables the computer’s software compile control of real world intellectual identification of that hardware’s behavior in that code. The community of bookkeeper’s made the hardware | software (read that ‘|’, named ‘pipe’ as “hardware set equivalent to software.” This distinction between interpreted behavior and its compiled control, as code, was distinguished by bookkeepers about seven centuries ago. It has a been relegated to ‘folk science’ ever since. It has disappeared completely with the misadventures of today’s half baked computer software.

    Annie Said: “I agree they are the modern weapons of economic destruction that are coupled with Jim Jones psychobabble which is far worse than the bad religion that starts a social relationship with someone based on exerting immediate power over them with the pronouncement to the stranger in front of you that, “you are a sinner that needs to be saved”….or ‘we are the chosen ones and you are not’.”

    Well spoken Annie. We are all in JonesTown at the moment, but we all have very powerful computers that can speak in the voice of completeness. That’s the silent and passionate revolution that is ours for the taking. We can easily learn to separate the math from the grammar, to bring them together in the name of goodness, as we see it. If we get the story told correctly, goodness will spread like wildfire.

    Annie Suggests: http://www.msnbc.msn.com/id/3096434/#47435902

    This is a great link, Annie. Both the author of ‘Bad Religion’ and the interviewer present sound arguments, filled with hope. Religion generally, sets out to solve the integration of the ‘isms’. The computer’s machine-ism versus the tape-ism separates the modeling of behavior from the control of that behavior’s identity, in storyform. The computer gives us no choice. We either learn to use it sensibly, because to use it insensibly will surely destroy the one and only planet we have.

    Annie Said: “There was no reason why the *ists* of the 20th century needed to do what they did to prove the superiority of their *way*, was there?”

    I see the twentieth century in the spirit of Kuhn’s paradigms. Newtonian mechanics went as far as it could go. Planck’s Quantum of Action can be best explained by the activity that takes place in a computer-software’s memory-field. Yes, the bandits got there first, crating unimaginable, cultural chaos. But there is still time to fix the errors that have been invoked by short-sightedness.

    Annie Said: “So why did they cooly and deliberately decide to do what they did instead of just set up the utopian “Jonestown” as an example – build it and they will come…?

    The computer, Annie, is the most significant social transformation since Copernicus displaced Ptolemy. The revolution is still young. The ball today is in yours and my court. What are we going to do to correct thirty years of bad social judgments?

    Annie Said: “There is real evil in the world, my friend. You can’t out-civilize it when it’s in the stage it is in now – armed, cold, ruthless, focused, RELIGIOUSLY fanatical, and in total control. It a WAR and war is the suspension of civil law.”

    I agree with your above statement, Annie, except for the two words ‘total’ and ‘control’. Those who would corrupt do not have total control. They are ignorant as to how a computer works in the name of goodness. We all have computers that are powerful enough to invoke the essential goodness. The question at hand is a matter of persons like you and me taking up the banner of goodness. I’ve been working on it for thirty years, I see solutions today that are closer than ever.

    Annie Said: “Every HUMAN BEING has the right to make their lives less miserable through honest work.”

    I agree Annie. I will add the comment that every human being also has a responsibility to make their life, and the life of their friends and relatives joyful through honest work. It’s that difficulty in defining ‘honesty’ and in putting a legitimate version of ‘honesty’ to work in a way that will achieve the goal you describe, one person at a time, if necessary.

    Annie Said: “How many of us are ALLOWED to live that way without unreasonable search of our personal goals to mock and steal our identities and the brute force seizure of the fruits of our labor? We have NO PEACE or SECURITY as good people!”

    When one studies science-history, Annie, one sees that the computer that has been stealing our cultural fire, since 1979, is the ultimate challenge to a body of citizens that will take up the restoration of the stolen torch. It is very quiet here in my room. I don’t know where in the world you are physically. I know you intellectually by your comments to this blog. We are linked by a very powerful computer, well out of the ranges noise, tear-gas, billy clubs et al. What could be a more delightful way to gently untangle this Gordian Knot that is in our lives at the moment, Annie?

    Thank you for your every present and delightful ability to express the facts that are so worth fighting for, here in the early morning gentleness of my room. Let’s fix the problem, Annie. We can do it|

  115. annie, I keep hearing insanity coming from the mouth of a young girl, as if she has it all figured out and needs the rest of us to play along with the game. Well read, yet still Booker T to another author. You my stranger friend, are going end up on the wrong side of nature, but are not yet conscious of this (a problem you hoped to MAKE money from, not lose it). Here is a part of the DOI

    The first sentence of the Declaration asserts as a matter of Natural law the ability of a people to assume political independence, and acknowledges that the grounds for such independence must be reasonable.[73]
    When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
    The next section, the famous preamble, includes the ideas and ideals that were principles of the Declaration. It is also an assertion of what is known as the “right of revolution”: that is, people have certain rights, and when a government violates these rights, the people have the right to “alter or abolish” that government.[74]
    We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights,[75] that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes;………

    Now, you are what you eat, and the separation of the 2 is within you. I would love to have you powder your nose all day and play games with your like minded cohorts. But wasting resources and polluting the human body is an unsystainable (my spelling, not Websters) situation that this gvt will not reconize or so much as even talk about it. Which is why it will be replaced with another one, and hopefully with enough resistance we will obtain a different result. So since you can’t beat um,you might as well join um, or stay blissfully ignorant and rant about your version of the right to work.

  116. The Bond Man

    More MISERY for OTHERS = MORE $$$$ FOR ME ME ME

    When the bank isn’t laundering drug profits, it’s scamming people burdened with a mortgage………*RIP THEIR FACE OFF*…….capital–ism!

    http://www.alternet.org/story/155442/wells_fargo_has_blood_on_its_hands%3A_desperate_man_commits_suicide_after_shocking_wells_fargo_foreclosure_mistreatment_?akid=8788.230705.I23Poa&rd=1&t=2

  117. Bruce E. Woych

    @ The Bond Man: tragic and so disempowering in the face of organized and institutionalized corruption parading as the norm;
    a mark to market mentality that has become dehumanized.
    ================================================
    The system and subsystems are tributaries of the mainstream which is handled as if it were sacrosanct and vitalistic. The life blood of culture and society is now written by financial tycoons in a narrative that is measured by perverse markets and a bottom line membership into exclusive clubhouse elitism…(about as honorable as the mafia).
    ——————————————————————————
    The “systemic” is the foundation and there is where the “investments” are made that subvert a truly humanistic society and a growth counter-cultural alternative to the stray dog greed credo. The economic tycoon builds “institutions” like a house of cards using money abd credit cards as their materials. IT appears monumental…but it is a wink in the time span of history and is pure delusion.
    =================================================
    Where are the sources: Well give this a careful reading and then pass on this article. It is the realism and the base of the decay!
    Money Talks: The Rich Get the Elevator.
    The Middle Class Gets the Shaft. Eskow has been doing his homework and reporting in like “journalists” used to do !!!

    http://www.huffingtonpost.com/rj-eskow/bill-clinton-boehner-and_b_1520025.html?utm_source=Alert-blogger&utm_medium=email&utm_campaign=Email%2BNotifications

    “Tax filings show that Pete Peterson put nearly half a billion dollars into the foundation that held this summit — and that’s just in four years. He’s been trying to gut Social Security, Medicare, and other vital government programs for at least twenty-five years. Paul Blumenthal and Ryan Grim outlined some of the initiatives Peterson has founded or funded over the decades: the “America Speaks” town halls, the Fiscal Times, the Indebted series on MTV, the Social Security specialist at the Urban Institute, the “Committee for a Responsible Federal Budget,” a politically biased high school curriculum … the list goes on and on.

    But Blumenthal and Grim missed a few organizations Peterson secretly formed. They overlooked the Daughters of the American Revolution, SDS (he wrote the Port Huron Statement — but not the compromised second draft), the Quarrymen, the Royal Order of Buffalo, and the Shriners. (Hats and tiny cars? Brilliant! It’s even better than Budgetball.)

    Okay, maybe not the last few. The point is, a whole lot of politicians and policy wonks have benefited from Peterson’s billions, which have been spread around a variety of organizations in order to create the illusion of consensus — consensus which slowly became real in Washington, and which is diametrically opposed to the public’s preferences.”

    “The Rich Get the Elevator. The Middle Class Gets the Shaft.”

    Richard (RJ) Eskow
    Writer; host, ‘The Breakdown'; Senior Fellow, Campaign for America’s Future
    “Bill Clinton, Boehner and Some Other Rich White Guys Had a “Summit” and Agreed: It’s Your Fault”
    Posted: 05/16/2012 12:59 am
    ———————————————–
    Read the full article, and pass it on…

    http://www.huffingtonpost.com/rj-eskow/bill-clinton-boehner-and_b_1520025.html?utm_source=Alert-blogger&utm_medium=email&utm_campaign=Email%2BNotifications

  118. @Marcus: ‘…It truly is a quasi-Brownian motion, in that the actions of the participants in the system are constantly blowing out what where thought to be the parameters describing the process, such that the blowouts themselves come to dominate the process, ad infinitum. So the parametrizations of the models the banks are using are always spurious. They’re all flying blind at increasing speeds.”
    ————————-
    That’s close. The research was done in the 1970’s. It was found that non-linear systems, even the very simplest ones, could undergo the most astounding transitions given even minor amounts of feedback. What you call re-parametrisation is nothing more than just that – feedback. But it’s not Brownian motion. There is a pattern, a higher dimensional surface on which the system is doing it’s dance. Tellingly, knowing that does you absolutely no good in any predictive sense. To get a feel for this, take a look at this diagram:

    Now, tell me which orbit will transition to the adjacent surface and when it will happen. And this is a simple example.

    To make things really interesting, how about if I tell you that between the orbits you can see are an infinite number that have yet to be drawn out if we were to let the program algorithm continue to run? All of those might – or might not – themselves transition to another wing of the attractor.

    And Dan, it’s not bad software at all driving this. It’s very good software that’s simply playing a small part in this dance. Tweaking the orbits ever so slightly – or a lot in the case of massive 1000+ transaction trades – to gain a perceived edge. That statistical edge does no more than measure the variation in orbits on one wing of the attractor. When the system transitions – not if – your statistics are useless.

    Here’s the crux of what was learned back there by people like Robert May, Doyne Farmer, James Crutchfield, and others: unless you know all the conditions (stakes) absolutely, 100% totally, precisely at any given time- and that’s impossible in this universe since the decimal points alone will get you – you can’t predict the future behaviour. It has the deepest philosophical consequences imaginable for what we think we can control.

    Again, the suits on Wall Street have no idea, none whatsoever, what they’re messing with. They can’t as the above discussion should make obvious. They can’t manage the risk for this stuff, no one can. It’s the height of arrogance and foolishness for them to claim otherwise. Time for something most of them have no experience with – humility in the face of the unknown.

    If we persist in this lunacy these markets, pumped as they are on the steroids of networked computing power, will crash and burn over and over again. That’s not a conjecture. It’s a statement of what’s been built.

    Here’s some further reading: Systemic risks in banking ecosystems

    http://www.nature.com/nature/journal/v469/n7330/full/nature09659.html

  119. Dan Palanza

    Norm Cimon Said: “And Dan, it’s not bad software at all driving this. It’s very good software that’s simply playing a small part in this dance. Tweaking the orbits ever so slightly – or a lot in the case of massive 1000+ transaction trades – to gain a perceived edge.”

    Norm you and I are in complete agreement. The software that I’m talking about is the double-entry bookkeeping patterns that have been going from bad to worse for 30 years now. I completely agree with your important message. A proper Book-of- Accounts would tell the user precisely what you are suggesting, which needs to be understood.

  120. @norm – LIFE, which is what I am assuming we are trying to maintain by mimicing it with the flow of our symbolic currency (AKA money), is a FRACTAL. It’s not linear. It’s not everything traveling into a black hole.

    @Dan – Thank you for the conversation, I truly appreciate your thoughts. And I agree with you about there being an EXPERIENTIALLY PROVEN best way to do things that has been tossed overboard based on delusional *isms* that were hoisted upon humanity without a pilot batch experiment to prove that the concept worked (computers run amok ala peurile M A T R I X fantasies). It’s the character of the Human driver that matters is the only point I was making and the institutions to coordinate character develoment that unifies the material world in such a way that society has the confidence to adopt life maintenance techniques that are sustainable – those institutions have been shangheid by hysterics with too much $$$$ – ala Peterson who spends half a billion in the quest to MANUFACTURE POVERTY via the dissolution of the *sacred* social contract that a SLAVE FREE MIDDLE CLASS evolved for itself that is just too tempting for all these psychos – they MUST try and rob Social Security just like the art thief who has the obsession to steal a Mona Lisa!

    I have a couple of decades under my belt with the damage computers have done to basic research in my field. It’s a tough crowd – we converse with the opposing view by sometimes resorting to ruthless sarcasm to get to the point and end their is-Pluto-a-planet blather with comments like this hurled from my superior to the self-proclaiming superiors, “…..Probably make the Federal Dept of Mood Diseases a Cabinet level position needing another Czar to advise the President on the evils of the Offensive Moods infecting the serfs….”.

    So from the decades of damage, I must stick with my conclusion that all force available needs to be exerted on the HUMAN DRIVERS who only have the mental capacity to wake up every day and follow their math fomula:

    More misery for others = More $$$$ for ME ME ME

    Ever watch the footage from Nuremberg? They never backed down from their view of things – their plan wasn’t *wrong* in their minds.

    Without global agreement on a man to land ratio, we’ve got nothing but marketing sell – sci-fi from people who KNOW it will never happen, but do it to provide a circus so that the people do not act to make their NOW better by putting the necessary elbow grease into the food, clothing, shelter, medicine HONEST WORK efforts needed for THEIR life maintenance, not the masters!

    Notice I left out ENERGY as there are more than enough different sources to access – GO FIGURE, huh?

    Heck, even Maria’s interviewee on CNBC yesterday told her to just go buy a farm and learn how to drive a tractor :-))

    @filbt – You are NOT a USA born and bred citizen. We have NO CAPACITY, as moon walkers, to worship a bank or the micky-mouse lookalike CEO as the one ring to rule us all – so blather on. You are SO WRONG in you ASSumptions about who I am, that your psychobabble license should be shredded by the master who pays you to be his jester.

  121. The Bond Man

    LOL @ “psychobabble license!! HA!!

  122. SOMEBODY GIVE ME A CHEESEBURGER!

  123. @The Bond Man – predators against GOOD PEOPLE – it’s profiling of the highest order! They sure do know how to pick the ones who are more likely to commit suicide – maybe thanks to getting an ILLEGAL list from health care providers about the anti-depressants the targeted homeowners start taking once the merciless aggression starts? High risk of suicidal thoughts with some anti-depressants… Dunno, but I would certainly explore that possibility, wouldn’t you? After all, it’s drug laundering money SAVAGES doing this stuff – ask anyone if there’s anything other than a foreign accent on the other end of the bankster phone calls…

    I have even a worse story that should be news and never was and so using STATISTICS, one can extrapolate just how many times WF do a hit this way! WF had enough pull in the smallish town I was visiting out west to send a SWAT team to bring down the owner and get his house – dude was a retiree from NJ and was giving them a run for their money with the paperwork game. It was a newly formed SWAT thanks to Patriot Act funds and they colluded with a WF worker at the local branch to have her call in a domestic disturbance 911 after she put a date drug in her partner’s beer and pushed him outside the front door with a gun in his hand that she put there. I forget how many bullets the SWAT put in his body. Bank got its house. You can’t make this stuff up….so WF is statistically dripping in blood…no?

    Homestead Act did not exactly turn USA into a welfare state, did it? But those people who were GIVEN – outright – land to live on are the same ones accusing the MIDDLE CLASS who worked for the house – nurses, teachers, small business owners – of not being DESERVING of owning a home and they are using the Drug Lord’s drug mules to help them STEAL land from GOOD PEOPLE.

    That’s the story that will eventually be written in the history books – right now we are in the *fog* of the war.

    Yeah, a bunch of us Forest Gumps around bearing witness to “anything for the $$$$”.

    Profiling the GOOD PEOPLE….

  124. The Bond Man

    @ Annie, Blood on their hands, literally, is correct. I’m reminded of “Chinatown”, in the barber shop confrontation between Jake Gittes, and the banker.

    “I earn an honest living, not like you bums at the bank.” Or some such likeness….

    Meredith Whitney, who isn’t always correct, incidentally, predicted today more problems for banks with large derivative exposures. All HELL will break loose if central bankers and the governments involved start rescuing these bums, again.

    As for profiling the GOOD PEOPLE……nothing could be more true, Annie. I know this for a fact.

  125. @The Bond Man – look, we all get it that it is really dangerous, the “oh what a tangled web we weave when we first practice to deceive” is a hug web (the young gun sociopaths even embraced the spider web as their symbol).

    The economy has been re-engineered to support perpetual war in the Middle East. The *deficit* is 100% composed of putting the cost of just one decade of their war whoop party on the books – and look at how the misanthropes and miscreants are dealing with paying for their global game of Risk – one player is spending half a billion to steal the Mona Lisa (SS and health care funding)…basically they are too CRIMINAL to be social engineering anything! All force needs to be exerted on containing them. We’ll stick them in an institution where they can all be at the eternal final table of Hold ‘em and bet and counter bet on each other’s take down to their devious little mind’s content….

    Separate investment and commercial. Shunt derivatives off to the institution I mention above. And commercial $$$$ are DEBT FREE notes, not fractional reserve notes….only then will investment become real again.

    Right now they’re saying that there is no $$$$ for the slaves to beat the swords back into ploughshares – which is where fractional reserve brought us – a game of psyching each other out to see who commits suicide first.

    Thanks for confirming the fact about profiling the good people! We do have the paperwork as proof if anyone ever asks for it….

  126. @filbt – As part of growing up in a culture where the only social mix that was never questioned as anything other than “normal” was boys and girls side by side in school at work and when pursuing our hobbies and outside interests.

    So of course there was always girls vs boys competition. At age fifteen I spent a summer playing what I called the “how low can you go” verbal bantering game (politics, so to speak) with the older boy family members – 5 of them. I tried, I really did try. I NEVER won the game because as low as I could go (no slouch, either, I’m in that above average IQ bin – only 1 bro of the 5 was in the same category), the male mind made connections between – uh, now shall I put this? – *pleasure* and what their eyesight picked out that defy scientific explanation, but can be categorized in fetishism creation (yes I just made that up, so what?)

    After that summer, I never again doubted that no matter how low I go, not just some man, but every man will always be able to go lower than me.

    Don’t ever try to judge me from a top perch, Dude.

  127. Its too bad you had to go to war against him with the thought that would would lose. Yea he’s big and arrogant, that’s just makes his blood boil quicker when I throw down some 6th education on him and he deosn’t understand it. The problem with people is that their mind tricks them into thinking that short term good feelings(orgasum, cocaine), trumps long term good comfortable feelings(pains in the neck, how well do I sleep). Once the mind wakes and finds the short term and long term situation of the body in disagreement, it has to now consider that it is aging and come up with a new plan. So the war is really within yourself, and it’s a dangerous and possibly troubling world which goes unnoticed in many cultures, yet still has strenght in numbers here at home, and which I believe is the only reason America is still on top. It’s lonely at the top, and you have no choice but to judge others from a perch. Chicky

  128. @filbt – I haven’t lost anything, I’m just getting started….you really DO have me mistaken for someone else….crazy priest….

    My story hasn’t been written in your secret prophecy books, nor did those monkey brain authors have enough knowledge to IMAGINE the existence of people like me – as Biden said – “they don’t KNOW who we are”….

  129. The Bond Man

    Go JOE! GO!!

  130. Well that’s all fine and well, at least we know who we are. (8?>

  131. The Bond Man

    http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison/

    Occasionally, but not often enough, lying, cheating, criminal, fraudulent CEO’s go to jail. Society needs to send more of these jokers to prison for long incarceration, to provide an effective deterrence to WHITE COLLAR CRIMINAL ACTIVITY/

  132. @filbt – you have no clue who YOU are, either.

    Of what use is constantly predicting the end of the world? 5 billion years in the making and YOU want to claim the honor of ending it? Use the monkey brain imagination for a second here – say there is a Creator, what rational explanation are you going to give for using your short life to end 5 billion years of Creator work? “Uh, well, duh, it seemed like a good idea at the time?”

    And don’t you think that the rest of the world’s cultures (even the cannibals and head hunters) are getting tired of hearing that nonsense day after day, year after year and century after century from the same, supposedly, SUPERIOR culture?

    As Bond noted – nothing but a bunch of dirty rotten THIEVES that we have to get better at *containing*. However, I believe we need to get better at not LISTENING to their monkey brain made up crap in the first place.

    I guess people will argue that Nuremberg Trials were a witch hunt promulgated by jealous wannabes who hated the successful and efficient military. But then again, some of us look at that attempt at Justice and say that there was a boundary set for “how low can you go”. And as I noted before, there is NO RISK in assuming that someone won’t figure out how to go LOWER.

    This isn’t going away. Not even it all we hear in USA media 24/7 are the screeching parrots of the gods who own the air.

    A new LOW was set that went lower than the last low that Nuremberg addressed. You really can’t do EVERYTHING for the $$$$, especially using this math:

    More misery for others = More $$$$ for ME ME ME

  133. I don’t what you are talking about, it hasn’t been all that long. Even Hopalong Cassidy lived a double life. Oh and thanks for the tip of your hat, I must have mistook you for someone who knew what they were doing.

  134. Bruce E. Woych

    Back on topic:
    “The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses.”

    http://dealbook.nytimes.com/author/nelson-d-schwartz/

    MAY 16, 2012, 9:14 PM
    JPMorgan’s Trading Loss Is Said to Rise at Least 50%
    By NELSON D. SCHWARTZ and JESSICA SILVER-GREENBERG

  135. @filbt – “…I must have mistook you for someone who knew what they were doing….”

    You mean like you guys all know what you are doing…? That’s the superior example to follow?

  136. @Dan P – you wrote,”….We are all in JonesTown at the moment, but we all have very powerful computers that can speak in the voice of completeness. That’s the silent and passionate revolution that is ours for the taking. We can easily learn to separate the math from the grammar, to bring them together in the name of goodness, as we see it. If we get the story told correctly, goodness will spread like wildfire….”

    I did ask if any corp or country is doing the *old* bookkeeping – and the answer, based on the data we were able to collect :-)), was “No”.

    All the bruhaha surrounding FB yesterday – that *bookkeeping* has everyone scratching their heads….

    Lord knows *health care* could use a proper book of accounts! That’s where the biggest cut and dice and looting is going on, a cut for my pocket, and the rest to War Lords

    but now that they are just competing with Afghan and Mexican Drug Lords for future pill markets – and a billion in help-create-jobs $$$$ went to Brookings Institute to buy billing software – how about go for the billion cookie jar developing *patient record* and *billing* software….?

  137. Dan Palanza

    @Annie-” how about go for the billion cookie jar developing *patient record* and *billing* software….?”

    Email me at danpalanza@gmail.com and I will report details underlying some facts.

  138. She is so mad, she is willing to meet you anywhere in the world and duke it out. Why don’t we set her up at the wine shop, and let her eyes reconsider before her mouth breaks her pocketbook. Oh thats right, she carry’s no pocketbook.

  139. hello, Whistleblower….? You figured out who Pat Sullivan is….can you get this stinker – *filbt* exposed…? Who is in Homeland Security watching out for TERRORISTS…?

  140. Anynominous

    Word to Annie: DON’T FEED THE TROLLS!!

  141. Jim Senter

    One of the big problems with “risk management” is that even its critics spout bilge water when talking about it. Credit default swaps, which Mr. Johnson refers to as “a form of insurance policy”, are NOTHING LIKE insurance. You can get a CDS on deals you have nothing to do with, unlike homeowner’s insurance and most life insurance. Unlike insurance companies, companies selling CDSs have no reserve requirements to cover potential losses. And most importantly, underwriting for CDSs is impossible, because the risks involved are unknown and unknowable, because the counter-parties are invisible and the number of parallel deals are secret. No CDSs are NOTHING like insurance,They are GAMBLING pure and simple.

    And risk management is not about risk management. It is just another profit center in modern finance. It’s about making money through gambling with other people’s money.

  142. Jim Senter

    Another reason that CDSs are unable to be underwritten is that creative accounting, as the norm of the accounting industry [off-balance sheet accounting? Really?] makes the financial condition of companies impossible to determine. Faith based finance. So the risk of a company going bankrupt is impossible to determine. The Enron case is emblematic. And accounting standards have only deteriorated since then.

  143. Bruce E. Woych

    @Jim Senter:
    This is really intelligent stuff. It is also true that the linguistics of financial services, insurance industries and the evil halls of Chicago University Economics Dept. (among other places) not only obscure the meanings of abstract categories, concepts and entities; but deliberately reverse the language to make it sound opposite of what it really is. In many ways the entire system is based on a flim flam mind set of manipulation and fraud.
    I really appreciated your insightful comments.
    Regards: Bruce

  144. Dan Palanza

    Jim & Bruce: Keep in mind that accounting is a business strategy played subject to the double-entry bookkeeper’s, seven centuries old, framework of rules. Bookkeeping is a natural phenomena; its roles and its rules are played by axiomatic states and their proofs, which are equivalent to a formal mathematics, and its equally formal, grammatical language of proofs.

    In thirty years of study, I have yet to see a proper double-entry framework of rules programmed into software, except for a prototype that I created myself. That effort on my part proves that a fair and equitable accounting can be programmed into computer software.

    One more point: when bookkeeping is understood, we will all learn that the recent scandal at J.P Morgan, and at M.F. Global et al, is actionable stealing that is equivalent to what Madoff is serving time in jail for. A Nation’s monetary system is only as valid as the bookkeeping of its marketplace users. When the banks and the government don’t understand this framework of rules, we have the conditions that we are experiencing today.

  145. Bruce E. Woych

    @Dan Palanza
    Thanks for joining in Dan. I actually had a course in accounting and it is a very disciplined balancing technique and can handle complexity. I actually do not mean to condemn Accounting proper but we must remember that it is the human element that makes the measure or distorts it creatively (another “nice” way of putting corruption). William Black has stated that the weapon of choice for Executive driven fraud is accounting. Even more powerful than statistics, accounting is considered a bottom line definitive assessment tool…, and therefore when it is abused it is the last to be questioned. Recall that the Big 4 is now the Big 3, and the ratings establishment has itself been corrupted as the impeccable gold standard. It has never been more true that all that glitters is not gold.
    Remember that Enron could not have succeeded without accounting, in fact, it was the credibility of accounting that mad it seem so solid.

    It seems Reagan was right in at least one phrase: “Trust but verify”
    which has an interesting history that you might like to review here:

    http://en.wikipedia.org/wiki/Trust,_but_verify

  146. Dan Palanza

    @Bruce Woych: I had not known of William Black until your video clips brought him to life for me. He is a person I would love to have a conversation with.

    And yes, it is the human factor that distorts. But we must keep in mind that the bookkeeping framework of rules is the product of a natural phenomena. If we take the time to understand rules that control Nature’s roles in the creation of life, then a complementary aspect of the human factor can position itself to get the accounting as correct as we feel obligated to make it be.

  147. One last thing to consider are the possibility that CDS as money can be traded for say a boat full of cocaine, and then redeemed years later when the heat is off. And all you have to do is collect interest plus the value of the coupon when you need or want. To many wants are the equivalent of bank runs, and economic fears can play a role.

  148. Say hello to my leetle friend!

  149. Holy bat turds Robin, the joker just flew by in an airplane.

  150. Bruce E. Woych

    http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105

    Of the 1%, by the 1%, for the 1% By Joseph E. Stiglitz
    May 2012; Vanity Fair Magazine

  151. Bruce E. Woych

    Richard (RJ) Eskow wrote a new post 10 Reasons To be Suspicious About That Wall Street/Facebook Fiasco

    “Three of Wall Street biggest and best-known financial institutions handled the Facebook IPO, so why were people immediately suspicious when the stock soared and then promptly tanked? Easy answer: Because three of Wall Street biggest and best-known financial institutions handled the Facebook IPO.

    Each of them — Morgan Stanley, Goldman Sachs and JPMorgan Chase — has a history of exactly the kinds of unethical and/or illegal behavior that might, just might, explain what happened with Facebook.

    Mark Gongloff offers a good overview of Mr. Zuckerberg’s Wild Ride, in which a stock that was offered at an IPO price of $38 soared to $45 and then plunged to its current (as of this writing) price of $31. A lot of people lost money — which means a lot of people made money, too.

    Zuckerberg promptly sold his 30.2 million shares, netting a quick billion dollars and change. That tells you what he thinks of this investment.”

    Full article:

    http://www.huffingtonpost.com/rj-eskow/10-reasons-to-be-suspicio_b_1538194.html?utm_source=Alert-blogger&utm_medium=email&utm_campaign=Email%2BNotifications