Why Markets Won’t Fix JPMorgan

By James Kwak

Jonathan Macey, a former professor of mine at Yale Law School,* recently wrote an op-ed for the Wall Street Journal (paywall; excerpts here) arguing that we shouldn’t worry about JPMorgan’s recent trading loss because market forces will ensure that the bank does a better job next time. Here’s a key paragraph:

“Thus, far from serving as a pretext to justify still more regulation of providers of capital, J.P. Morgan’s losses should be treated as further proof that markets work. J.P. Morgan and its competitors will learn from this experience and do a better job of hedging the next time. They will learn because they have to: In the long run their survival depends on it. And in the short run their jobs and bonuses depend on it.”

Macey’s central point is that companies don’t like losing money, so losing $2 billion means that they will do a better job of figuring out how not to lose money in the future. That’s obvious. But it’s also beside the point.

Bankers don’t ask, “Do I want to gain or lose money today?” That’s not the relevant point at which incentives apply. Instead, they ask: “Do I want to engage in this specific class of activities that has a certain expected payout structure?” In the JPMorgan case, the question is: “Do I want to engage in trades that are, roughly, portfolio hedges but that also take significant long or short positions on the credit market as a whole, with the conscious intention of making money?” And what we care about is whether the bankers’ decisions are producing the socially optimal level of risk.

We know that Jamie Dimon pushed the Chief Investment Office to take more risk in pursuit of profits. We also know that the trade in question was not really a true hedge; if it were, there would be no news, because the $2 billion $3 billion loss would have been exactly balanced by a $2 billion $3 billion gain somewhere else, and Dimon wouldn’t be calling his own lieutenants “stupid.”

The problem is that two factors distort bankers’ incentives in the direction of excessive risk-taking (where “excessive” means greater than the socially optimal level). One is that JPMorgan is too big to fail. Macey himself has advocated in the Yale Law Journal for breaking up the largest banks, on exactly the same grounds as the rest of us: banks that are too big to fail have a distorted set of incentives because they can count on the ability to shift losses to the government in a pinch. That means that they have the incentive to engage in riskier activities than they would otherwise.

The other factor is that individual traders have skewed incentives: they get huge bonuses if they their trades make money, with no corresponding downside if their trades lose money. This also encourages bankers to take on excessive risk. And it’s not hard to see that if the payoffs are big enough, the potential loss of your job isn’t going to deter you from taking on that risk.

Now, it’s true, as Steven Davidoff has explained, that the traders in question at JPMorgan may also face clawbacks of their previous stock-based compensation. That is good, because it helps make the incentives symmetric: you get big bonuses if your trades make money, but you lose money you already had if they don’t. But JPMorgan’s clawback policy is a direct result of the reform pressures that resulted from the financial crisis; without the kind of pressure from regulators and reformers that Macey decries, JPMorgan would have no clawback policy at all, and its bankers’ incentives would be even more distorted than they are.

Obviously Jamie Dimon doesn’t like losing money. But he also likes making money, and for that reason he’s going to keep on pushing his people to take on additional risk in pursuit of profits. He can talk all he wants about how this trade went badly, but that doesn’t change the fact that he and his traders want to continue engaging in this class of trades—highly risky, proprietary, macro bets dressed up for as hedges for public consumption. The fact that one went bad is just a cost of doing business. “Markets” aren’t going to solve that problem because those markets are distorted. As long as those distortions exist, JPMorgan’s strategy isn’t going to change.

If you look at Macey’s YLJ article, you’ll see that he and I agree on the big picture: too-big-to-fail distorts incentives and therefore the big banks should be broken up. Do that, and I agree with Macey that we don’t need the Volcker Rule, since at that point I don’t really care what JPMorgan’s Chief Investment Office does, just like I don’t care what Small Hedge Fund X does.

But in this second-best world where we have TBTF banks, we have to do what we can around the edges (like the Volcker Rule) to reduce the distortions they create. Otherwise, losing $3 billion on a “hedge” is not an anomalous mistake that market pressures will eliminate; it’s the natural result of the dominant strategy for TBTF banks and traders with short-term incentives.

* Fans of 13 Bankers owe a debt to Jon Macey, since he was the professor who enabled me to get credit for writing it during my second year of law school.

75 responses to “Why Markets Won’t Fix JPMorgan

  1. But aren’t all banks, implicitly, engaged in large macro bets as a result of their general lending activity, particularly their lending activity to companies.

    If so, a question arises as to whether they should attempt to hedge that macro risk and focus on becoming experts at managing customer relationships and selecting companies and individuals that deserve credit etc

    In terms of the excess deposits – it would be strange if the bank refused to accept deposits -

  2. On the Diane Rehm show last Friday, a caller asked why the government needed to step in, because, “when the bank loses people’s money, they won’t bank there anymore.” This is how pervasive the right-wing “free market” mantra has become among the Fox News set. I doubt this woman knew – or cared – that there is a difference in mission statement between commerical and investment banks.
    Bring back Glass-Steagall!!! NOW!

  3. “portfolio hedges … that also take significant long or short positions on the credit market as a whole, with the conscious intention of making money”

    Portfolio hedges are examples of what the financial mafia call “innovation.” They use this word because it makes their practice seem like a new product from Apple, or an engine design breakthrough that lets a car get 200 miles to the gallon. “Innovation,” after all, “is what makes America great.” But this practice is merely a form of gambling. The bankers steal money that could be lent at a small profit to support real innovation and use it to gamble in the hope of a bigger payout. Portfolio hedging is a con promoted by a loose affiliation of slick con men, among whom Dimon is one of the slickest.

    By all means—BRING BACK GLASS-STEAGALL. And if Dimon and his fellow mafiosi don’t like it, let them open a casino in Vegas. At least the people who lose money there willingly take it there to be lost.

  4. Let me get this straight; we should expect Wall Street to learn a lesson from the devastation caused by their arrogance and greed? Really?

  5. The Bond Man

    More bad news for JP Morgan Chase, as huge losses continue and exposure in position is massive and losing ground. Talk of possible cuts in dividends, for the shareholders! The bets are so complicated no one currently at the bank understands them, or in a position to quantify. But stay tuned.

    http://dealbook.nytimes.com/2012/05/16/jpmorgans-trading-loss-is-said-to-rise-at-least-50/?hp

  6. Dimon told his “stupid” people to act stupid. How stupid is that?

  7. The FDIC should stop insuring deposit at banks that engage in proprietary trading. If it did, most would either stop or put their trading into a separate company.

  8. I believe that Paul Volker has said that the question is whether Jaime Dimon can go to the Discount Window to borrow money for proprietary trades.

  9. ‘We know that Jamie Dimon pushed the Chief Investment Office to take more risk in pursuit of profits.’

    I’ll ask again, what is your evidence for making that assertion?

  10. ‘Bring back Glass-Steagall!!! NOW!’

    It never went away, most of it still is law. Verify for yourself by walking into a bank and see if there isn’t some kind of sign stating that deposits there are insured by the FDIC. That’s Glass-Steagall (aka, the Banking Act of 1933).

    Or visit the Senate banking committee website for Gramm, Leach, Bliley (1999); http://banking.senate.gov/conf/grmleach.htm

    Where you can read; ‘Repeals the restrictions on banks affiliating with securities firms contained in sections 20 and 32 of the Glass-Steagall Act.’

    Those ‘affiliations’ prevented one parent company from owning both a commercial and an investment bank and prevented a single person from sitting the boards of both kinds of institutions. As a result of GLB, a holding company today can own both, but has to keep their balance sheets separate so one’s losses don’t contaminate the other.

    Nothing about the affiliations sections would have prohibited JP Morgan Chase from hedging its portfolios. In fact, that’s prudent banking practice.

  11. ‘We also know that the trade in question was not really a true hedge; if it were, there would be no news, because the $2 billion $3 billion loss would have been exactly balanced by a $2 billion $3 billion gain somewhere else, and Dimon wouldn’t be calling his own lieutenants “stupid.”’

    That’s just not true. Hedges are designed to limit loss not eliminate it. And, that stupid lieutenant apparently netted $7 billion for JPMC this quarter alone.

    Not to mention that even the trade in question hasn’t closed, and could turn around. If we listen to Dimon;

    http://www.reuters.com/article/2012/05/14/us-jpmorgan-trades-idUSBRE84D04X20120514

    “We want to maximize the economic value of these positions and not panic or do anything stupid,” he told analysts. “We’re willing to bear the volatility, and that’s life.”

  12. So “hedging … portfolios [is] prudent banking practice”? Surely you’re not saying that a $3 billion loss is the result of “prudence.”

  13. At least you’ve convinced Mo Do (always a feather in one’s cap);

    http://seattletimes.nwsource.com/html/opinion/2018219913_dowd17.html

    Though she seems better qualified to discuss banking than football;

    ‘Dimon doesn’t buy the argument that bosses of big, complex companies can never make mistakes. A smart quarterback still needs great defensive ends, as he puts it, or the guy who runs McDonald’s can’t ensure all the meat is fresh.’

  14. The Bond Man

    Our friend Patrick wrote: “Not to mention that even the trade in question hasn’t closed, and could turn around. If we listen to Dimon;”

    An optimist among our ranks!!

    Expect the debacle to continue, is my BET! Stay tuned…

    BTW: I have a maxim: NEVER believe ANYTHING out of the mouth of ANY CEO….”they lie, they lie, they lie”, as my friend (boss) Marty at work used to tell me!! HA!! : – )

  15. ‘Surely you’re not saying that a $3 billion loss is the result of “prudence.”’

    I’m saying that one play doesn’t determine the outcome of a football game (in case Mo Do is reading). The unit in question is profitable overall. Banking is a profit AND loss business. What matters is NET. Look at JPMC’s balance sheet under ‘shareholder equity’ to see that.

  16. Well Bond Man, you’re welcome to try shorting shares of JPMC. Let us know how that works out for you.

  17. The Bond Man

    @ Patrick, did you get a chance to look at Times article, the link for which story is posted above?

  18. The too big to fail argument is really quit simple to solve. Remove FDIC Insurance. If you were really so afraid JPM was going to blow up the world, you would take your money out of the bank. Only banks that had no exposure to your feared risks, would get your money. But of course that would require you to be an educated consumer. Bank bashers don’t like responsibility.

  19. And you’re not impressed by the fact that these people took $25 billion from taxpayers in 2008 to save their asses. I’d like to play in that kind of league—where you lose the game and still go home with big bonuses and a clutch of newly-purchased companies in your pocket.

  20. not to mention all the real estate they ended up owning instead of paying out to hurricane victims who lost property and let’s not forget the, uh, assymetrical war booty + the big bonuses and new companies, yup, formula works:

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

    The final table for the whales…by invitation only – it has to be someone else’s $$$$…and leverage up to 3 times the planet’s total NET worth…

  21. ‘And you’re not impressed by the fact that these people took $25 billion from taxpayers in 2008 to save their asses.’

    J.P. Morgan not only didn’t need any taxpayer money, they helped the Fed and Treasury out by buying Bear and WAMU.

  22. ‘The too big to fail argument is really quit simple to solve. Remove FDIC Insurance.’

    Good point, Basher. If we’d actually repealed Glass-Steagall (and thus the FDIC) in 1999 we might have avoided the crisis altogether.

  23. Patrick R. Sullivan – your comments reek of Wall St. influence. Do you work for, or are you in any way affiliated with, any financial institution or entity?

  24. Joe, are you braindead? Everyone is influenced by Wall St. Some people choose to understand why it works, others just show their ignorance about it.
    Politicians have chosen a system that protects customers from bank failure. This encourages risk taking by the banks. By creating too big to fail, they have incentivized more risk taking. If you remove the protection from failure, customers will chose which banks succeeds and which ones fails. You are just realizing that you cannot have it both ways?

  25. Can someone please remove Basher’s comment. It was written by Patrick R. Sullivan to agree with himself.

  26. The Bond Man

    @ Joe, “imitation is the sincerest form of flattery”> LOL.

  27. @The Bond Man – hahaha. On a serious note, it seems to me Patrick R. Sullivan is gainfully employed by a bank like JPM or GS, or is related to someone who is, or is in an affiliated role. Amazing that they are actively paying folks like Patrick R. Sullivan to sow seeds of doubt in quite legitimate observations and questions about the issues with Wall St. The best defense is a good offense – look at how he responded to my previous question.

  28. Patrick/Basher: “J.P. Morgan … didn’t need any taxpayer money”

    In fact, they started out with a $12 billion injection over the weekend of March 15-16, 2008 (see http://dealbook.nytimes.com/2008/03/18/jpmorgans-12-billion-bailout/) and ultimately received over $90 billion in federal taxpayer bailout funds (see http://www.seiu.org/a/profilechase.php).

    I don’t JPMC and Dimon will be able to lie themselves out this one, and you’re doing a particularly poor job of trying to do it for them.

  29. John Cardillo

    I’ve learned how to manage other peoples money. Invent elaborate ponzy schemes that appear to grow money while producing absolutely nothing. Skim millions while things appear good. Keep going until the ballon pops. Scare the government into bailing you out. Wait a week for everyone to forget. Rinse ..and. Repeat.

  30. Mr. Cardillo – speaking the truth!

  31. The Bond Man

    @ Joe, easy to identify the shills on the board here……words adorned with sycophancy and praise, for people with low morals, and insatiable avarice.

    Be wary, as well, as strongly worded phrases interwoven with putative data is erroneous and misleading, as the commentator @ jhwriter has made clear.

  32. @The Bond Man – very well said. I’m glad we have such astute readers here to keep the discussion open and honest.

  33. jhwriter says; ‘In fact, they started out with a $12 billion injection over the weekend of March 15-16….’

    But, if one actually reads his link it says;

    ‘On Monday, JPMorgan’s stock closed up 10 percent in a down market, increasing the bank’s market capitalization by more than $12 billion. ‘

    Nice try.

  34. Look who’s back, without defending himself at all! Confirmed! Patrick R. Sullivan works for a financial company, perhaps even JPM, and has clear conflicts of interest in any comment or assertion he makes.

  35. Also, jhwriter, as to your completely unbiased (of course) SEIU source, any number of other places, such as this one;

    http://articles.businessinsider.com/2009-05-13/wall_street/29994241_1_scribd-bank-documents

    could have told you that the Treasury forced TARP funds on unwilling banks;

    —————–quote—————
    Remember the infamous meeting when then Treasury Secretary Hank Paulson had the heads of 9 major banks come down to Washington? It was then that he made them the offer they couldn’t refuse. Take TARP cash, or else!

    Now Judicial Watch — the conservative watchdog organization which was famous for giving the Clinton administration fits — has uncovered secret documents from that meeting via the Freedom of Information Act. A few of them are really quite stunning.

    The first 1-pager is Paulson’s talking points for the bank. It basically confirms that he put a gun to all their heads. It says they must agree to take their cash, and that if they protested, then each bank’s regulator would force them to take it anyway.
    —————–endquote—————-

    As I told you, JPMC didn’t need any taxpayer funds (not that this was a secret).

  36. Bebopman21

    “If we’d actually repealed Glass-Steagall (and thus the FDIC) in 1999 we might have avoided the crisis altogether.”

    Nothing wrong with FDIC insurance. Just make sure only institutions that act responsibly are allowed to have it. And those that don’t have it should be required to prominently display that they don’t have it. Educating customers/clients/depositers about the level of risk they are taking with their money will fix many of the ills.

  37. ‘Look who’s back, without defending himself at all! Confirmed! Patrick R. Sullivan works for a financial company, perhaps even JPM, and has clear conflicts of interest in any comment or assertion he makes.’

    Aristotle told me there would be days like this.

  38. Bebopman21

    “Politicians have chosen a system that protects customers from bank failure. This encourages risk taking by the banks.”

    The point is supposed to be protecting the customers (victims) from their banks’ misdeeds, *not* protecting the criminals from their own misdeeds.

  39. I’m down to my last groundhog, or was that a hedgehog I set loose a short while back, it was dark, with no moon, misty.

  40. Bebopman, there are more things under heaven and earth….

    http://econweb.rutgers.edu/ewhite/w15573.pdf

  41. Blah, blah, blah. The bottom line is that profits userp humanity. When this country crumbles into dust, today’s “bankers” will jet elsewhere to resume their blood-sucking habits. When the planet crumbles, they’ll rocket to the moon.

    Simply put, Glass-Steagal prevented this insanity.

  42. The Bond Man

    @ Patrick Sullivan, who on May 17, at 12:05 PM, posted here the following statements:

    ‘We know that Jamie Dimon pushed the Chief Investment Office to take more risk in pursuit of profits.’

    I’ll ask again, what is your evidence for making that assertion?”

    As CEO and COTB, Mr. Dimon has all department chiefs reporting to him, directly as set forth in the middle column of the org chart shown below, or indirectly, as shown in the right column.

    Since most of us external to the bank can’t show empirical documentation to prove the assertion, at least the org chart suggests evidence of a direct line to the Casino Gaming Office, the credit default swap operation.

    That is, the evidence is circumstantial, and is consistent with a honed understanding of how large, complex, business organizations manage their business, from a top-down hierarchy.

    It is thus inconceivable to me that the gaming operation at Chase did not receive its’ risk instructions and other directives directly from Mr. Dimon.

    Accepting the resignations of Ina Drew, and the London Whale trader-man, while appropriate under the facts and circumstances, simply did not go sufficiently far, and obscured the real locus of the problem.

    Mr. Dimon should have recused himself from the Board, and stepped down as CEO, as the Gaming Operation In London came under his direct control and authorization.

    He dodged a speeding train, in the nick of time, it appears, but more losses are inevitable, and actually occurring as the scoreboard demonstrates.

    Vegas can always use someone with Dimon’s talent, and propensity to manipulate what’s really going down.

    http://www.theofficialboard.com/org-chart/jpmorgan-chase

  43. I see from your website, Terry, that;

    ‘Wirth Consulting provides consulting services via both phone and on-site. Our phone support compensation begins at $100.00 per hour.’

    Here’s to Youserping!

  44. This board is so middle school. When a coherent argument is made with fact, you get ad homenem attacks. I was kind of hoping there would be at least some high school level thought… guess I’ll go back to the Calculated Risk blog. I mean really, “profits userp humanity.” that’s deep, really deep.

  45. So Mr. Sullivan, do you or do you not represent, are paid by, are employed by, or otherwise sponsored by a financial or financial related institution?

    I think it’s a fair question, and the only one I’ve seen you dodge.

  46. ‘It is thus inconceivable to me….’

    I can believe it.

    However, I’m looking for EVIDENCE for the assertion that Dimon ordered his people to; ‘…take more risk in pursuit of profits.’

    Since the loss was apparently on a HEDGING strategy–as in, ‘hedging your bets’–that would indicate that the firm was attempting to take LESS risk, not more. Hedges, properly executed, limit both the downside and the UPSIDE.

  47. ‘I think it’s a fair question, and the only one I’ve seen you dodge.’

    Ad hominems are fair questions? Basher is right, this isn’t even up to high school standards of debate.

    I have a checking account, does that make me a tool of finance?

  48. Incidentally, the last comment does not mean you don’t have a place here, but truth in advertising is appropriate.

    In regards to:

    ‘On Monday, JPMorgan’s stock closed up 10 percent in a down market, increasing the bank’s market capitalization by more than $12 billion.’

    Seems a little like disinformation. They just got a cash injection (whether they needed it or not) of $12 billion that weekend, then (if I’m reading it right) they closed up $12 billion on the following Monday – that seems like pricing in the government backstop, not a sign of strength or, more importantly, proof they didn’t need the backstop.

  49. You know as well as I that by not answering the question that you’ve just answered the question Patrick.

    I don’t know how you live with yourself, or your likely faux ID of “Basher”.

    It’s a shame, because you had good arguments. What a waste.

  50. ‘…but truth in advertising is appropriate.’

    Who’s advertising? I’m making arguments based on facts and logic, if you think I’m wrong respond to them, not TO ME. That’s the wisdom of the ages.

  51. ‘They just got a cash injection (whether they needed it or not) of $12 billion that weekend, then (if I’m reading it right) ….’

    You’re not. They agreed to take over Bear and the market thought they’d made a good move in so doing. There was no injection of cash, just the opposite (and they ended up paying $10 per share, iirc, not the $2 in the article).

    ‘You know as well as I that by not answering the question that you’ve just answered the question Patrick.’

    I know that to be false, as I know the rules of logic. Your claim is a classic logical fallacy. As is;

    ‘It’s a shame, because you had good arguments. What a waste.’

    The argument’s validity is all that matters, which you learn in high school debate.

  52. Roland you doth protest too much.

    And you still haven’t answered the question.

    And your last comment says it all.

    Since you are not operating in good faith, I am done with future conversations with you.

  53. hughsansom

    What I take to be an obvious question: Can a Yale Law professor really be so ill-informed about the events of the past 5 years?

  54. Stephanie Remington

    “And what we care about is whether the bankers’ decisions are producing the socially optimal level of risk.”

    So, whether or not JPMorgan’s action is legal is irrelevant? If it were a hedge (which it wasn’t), wasn’t JPMorgan required to monitor it, determine if it was performing, and then fix it? And if it wasn’t a hedge (it wasn’t), haven’t they broken the Volker Rule? Are there no legal consequences whatsoever for this type of fraud?

  55. I think the concept of “too big to fail” has to be abandoned. JP Morgan does not need to be bought out right now but if it did collapse like Bear Stearns, the government should let it go. Let the free market prevail. Then Jamie Dimon and the other executives of JP Morgan would be out on the street and facing law suits from the shareholders and would be either incarcerated or hounded for the rest of their lives.
    Other bank executives would look at that outcome and decide to be more prudent with their depositors money.
    Over the longer term the banking system would be far better off.
    I think its disgusting that the bank managers who wiped out people’s savings with the subprime collapse are still going to work every day.

  56. @ Patrick Sullivan (mainly): JPM bought Bear and WaMu with loss sharing agreements. Meaning the Fed was itself bearing much of the risk off balance sheet. These arrangements are done largely to hide subsidies, avoid anything as obvious as direct loans, and confuse the public (blog commentors also). As for needing money, had Treasury not credibly backstopped the entire banking system, everyone would have needed capital, including JPM. TARP stopped the propagation of a total network failure, but it needed to reinforce all the “nodes” to be successful. Finally, why should we accept Dimon’s word that this was a hedge? Sounds more and more like a macro trade gone awry. FT reporting crushes the WSJ, if you need better info. I hope you were’t too long the stock.

  57. ‘ JPM bought Bear and WaMu with loss sharing agreements. Meaning the Fed was itself bearing much of the risk off balance sheet.’

    Then why did the Fed need Dimon to step up?

    ‘As for needing money, had Treasury not credibly backstopped the entire banking system, everyone would have needed capital, including JPM.’

    Just another assertion without evidence.

  58. Conscience of a Conservative

    I would agree except that the big banks ARE NOT ALL THATSUBJECT to market forces. That’s a big part of the problem and a reason we need to as a country figure out how to make our financial sector more beholden to market discipline. I would suggest limiting what kind of banks/activities are subject to FDIC insurance and that only pure commercial banks get access to the Fed window. Banks also need to issue more subordinated at risk debt and go back to double liability stock. Commercial banks need to be low risk institutions that engage in utility style returns considering their special role in the economy and tax payer backing. Let the hedge funds and investment banks take the risks.

  59. Cincinnatus_C

    In commercial banking these types of hedging activitgies are supposed to be used to match durations of liabilities. The bank just made a 20 year loan? Let’s hedge it with an investment in a 20 year treasury bond. This is what the CIO’s group was supposed to be doing.

  60. The hedgehog world is silly to me, if you need balance the risk, why take risk to begin with. It’s like betting both the pass line and the don’t pass line on a craps table and then not backing up either bet. You stand there watching the dice roll with the thought of simply breaking even. Even then 1/36 come out rolls you will have lost your dollar, which takes about 2 hrs of standing. So are hedges actual bets, or are they simply a way to hopefully break even once you know your original bet is a goin bad? I think the latter, and its a waste of time and energy that leads to traders pains in the neck every morning. Have fun traders!

  61. ‘…if you need balance the risk, why take risk to begin with. ‘

    You can’t avoid risk. If you open a bank and merely take in deposits and stick them in a vault and hold them until the customers write checks against them, you’d go bankrupt quickly–how would you pay your rent, your phone and electricity bills, or your employees.

  62. The Bond Man

    @ Patty, what do you think DEPOSITORS are doing>? Ye Gaads.

  63. The discussion here and elsewhere is on the right track: hedging has become another name for trading. Given that it will be very hard for regulators to distinguish one activity from another, it’s time for more transparency on trades and risk. Greater visibility. With that, of course, is a loss of privacy and stealth, but does the banking system, as a whole, really benefit from that?

  64. The Bond Man

    Good points, @ JonDCH. I would add, by the way, does the world really benefit from such opacity?

    I would answer this: “negative reply’.

  65. You keep the bill down, I know where you wrong back there and here it is.
    Some cultures believed that all you had to do go to college, graduate, and get that one job that pays for everything. Life is good and simple and I see no limit to the amount of money I can make for me and my family. They get that job and 10 to 20 years into it, a kid or 3, something in life changes, the bills go up, the work slows down, I can’t raise prices the way I need. Where as if we (as a country) built houses with the intention of saving money rather than a feeling of entitlement to use resources, we, they, and you, would be in much less of a pickle. This everyone there own 40 acres and a house, along with the new car every 5 years, has lead to a situation whereby one or 2 extra straws breaks a whole herd of camels backs and then you are going to wish you had a better mass transit system. The belief that growth was/is the answer to all economic problem doesn’t hold the water that is now coming from the broken dam. The educators and politicians wanted it that way, so they made tax laws favoring such ideas. So for those biting off more than they can chew, a migration to the city’s is what was predicted for those souls, and jobs closer to your home. There was a time when life was slower, it meant more to be the jack of all trades rather than the master of one. And we probably will get there before the city’s fill. But one day, if you don’t get it right, and you end up there, I won’t have mercy on your souls, or your bodies, without you first having it for yourself.

  66. @filbt, “…But one day, if you don’t get it right, and you end up there, I won’t have mercy on your souls, or your bodies, without you first having it for yourself….”

    It’s the OILY MEN who always had it wrong, nimrod!

    WOW – I need mercy from YOU? Go take your meds…

  67. The side of the episode that we generally tend to ignore is that, NOBODY would’ve raised their (middle) finger at JPMC had everything gone its way. Had the opposing positions by others not resulted in a SEEMING LOSS(and I call it seeming ’cause I agree with Patrick R. Sullivan that the index might turn around in the middle to long run when the keen-to-flex-JPM traders get disillusioned and start booking profits and the HY and IG indices come back in tandem with each-other, which it historically has), people would’ve been just fine basking in the profits made for them by the JPM.

    Who is blaming JPM? those who were adversely affected by its trading losses because it was their money JPM was playing with or those who were by no tangible means directly affected by the episode and blindfoldedly want the government to reign in measures limiting the banks’ exposure to not more than 10% to a counterparty? Investments are subject to market risk, they always have been and being a party to JPM means you ACKNOWLEDGE the chances that you can make or LOSE money. and if you want high returns (which must be why you chose to be with JPM) then the associated risk is high. so you shouldn’t give this crap that it played with your money because you must have (and if not then you should have) known it all along as the restrictive measures haven’t been fully imposed to the extent people want them to.

    That’s the fundamental attribution error. Attribute others’ successes to situations and their failures to them. Had JPM made sparkling profits in the tradings, the reforms would’ve been UNWANTED by the gainers and now that such a loss has been incurred, JPM should be brought under restrictions? JPM is already (currently) the most regulated bank in America.

    Those who lost along with JPM’s trading losses, why did they choose it in the first place? Didn’t they want to bet big and risky to make big money? Why do they now want caps on the volumes? If they want their banks to be limited, go and switch to some other bank that promises you LOW RISK AND LOW RETURNS and is HIGHLY REGULATED and CAPPED. Everyone rode the bandwagon while JPM was making money and all of a sudden they seem to be against it. just because it got off scot free through the financial crisis led people to assume it was highly efficient and it is THEIR ASSUMPTIONS that have been answered and nothing else.

    If anything needs to be done then it should be an increment in the interest rates by the government to enable the banks to relapse into their earning capacity by the spread. pegging it close to 0 motivates them to engage in such deals. any other regulations in my opinion cannot be trusted. Goldman Sachs even stipulates that the new regulations might end up in america losing 1,50,000 to 3,00,000 jobs and slump in GDP growth rates.

  68. Mike Smith

    The question was whether market forces would cause the investment banks to eventually apply proper controls on their own so these huge losses would not be repeated. I can follow the theory but in practice banks that get involved in derivatives attract people who are out for out for “the big win”. They become greedy and things don’t work out as planned.

    There is also the issue of “programmed trading” where some sort of analogue coded into their computers that most people don’t understand is guiding the traders. The banks keep using these complex analogues because market forces encourage them in this direction, then they backfire.

    If we had honest people at the top, derivatives and complex trading methods would probably never be used. But if we have dishonest, greedy people running the banks with an interest in only their own pay cheques, they will require regulation that involves jail time to get into line.

  69. Mike Smith

    This is getting off topic but your comments are right on. America is over consuming on stuff they don’t need and can’t afford.
    Its not just the people, its the State and Federal Governments.
    We have a National Debt of $15 Trillion with annual interest charges of $500 B with half of the interest payments going to China, India and Saudi Arabia. We have no foreseeable plan of ever paying this off. Neither Party wants to talk about it and the situation is only going to get worse.
    Its going to be a sad day for America when China says it doesn’t want to buy any more US Bonds.

  70. As long as money is issued as debt – fractional reserve banking – there is no way that any debt can be paid off with money.

  71. No, but it can be paid off in land, and since the feds owns so many mortgages, they can use those titles as leverage to get more loans. Now to put the $15T national debt into perspective. Every working person would have to have the resources to produce everything they make, and every spending citizen would have to have the resources to continue spending, for an entire year. And that’s not considering the personal debt of these same people, once you factor that in, it does seem that scheming is the only way to keep the GDP ball a rollin.

  72. Mike Smith

    Well it looks like the Greeks are going back to the Drachma which will be devalued considerably in order to pay off its debts.
    The overwhelming likelihood is the US Government will continue to let the dollar devalue gradually leaving hope to the Chinese that it will come back up again. This helps with foreign debt retirement but if the Chinese as for higher interest rates on new debt to reflect the devaluation rate, then the US could be on the wrong side of a slippery slope.
    It won’t effect US citizens immediately. They won’t be able to buy so many Chinese products at Wal-Mart so prices will rise but people will start working again and that will be good.
    But once the US dollar loses its stability, interest rates will rise and people will have to use their own money to buy or build things.
    This will slow down the economy considerably but overall I think Americans will be better off because both government and consumers will have learned about the value of a dollar.

  73. Derivatives and 1000% leverage and fractional reserve banking – basically a re-engineered economy to support perpetual war in the Middle East – and far far far fewer consumer products coming out of the war machines’s R&D, so beating swords back into ploughshares is DEAD IN THE WATER, (ie. what *consumer* healing tool is in the torture tool chest?)

    and somehow it still all boils down to some mythical stupid generic *american* to learn the value of a dollar?

  74. What I really find terrifying is the this blog likely attracts folks who are better-informed than average. On that basis alone, I’m certain that we’re all doomed!

  75. Well there is a bigger problem in the US then the crooks in the banks and the hedge funds. The bigger problem is the US National Debt which is approaching $16 Trillion. The interest alone is over $500 Billion per year and over half of the interest payments are going to China, India and Saudi Arabia. The problem is only going to get worse because the US government is unable to operate with a balanced budget. A bubble is building. US Bonds were downgraded by Standard and Poor in Aug, 2011 from AAA to AA+. BNN now reports that US bonds will be downgraded further about 6 months after the election. This means even higher interest payments. Yet, no one talks about this.