The Need For An Independent Investigation Into JP Morgan Chase

By Simon Johnson

JPMorgan Chase is too big to fail. As the largest bank-holding company in the United States, with assets approaching $2.5 trillion as reported under standard American accounting principles, it is inconceivable that JPMorgan Chase would be allowed to collapse now or in the near future. The damage to the American economy and to the world would be too great.

The company’s recent trading losses therefore call for greater public scrutiny than would be case for most private enterprise – and demand an independent investigation into exactly what happened. (Dennis Kelleher of Better Markets has already called for exactly this.) The investigation begun by the F.B.I. is unlikely to be sufficiently public.  Given the strong political connections between JP Morgan and the Obama administration, it would also be better to have an investigation led by a completely independent counsel.

Hopefully, too-big-to-fail is not forever. The Federal Deposit Insurance Corporation is working on a mechanism that could conceivably allow that agency to handle the “failure” of a bank-holding company while protecting the creditors of operating subsidiaries – limiting the potential contagion effect.

But this mechanism is not yet in place, it does not currently apply to cross-border banking (remember that JPMorgan Chase’s losses are in London), and even the F.D.I.C.’s acting chairman, Martin J. Gruenberg, was careful in describing its likely efficacy in a speech last week.

(Disclosure: I’m on the F.D.I.C.’s Systemic Resolution Advisory Committee, and I’ve helped the F.D.I.C. with some outreach activities, designed to help them receive constructive feedback on resolution. I am not paid by the F.D.I.C.)

In effect, JPMorgan Chase operates with the implicit backing of the United States government – primarily in the form of actual and potential access to borrowing from the Federal Reserve, with the implication that the Treasury could also provide support. Being effectively backed by the full faith and credit of the government is a great help; it lowers a bank’s funding costs because it reduces the risk to creditors. JPMorgan Chase and the other big banks in the American economy are effectively government-sponsored (and subsidized) enterprises.

There is no kind of market involved in determining the franchise value of mega-banks; this is a government subsidy scheme, pure and simple. People on the right of the political spectrum understand this, as do people on the left; see my blog post last week on the extent of cross-partisan agreement on this issue.

I would add to that list former Gov. Mike Huckabee of Arkansas. When I appeared on his radio show on Monday afternoon, we were in complete agreement on the need to break up or otherwise constrain the size of big banks.

There are many unanswered questions about the JPMorgan Chase losses and a great deal of informed guesswork about exactly what went wrong. By his own admission, Jamie Dimon, the chief executive, was unaware of what was happening on the relevant trading desk until Bloomberg News reporters brought it to his attention.

At that time he dismissed any concerns as a “tempest in a teapot.” In the weeks that followed, this supposed “hedge” – or risk-reduction strategy – blew up badly.

The question is not why a trader made a mistake; this can happen anywhere. The issue is how this was handled and reported by JPMorgan Chase’s risk-management professionals and their systems – believed by many insiders to be the best in the business.

Here are five questions that an independent investigation should consider:

1. What exactly was the trade? Who approved and reviewed the trade?

2. To what extent were the mistakes encouraged or condoned by particular quantitative models, for example those popularly known as Value-at-Risk? (For a critique, see Pablo Triana’s book, “The Number That Killed Us.”)

3. What did Mr. Dimon know and when did he know it? Was there disclosure to the board and to shareholders with appropriate timing? This is among the specific concerns raised by Mr. Kelleher.

4. Does the board have adequate depth of experience along the relevant dimensions of risk management?

5. What interactions did Mr. Dimon or any of his colleagues have with the Federal Reserve Bank of New York before and during these losses were incurred? Mr. Dimon is on the board of that institution, where his role is described as “advisory.” But on what exactly did he advise them in recent months and years, particularly with regard to risk management and capital levels in systemically important banks?

On the one hand, we hear from bankers that supervisors are watching them closely – and even undermining their business. On the other hand, clearly someone was not paying attention. Why not?

This is not about conducting a witch hunt. It is about establishing the facts and understanding if anything about standard operating procedures and emergency protocols should be examined.

The right analogy is National Transportation Safety Board investigations – a suggestion that has been made by Andrew Lo, my colleague at M.I.T., and his co-authors. We learn a great deal when companies actually go bankrupt; e.g., about Enron (see the excellent book “The Smartest Guys in the Room,” by Bethany McLean and Peter Elkind) and about Lehman (see the bankruptcy examiner’s report).

But we need to investigate near-misses as well.

This is awkward for the White House – look at any of Ben White’s recent pieces on the links between Wall Street and the Obama administration. But the power of big banks on Wall Street makes this kind of investigation even more necessary – see the reporting of Matt Taibbi for some graphic details.

Congress may also want to get involved, at least to understand if Dodd-Frank has been at all helpful. The Volcker Rule is not yet in effect but, if it were, would this have made a difference?

Mr. Dimon contends not, and he has been a consistent and vociferous opponent of the rule from the very beginning. It would seem foolhardy to accept Mr. Dimon’s view on this matter at face value. I testified in favor of the Volcker Rule before the Senate Banking committee in early 2010; Barry Zubrow, then chief risk officer of JPMorgan Chase, testified and strongly opposed it.

Some people in the private sector and within the banking community will push back, asserting that this would further expand the scope of government vis-à-vis legitimate private business. This misses the point — that it is the people who run our largest banks who have undermined the viability of the private sector and who threaten its future.

Cam Fine, president of the Independent Community Bankers of America, has shown strong leadership on this point over the last week (you can follow him @Cam_Fine on Twitter).

In the end, we may well come to the same conclusion as Elizabeth Warren – who has brilliantly seized the political moment and put her opponent for the Massachusetts senate seat, the Republican incumbent Scott Brown, on the defensive.

Ms. Warren is calling for the re-imposition of Glass-Steagall – separating commercial from investment banking. Mr. Fine is already pushing in the same direction. This position should be appealing across the political spectrum.

An edited version of this post appeared on the NYT.com’s Economix blog on Thursday; it is reproduced here with permission.  If you would like to reproduce the entire column, please contact the New York Times.

59 responses to “The Need For An Independent Investigation Into JP Morgan Chase

  1. Simon,
    The widely held perception that Corporation (A) is “too big to fail” strikes me a a convenient defense and begging bowl for more free money. I doubt any such institution is too big for the average hedge-fund operator to break up into saleable (and viable) pieces. Give the hedgies motivation and access and a killing is available dismantling the baroque feudal empires hidden inside entities like this, Bank of America, Wells Fargo, et al.

    Just my three pesetas.

  2. markets.aurelius

    @ Marty: Much as I want to agree, there is the problem of the HFs getting sufficient trading lines to exploit the “baroque feudal empires’ ” hidden treasures. (Great turn of phrase, btw.) I guess the fungible positions taken on by the HFs could be exchange-cleared, thus the HFs would only bite off as much as they could chew vis-a-vis margins.

    I think this is in the right direction, but it needs work. I know with certainty the best HFs could dismantle every book on every trading desk at every bank within a day or two, and show a bid for those books within their budget constraints. The problem is, these books have become so bloated on the back of the TBTF guarantees of these GSEs.

    Maybe the best thing to do would be to net all the open positions of the top 4 banks with 95% of the derivs exposure (JPM, BAC, C, GS), then auction off the net positions on every desk. But that would only take care of the market risk; there’s still a ton of individual bilateral credit risk aggregated in these banks, which is what makes them SIFIs — e.g., imagine all the counterparties with interest-rate or commodity risk at one of those 4 GSEs: That list is huge. While the individual risks to one of the GSE may be trivial, this is not the case with the individual counterparties. Or to the economy as a whole.

    Maybe net and auction books a bank at a time … as they fail.

  3. The Bond Man

    Investigation into JP Morgan Chase is redundant, not needed, because we know already what’s been going on. The bankers are way over their heads in made-up crapola, neither knowing how to accurately quantify positions, or what happens in particular circumstances.

    If the bankers did understand their Frankenstein Monster, 2008 blow out would not have happened.

    No, more investigations, more slick tongues from snake-oil salesmen, beguiling interviewers with a mix of dazzle and bs.

    What is needed is this: the VOLCKER RULE and no more socialized losses to the billionaire set. This is a gross obscenity, when unemployment is so high in Europe and in USA.

    Infrastructure investments in $1 Trillion tranches of low to no interest loans to the states, here. Only this action will place the current malaise and stagnation in the rear-view mirror.

    We don’t need Jamie Dimon sermonizing us on how great his risk-controls are any longer. They suck, as was proven this past week, via disclosures.

  4. ‘In the end, we may well come to the same conclusion as Elizabeth Warren – who has brilliantly seized the political moment and put her opponent for the Massachusetts senate seat, the Republican incumbent Scott Brown, on the defensive.’

    Right. Listen to Fauxchahontas; heap big wampum gonna make spirits angry!

    ‘Ms. Warren is calling for the re-imposition of Glass-Steagall – separating commercial from investment banking. Mr. Fine is already pushing in the same direction. This position should be appealing across the political spectrum.’

    Absolute genius, reinstate something that is already the law.

  5. ‘JPMorgan Chase is too big to fail. As the largest bank-holding company in the United States, with assets approaching $2.5 trillion….’

    So a measly $3 billion loss on paper is going to bring it down? Speaking of things needing to be investigated.

  6. mrrunangun

    6. Were any JPM senior execs in a position to benefit from the winning HFs trading against JPM as owners or investors in said HFs? Establishing side businesses to profit from political power is a time-honored Chicago tradition. Mayor Daley I, when instructing young pols in the black arts, is said to advised,”Never take a dime, just hand’em your business card.” if you weren’t already practicing law, you could open an insurance business or a realty brokerage. Inquiring minds may want to know if any Congressional or Obama administration folks shared in those HF profits. Secret Land Trusts remain legal in Illinois in order to hide politicians’ wealth from the public. HFs can work similarly.

  7. Per Kurowski

    And why does Simon Johnson not call for the investigation of bank regulators who, with their Basel II approved by the US in 2004, allowed banks to lend for instance to Greece against only 1.6 percent in capital, meaning authorizing the leverage of bank equity a mind-boggling 62.5 to 1?

    Was that not foolhardy enough for him; or is it because the regulators are his colleagues; or is it because his agenda does not allow admitting that regulators can make unforced mistakes?

    Is it therefore he lends his voice to “the re-imposition of Glass-Steagall – separating commercial from investment banking”, which serves as a great tool to distract the attention from the truth?

    Those silly Basel II capital requirements for banks caused a crisis that is threatening to take the Western world down, something much much worse than anything JPMorgan has done, and yet, those same regulators, have now either been promoted or placed in charge of producing Basel III. Go figure!

  8. It’s interesting to me that JP Morgan is already gaming the Volker rule by calling this a hedge, which is isn’t. It was a straight trade on an index. I can see already that no one in the business makes trades anymore- just hedges.

    Banking, if carried out properly, is a profitable business. These guys don’t want to make a lot’s of well underwritten loans- it’s too much work and you have to hire a lot of employees. Better to give some fat guy in London some twinkies and a computer and let him trade, excuse me, hedge a couple of hundred million dollars at a time.

  9. @Patrick R Sullivan – it’s Saturday Night and your bar tab has quite a few entries on it already, so I can *bring you down* so easy – poof…

    I always opine that Elizabeth Warren is too nice and in many ways, she just can’t SEE how bad the people are that she hopes to imbue with a shred of humanity. Ain’t gonna happen, Liz. Psychosis is incurable and rarely managed with medication.

    I, on the other hand, am 1/32 Genghis Khan lineage. Truth.

    :-))

  10. Jones the Reprobate

    Annie,

    Given your Asian heritage, I trust you’re blood type B.

  11. Jones the Reprobate

    I understand the argument against TBTF. I agree with it.

    I also understand that JPMC made about $5 billion last quarter, after the transaction loss. (Let’s assume for a moment that the accounting numbers are reasonable, anybody can always argue that those numbers are false, but that really doesn’t get us anywhere, does it?).

    So we’re to believe that a full scale federal government (why stop there, surely NY will want to pile on) investigation is necessary… to do what? The regulators have no better understanding of these things than experienced people commenting here, for example.

    It seems to me that Drs. Johnson and Kwak have become hardly distinguishable from the Obama administration. They can’t possibly hope that a federal government investigation will result in anything better than Dodd-Frank, but that is irrelevant. The investigation is the purpose.

    But no investigation will lead to an end to TBTF – or even contribute to it. You’re going to have to work harder than that.

  12. ‘Banking, if carried out properly, is a profitable business. These guys don’t want to make a lot’s of well underwritten loans- it’s too much work and you have to hire a lot of employees.’

    Then how did they manage to acquire almost $200 billion in shareholder equity?

  13. Dianne Foster

    We need more than the reinstatement of Glass-Steagall; we need the revival of the Brown- Kaufman amendment limiting each bank to no more than 2-3% of GDP. break up the TBTF banks in both structure and size.

  14. Dan Palanza

    An important part of Glass-Steagall is that commercial banks — The FED supported National Banks — could only set up shop within a county. In the post WW-II economy that I grew up in this Federal Banking Rule formed the backbone of small town America’s Main Street. We have nothing to lose by returning to that Federal Banking System, and everything to gain.

  15. I hope Simon didn’t take tarp from o’l Mike, that’s always a kick in the pants. And why do the federals see gold in fort Knox, and the tax payers see nothing but a washer and drier.

  16. markets.aurelius

    @ Patrick: “Then how did they manage to acquire almost $200 billion in shareholder equity?”

    To fully answer that you’d need to figure out how much of it is attributable to the TBTF guarantee: Investors are more likely to want a fully guaranteed investment that carries the full faith and credit of Uncle Sugar. I’m such some of it was due to the stellar earnings that came from being levered to the hilt too.

  17. @Jones the Reprobate – not donating any vital organs because I am using them up, myself, until their expiration date…so my blood type should be of no interest to anyone…..although some real Frankenstein whackos got a hold of something, in secret, they could analyze – and supposedly, I am 7% alien – yeah, that Mother Ship kind of alien….go figure…

    Don’t globalists have to figure out the psychology of the entire evolutionary range of the human species here at once in 2012 – from cannibals to Mother Teresa’s…in order to make their math work…oh wait, nope, it’s very SIMPLE:

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

  18. ‘To fully answer that you’d need to figure out how much of it is attributable to the TBTF guarantee: Investors are more likely to want a fully guaranteed investment that carries the full faith and credit of Uncle Sugar.’

    Which comes from Glass-Steagall’s creation of FDIC. I thought you a fan of that.

    ‘I’m such some of it was due to the stellar earnings that came from being levered to the hilt too.’

    As I’ve pointed out on another thread, they famously were not so leveraged; they were the responsible kids on the block who were called in to save the delinquents in 2008. Under FDIC standards they were, and are, officially well above the standards for a ‘well-capitalized bank’.

  19. ‘In the post WW-II economy that I grew up in this Federal Banking Rule formed the backbone of small town America’s Main Street. We have nothing to lose by returning to that Federal Banking System, and everything to gain.’

    Pure poppycock. Even with the recent recession/financial crisis we are far wealthier today than we were back in the supposed Golden Age of small banks. Preposterous attitudes such as yours shouldn’t be fed by MIT scholars.

  20. markets.aurelius

    Technically, Pat, the FDIC was created by the 1933 Banking Act. G-S typically refers to those parts of the Act (law, actually) separating commercial banking and so-called securities operations. These were dismantled in 1999 with the passage of the Gramm-Leach-Bliley Act.

    Fat-crayon time again: When I said ‘To fully answer that you’d need to figure out how much of it is attributable to the TBTF guarantee: Investors are more likely to want a fully guaranteed investment that carries the full faith and credit of Uncle Sugar” I was referring not to G-S, but to the de facto full-faith-and-credit backing of banks like JPM, BAC, C, MS, and GS on all of their activities. They were not allowed to fail, nor will they be allowed to fail. This is the TBTF aspect of the equity picture. (TBTF means Too Big To Fail, Pat.)

    So, in answer to your question — and here’s where the fat crayon comes out — the way the equity market works is investors discount to present value the expected earnings of a firm’s stock over some arbitrary holding period (e.g., 5 or 10 years) to determine the equity’s value. There is a risk element to this in that a non-trivial part of the probability space that includes realization of those expected earnings includes failure of the firm. That’s why equity, which, in real markets, can be completely wiped out if the firm fails, is the highest-earning slice of the corporate capital structure: it’s the riskiest.

    Now consider what investors get when they invest in one of these bloated monstrosities like JPM, BAC, C, or GS: These firms have not been, nor will they ever be permitted to fail, regardless of how reckless or levered they become. So, essentially, as an investor in one of these entities, you get 1) equity-like returns with 2) full faith and credit of Uncle Sugar. There’s a side benefit to this, in that, because of that full-faith guarantee these firms’ cost to borrow money is significantly lower than other firms — like 80 bp lower following the 2008-09 crash, according to the IMF. This means you can really lever those earnings big time. Over time, the compounding effect of this advantage super-charges your ROE, so you equity becomes even more attractive. Smart investors — i.e., those seeking to maximize ROE — naturally will invest in such companies. It’s a really great advantage these firms enjoy — and they’ve worked hard to get it and keep it (cf, the massive lobbying and regulatory/legislative capture in which they invest … that’s right, Pat, it’s an investment — it is a dedicated effort that can be measured, and a return on it can be measured).

    So, you see, the entire capital structure of these TBTF companies gets a huge benefit thanks to your’s and my Uncle Sugar.

    That’s the fat-crayon answer to your query.

    Oh, one more thing: I know you’ve blogged on this — which does make you expert — but these firms were massively levered in the lead-up to the crash. The typical analysis only looks as debt to total cap, or some sort of tangible equity vs. debt to measure leverage. However, it misses entirely the credit exposure to derivatives and to illiquid markets attending the more insane things in which these “banks” made such huge “investments.” Taking any exposure in a swap or option transaction is a use of the bank’s credit; therefore it must be counted as leverage (even tho it typically is not). Taking such credit risk in markets which can lose all liquidity massively compounds that risk. But of course, you probably already know this, having blogged on the topic of leverage.

  21. Tick, tock, he don’t see the clock.

  22. ‘Technically, Pat, the FDIC was created by the 1933 Banking Act. G-S typically refers to those parts of the Act (law, actually) separating commercial banking and so-called securities operations. These were dismantled in 1999 with the passage of the Gramm-Leach-Bliley Act.’

    That’s simply flat out wrong. GLBA repealed sections 20 and 32 which were about ‘affiliations’ between different types of institutions. Sections 16 and 21, which are what separates ‘commercial banking and so-called securities operations’ are still law.

  23. ‘… these firms were massively levered in the lead-up to the crash.’

    Not JP Morgan-Chase. The firms that were ‘massively levered’ were the firms who went whole hog into MBS and sovereign debt (as Per has been telling you). They did that BECAUSE that what’s the Basel Accords told them were safe. Those firms were mostly the

    Jamie Dimon was more skeptical…and was proved correct in 2008. That’s why his bank has such a nice shareholder equity.

  24. Should have finished this sentence; ‘Those firms were mostly the…’

    as, ‘…so-called securities operations’, not the FDIC insured banks.

  25. markets.aurelius

    http://www.occ.treas.gov/topics/capital-markets/financial-markets/trading/derivatives/dq411.pdf

    That’s from your buddies over at CalTech on the Potomac (i.e., the OCC … the guys who “regulate” U.S. banks). Check Table 1, slide 27. JP’s massive levered derivs exposure leads the pack. It’s giving them all kinds of heartache now that the London Whale’s (a/k/a “Caveman”) position blew up. (Of course, there’s no detail at all, but that’s how the OCC rolls. I’m sure if you asked anyone over there for a cogent description of JP’s positions or risk systems you’d be surprised, tho.)

    Anyone with any sense knows there’s something horribly wrong with JP’s risk systems, and that they — like their co-evals — have no idea what their true risk is. These guys got lucky not going hog-wild on the MBS stuff … probably still digesting the Bank One acquisition, and didn’t have interest in stepping into mortgage markets before they’d fully consolidated consumer credit cards from that acquisition (done in ’04). But them’s the fortunes of war. They were in the best shape of the mega-banks when the proverbial sh*t hit the fan in ’07 (they got Bear out of that deal), and in ’08 when they picked up WaMu. Oh, yeah, the Fed and Treasury were on bended knee to get them to do those …)

  26. I’m going to diverge from the focus of the dialogue for a moment.

    As I continue to follow a range of blogs that cover financial, social and political reforms advanced to protect the public interests around the globe, I’ve become acutely aware that a widely shared narrative framework has yet to emerge that resonates at the macro level. There are lots of gears spinning all over the place, but no simple way to describe strategies, priorities and a timeline for how long it will take to bring about meaningful change.

    The “383 / 2020 Framework”
    To get the ball rolling, I’m throwing out “383 / 2020 Framework” as a working title for a process that will be easy to communicate and understand.

    The first “3″ describes broadly the three phase process that has to take place to reach a critical mass of support for reform. The first phase is “Awakening,” a process that we’re now well into but still have a ways to go before reaching any sort of tipping point. The second phase will consist of the “Actions” that take place to bring about reform. Obviously, many are already underway, but a lot still has to happen, especially in the political arena. Lastly will be the “Aftermath,” and of course this will hopefully be the positive outcomes of the first and second phases, and not an amplification of the inequality and injustices already in place.

    The “8″ refers to the timing. I think it will take at least eight years or two more presidential election cycles to transform the status quo. As per the way Hemingway described the way he went bankrupt, I expect changes to first come gradually, then suddenly. But at this point I think it’s reasonable to shoot for 2020 as a goal for making something good happen.

    The final “3″ refers to the three key priorities that have to advance simultaneously. The first priority are the economic and financial reforms that ensure economic opportunities for Mainstreet, and protect them from the extractive and suppressive activities of the 1%. The second priority is campaign finance reform – Mainstreet has to buy back its politicians or all other meaningful reforms have no chance of advancing. Finally, the fear mongering that’s leading to the rapid expansion of the security state has to be effectively countered and brought to a grinding halt – before we reach the stage that a wide range of reformers get labeled “terrorists” and enemies of the state.

    The many moving parts of any broad reform movement are highly complex and very difficult to follow and describe. The “383 / 2020 Framework” tries to distill down the reform narrative to a form that can be communicated, debated and modified as necessary.

    My apologies for using this forum to bring this up. I’m not at all certain I’m absolutely right about any of this, but I have a strong sense that’s it’s time to have this conversation.

  27. Do you even bother to read what you link to, Marcus?

    ‘Insured U.S. commercial banks reported trading revenues of $2.5 billion in the fourth quarter, 70% lower than revised third quarter revenues of $8.5 billion, and 27% lower than $3.5 billion in the fourth quarter of 2010.
    Credit exposure from derivatives fell in the fourth quarter….

    ‘Trading risk exposure, as measured by Value-at-Risk (VaR), decreased in 2011 as dealers actively reduced risk in the face of increasing global financial risks. Aggregate average VaR at the 5 largest trading companies declined 9.3% from 2010 to $680 million. ‘

    Did you catch that, ‘reduced risk in the face of increasing global financial risks’?

  28. ‘Anyone with any sense knows there’s something horribly wrong with JP’s risk systems, and that they — like their co-evals — have no idea what their true risk is.’

    Yet, you have no evidence to demonstrate that, and markets obviously disagree with you.

    ‘These guys got lucky not going hog-wild on the MBS stuff ….’

    Luck had nothing to do with it. Dimon taking his risk management people seriously had everything to do with it.

  29. @ziggs: As I continue to follow a range of blogs that cover financial, social and political reforms advanced to protect the public interests around the globe, I’ve become acutely aware that a widely shared narrative framework has yet to emerge that resonates at the macro level. There are lots of gears spinning all over the place, but no simple way to describe strategies, priorities and a timeline for how long it will take to bring about meaningful change.

    Did you miss the part where I said that most of the clowns had left the stage and now it was show time. That was some 1.5-2 years ago, and the boat sailed then. Or where you going to jump ship solo and leave the gold behind?

  30. The ultimate issue, as the Titanic sank, was not the arrangement of the chairs, rather the systemic failure of the ship to withstand the rigors of collision and the proximate cause of poor Captaincy.
    There are a thousand iterations of the protocols of regulators and risk managers, but at the end of the day, whatever they did was subordinate to the overarching, Sovereign status of JPM which undermiines, in our current ‘pay to play’ political system, any real or meaningful attempt to dimiinish or miigate the risk, whoever the victims may be.

  31. The Bond Man

    And the banksters seek to continually launch a re-floating of the SS TITANIC; despite the disaster for the world since the 2008 debacle, poor Captaincy is still the norm, and lessons-unlearned the general rule.

    @ Guy Herman, thanks for the link to your interesting blog space, I highly recommend.

  32. markets.aurelius

    Pat, in the past month and a half JPM’s down 27.6%. From their ’07 high, they’re down 36.3%. The split-adjusted price of their stock peaked (in nominal terms) at $64.16 back in March of 2000!

    What do you think the market’s telling them after the past month and a half? Over the past five years? Over more than a decade?

    Do you really think the OCC’s pronouncements on anything mean anything? Do you honestly think they are capable of making any definitive statement about risk after so completely missing the London Whale’s blow-up? Or, after saying grace over C’s or BofA’s risk reports, failing to even get a whiff of their complete and total ineptitude?

    Do you know something the rest of the market doesn’t about Jamie’s shop? Do you think he has a clue as to what’s going on over there? The market certainly does not.

  33. ‘What do you think the market’s telling them after the past month and a half? Over the past five years? Over more than a decade?’

    Let’s see for ourselves;

    http://investor.shareholder.com/jpmorganchase/calculator.cfm?PostBack=1&initialAmnt=1000.00&calc_method=amnt&historic_Month=10&historic_Day=2&historic_Year=2002&Submit=Calculate&ReinvestDividends=1

    $1,000 invested in October 2002, with dividends reinvested would be worth today, $2,410.33.

    And that includes the current unpleasantness which has undoubtedly–thanks to hysterical posts like this one from Simon Johnson, and from others–temporarily depressed the share price. Back on April 3, it was worth over $3,200, and probably will return to that level once the nonsense dies down.

    But, weren’t you the guy telling me what a great business banking was.

  34. Anynominous

    @ “PATRICK”, you’ve now hogged a total of 12 out of 35 posts on this one thread, time to give it a rest.

  35. markets.aurelius

    Pat, you picked close to the dead-ball low to run your calc. JPM was trading at ~ $20 in Oct02, got to a low of $18ish in Sept. Prior to that, in Mar00 it was above $60/share. Know any suckers long it from the $60ish range from ’00? That’s not even inflation adjusted. I don’t have the time to do that calc. But the general ideal is, after getting long in the $60 in 2000$, you’re still sucking wind on your JPM.

    JPM’s best stock price was realized prior to Jamie’s arrival. Go figure.

  36. The stock price doesn’t tell us anything. You need to also consider dividends, stock splits and buybacks. However, it was you asking about 10 year performance, I was simply answering YOUR QUESTION.

    So let’s look at the 20 year performance;

    http://investor.shareholder.com/jpmorganchase/calculator.cfm?PostBack=1&initialAmnt=1000.00&calc_method=amnt&historic_Month=5&historic_Day=19&historic_Year=1992&Submit=Calculate&ReinvestDividends=1

    Imagine that:

    Apr 3, 2012 Dividend 0.300 126 45.42 $5,747.55 485.59%
    May 18, 2012 Current Investment 126 33.49 $4,237.90 331.78%

    Bet you’re wishing you had some of that action.

  37. ‘@ “PATRICK”, you’ve now hogged a total of 12 out of 35 posts on this one thread, time to give it a rest.’

    You have a problem with facts? With logic?

  38. Anynominous

    With facts, no, with logic, no. Don’t presume your writings reflect either, as disinformation and propaganda both operate under the guise of both.

  39. How about 30 years;

    Apr 3, 2012 Dividend 0.300 289 45.42 $13,137.39 1,219.02%
    May 18, 2012 Current Investment 289 33.49 $9,686.73 872.56%

  40. Anynominous

    Oh, Magoo, you’ve done it again.

  41. It never ceases to amaze me that people posting at scholars’ blogs can have so little grasp of elementary logic. If you think you can refute anything I’ve posted here, let’s see it. Appeals to your own authority don’t cut it.

  42. Anynominous

    You’ve been refuted time and time again, with numbers, fact, logic, and law.

    Only a true disinformationalist as yourself would be so bold and aggressive as to present a statement that appears true and correct on the surface, but it false and disingenuous in its’ considered entirety.

    You might actually BE Karl Rove, with that approach.

    You’ve already tried to get the scholars’ to bounce certain posters, and it failed, so, give it a rest, you monumental clown and one half.

  43. Per Kurowski

    @Ziggy “The ‘383 / 2020’ Framework… The first “3″ describes broadly the three phase process that has to take place to reach a critical mass of support for reform… The first phase is “Awakening,” a process that we’re now well into but still have a ways to go before reaching any sort of tipping point.”

    We have a world in which regulators went as far as to micromanage the banks by setting risk-weights for assets based, on perceived risks, in order to set different capital requirements… and that is, by most on main-experts-street, still called “de-regulation”, instead of bad-regulation.

    We have banks with obese excessive exposures to what was perceived as absolutely not risky and anorexic exposures to what was perceived as not risky, like to small businesses and entrepreneurs… and that is, by most on main-experts-street, still called “excessive risk-taking”, instead of excessive risk-aversion.

    And so I must unfortunately disagree with you on that we are well into the “Awakening”. There are just too many interests out there in keeping us sleeping.

  44. Seems like we first need to define *independent*.

    First time something *weird* happens, you settle on it being a coincidence – after all, millions getting skinned alive at the same time….Second time – not so much….

    Is Homeland Insecurity *independent* enough to conduct the investigation…? Didn’t think so, probably *engineered* their own river – billions and billions for perpetual war…

  45. Anynominous, I thought it would be something like that; full of sound and fury and signifying nothing in the way of analytics.

  46. Anynominous

    Analytics, that’s rich, coming from the likes of you, Patrick.

  47. Mike Smith

    I think the complexity of the questions that an investigator would ask suggests that the whole process is too ponderous. I honestly believe that the banks should be split so they had no more than 5% of market share then let them go.
    Some will fail for sure and the depositors should be left holding the bag. Once the government gets into depositors insurance, they are just giving the playground back to the bankers.
    But the bankers should be told one thing. If they are found to be deliberately fraudulent as with Enron and Worldcom, they will go to jail.
    The executives of S&P who fraudulently gave AAA ratings to the subprime mortgage bundles in 2008 should have been sent to jail and so far they haven’t. As long as these guys are walking around free, other investment managers will believe that anything goes.

  48. Per Kurowski

    @Mike Smith “The executives of S&P who fraudulently gave AAA ratings to the subprime mortgage bundles in 2008”

    It suffices to know that credit rating agencies are manned by human fallible credit raters… to call it fraud just gives weight to the absurdity of thinking that, as long as you can avoid fraud, you can control for risk, without the measurement itself affecting risk allocation in a risky way.

  49. @kurowlski

    Good point. I should have been more articulate. There has been a clear awakening in the North Africa and the Middle East, where many have died to advance change. European countries can turn out hundreds of thousands for protests. The U.S. is relatively quiet by those high standards. That’s why I think we’re looking at something like an eight year timeline. The world has never see a propaganda machine like the U.S. corporate media – they would make Joseph Goebbel’s red arm band turn green with envy. It is an impressive force, the best ever. Too bad they’re on the wrong side of history – and I include supposedly “progressive” hacks like Chris Matthews who daily and reverently advances the elitist myth that we have a functioning two party system.

  50. The Bond Man

    Overall loss at JP Morgan Chase now reportedly to be @ $30billion!!

    http://www.huffingtonpost.com/mark-gongloff/jamie-dimon-jpmorgan-chase_b_1533126.html

  51. @Bond Man: that’s a very clumsily spun attack piece. JPMC’s STOCK PRICE has dropped some $27B in addition to the $3B in unrealized trading losses. The former is a notional number affecting only stockholders; only the 2nd could turn into a real loss of depositor assets. The two can’t be combined, unless a depositor is also a shareholder in the process of selling.
    I don’t like Jamie Dimon, but I’m getting really tired of all the hysterical noise around this issue, especially by people who should know better. This is a time for renewed progress towards well-though-through change in risk definition and regulation, not effigy-burning. It’s pathetic that we no longer have a political center in this country that can actually solve problems. This article does nothing to reconstitute it.

  52. The Bond Man

    The article explicitly reflects the attack- nature of the piece, Oregano.

    I saw it, you saw it, I imagine other readers saw it as well.

    Thanks for your comments, btw.

  53. The Bond Man

    Lyme disease CITED for Ina Drew at the trading desk in London…….wow!!

    http://vitals.msnbc.msn.com/_news/2012/05/22/11811061-jpmorgan-execs-lyme-infection-spotlights-need-for-quick-treatment?lite

    What’s next, traders intoxicated by noxious farts?

  54. I am delighted to hear an economist advocating greater transparency in our financial system. If JP Morgan is too big to fail, then it is too big to be private: it must accept a far more profound degree of public scrutiny into its inner workings. If that means it can no longer compete with its secretive corporate adversaries, so be it. Socialize it or break it up.

    If the public will eventually foot the bill for JP Morgan’s collapse (and obviously we already have been through this scenario once, so this is hardly unlikely), then JP Morgan should be public property. Lack of transparency by officials (corporate or government) constitutes prima fascie evidence of guilt and serves as society’s alarm bell.

  55. The Bond Man

    Above, William deB. Mills wrote:

    “. Lack of transparency by officials (corporate or government) constitutes prima fascie evidence of guilt and serves as society’s alarm bell.”

    Exactly!!

  56. The Bond Man

    JPM……sells $25 bn in securities…….is loss larger than reported?

    “They really made two stupid decisions,” said Lynn Turner, a consultant and former chief accountant of the Securities and Exchange Commission. The first was taking risks with derivatives that they did not understand, Turner said.

    “The second is selling assets with high income that they can’t replace,” Turner added. In a low interest-rate environment, the bank will struggle to generate as much income with the cash it received from selling the securities, he said.

    More, here:

    http://www.huffingtonpost.com/2012/05/29/jpmorgan-chase-securities-london-whale_n_1552037.html?ref=business&icid=maing-grid7%7Cmain5%7Cdl1%7Csec3_lnk1%26pLid%3D165047

  57. The Bond Man

    http://www.zerohedge.com/news/second-act-jpm-cio-fiasco-has-arrived-mismarking-hundreds-billions-default-swaps

    “Bottom line: Jamie Dimon’s “tempest in a teapot” just became a fully-formed, perfect storm which suddenly threatens his very position, and could potentially lead to billions more in losses for his firm”.