Below the Fold: JPMorgan's $2 Billion Fail Whale

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This post was originally posted in Huffington Post and is the debut of a weekly column "Below the Fold"

A wrap-up of stories and posts you might have missed or overlooked -- the ones below the fold.

Unless you had the unusual good fortune to be removed from technology and the 24-hour onslaught of media you probably know that JPMorgan Chase lost on a $2 Billion bet that many are comparing to the same crazy drunken sailor on leave behavior that brought the economy to its knees in 2009. On the other hand, Chase CEO and King of hubris, Jamie Dimon, is referring to it as an unfortunate mistake that in no way should get regulator's knickers in a knot and be a cause of undue alarm.

As Kevin Drum of Mother Jones explains it, "a JPMorgan trader placed some humongous bets that credit spreads would go up relative to CDS spreads, and instead the opposite happened. Eventually, everything went kablooey."

Dimon made a strategic appearance on "Meet the Press" hosted by David Gregory, who Michael Hiltzik of the LA Times, in no uncertain terms, points out knows less than nothing about the financial industry.

"In 'Meet the Press' host David Gregory [Jamie Dimon] had a questioner who is expert in the honored television tradition of taking interviewees at their own level of self-esteem. Also someone who is so clueless about how banks and investment markets work that he hasn't got the slightest idea of what questions to ask, much less how to follow up on an answer."

Hiltzik, pokes  Dimon saying, "Dimon's theme was essentially as follows: 'Hey, everybody makes mistakes -- sure, we lost $2 billion, but we've still got billions more, and we'll figure out this one ourselves without the need for any further regulations, thank you.'"

Politicos of all stripes have chimed in on the argument as well. Sen. Carl Levin (D-Mich), chairman of the Senate Permanent Subcommittee on Investigations and who also helped write the Volcker Rule, appeared on CNBC on Friday, arguing the purpose of the Dodd - Frank Law, as well as pointing to several loop holes that Dimon is trying to take advantage of in an attempt to weasel out of any accountability or possible consequences for the lousy bet. Levetin issued the following statement on Thursday after the news about Chase broke:

"The enormous loss JPMorgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making. Today's announcement is a stark reminder of the need for regulators to establish tough, effective standards to implement the Merkley-Levin language to protect taxpayers from having to cover such high-risk bets."

Problem is, Dimon was on a mission to create loopholes when the reform bills were being written. According to this article in the New York Times, "Several visits [to the Federal Reserve] over months by the bank's well-connected chief executive, Jamie Dimon, and his top aides were aimed at persuading regulators to create a loophole in the law, known as the Volcker Rule. The rule was designed by Congress to limit the very kind of proprietary trading that JPMorgan was seeking." So the "everybody makes mistakes" argument starts to look a little weak.

Elizabeth Warren, presumptive nominee for the Massachusetts Senate race, called for Dimon to step down as a top official at the New York Federal Reserve Bank, which oversees the nation's largest banks, in an interview with Charlie Rose on CBS. "We have to say as a country, no, the banks cannot regulate themselves," Warren said in the interview, adding "what has happened here is not just about JPMorgan Chase."

Warren repeated the sentiment in an email on Monday through BoldProgressive.org, asking for a new Glass-Steagall Act - originally enacted as a result of the crash that caused the Great Depression and later repealed under President Clinton.

"CEO Jamie Dimon called the bets 'poorly reviewed' and even 'sloppy.' He added,'We will learn from it, we will fix it, and we will move on.'

Frankly, I don't think we should just trust Wall Street banks to regulate themselves. Because as we learned during the 2008 financial crisis, they are not just taking risks with their own money -- they are taking risks with the whole economy."


You can find and sign the petition here.

Speaking of presumptive candidates, Mitt Romney surprised no one by towing the GOP party line and still holding fast with his plans to repeal Dodd - Frank, according to Bloomberg News.

Neil Barofsky, former special inspector for the U.S. Treasury's Troubled Asset Relief Program and a Bloomberg Television contributing editor, appeared with Erik Schatzker and Stephanie Ruhle on Bloomberg Television.  "Here we go again," Barofsky says when Schatzker asks him to put it into perspective. Take a look at the 3:40 mark, when Ruhle, who is simply giddy at the mere mention of derivative trading, lets out an "oooh yeah," after Barofky mentions who will be paying for the mistakes - You, me, pensions, and retirees.

Just as Dimon predicted, with a sigh, that "It plays right into the hands of a bunch of pundits out there," Joe Nocera and Paul Krugman, both of the New York Times have chimed in with, When Will They Learn and Why We Regulate respectively.

Robert Reich, posted over at alternet, writing

"...only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent and pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression -- J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, excessively risky trades poorly-executed and poorly-monitored, that caused the crisis in the first place."

From the indy bloggers came Market Ticker Karl Denninger's call to enforce a "One Dollar of Capital" standard for all banks that want to do business in the United States, demanding that any institution with banking exposure here adhere to this rule.

Naked Capitalism's Yves Smith speaks to JPMorgan's loss and how the widely-used risk management tool coined by JPMorgan known as "value at risk" (VaR), which purportedly measures the maximum possible daily loss is an unreliable and "lousy" tool.

Martin Andleman, of Mandelmanmatters.com and a contributor to HPN, knocked out two good reads this week with "Jamie Dimon tells Meet the Press he thinks we're resenting "success." He's wrong." and "Finally, Jamie Dimon and I Agree on Something", in which he writes:

"JPMorgan Chase's CEO, Jamie Dimon, says he doesn't want to make excuses, but his bank's $2 billion losses in the last 45 days were due to errors, sloppiness, terrible execution, bad judgment and strategy, and the mark-to-market environment.

Want to know something? Those are exactly the same things that I would have guessed caused the loss of $2 billion in 45 days. I have no trouble imagining that those things could contribute to some fairly significant losses.

Dimon also told analysts that in hindsight he should have paid more attention to "trading losses and... newspapers"?

Okay, that shocked me. I mean, $2 billion is a lot of money to lose in 45 days when it could have been prevented just by noticing the losses and paying attention to newspapers."

The Real Volcker Rule: No Gambling with the Public's Money, by Abigail Field of Reality Check makes some thoughtful and salient points, starting with:

"Pundits and Wall Street reforming politicians are crowing: Wowie! Jamie D has fought for weak regulations, especially a weak Volcker rule, but now Wall Street's goose is cooked! We're going to get a strong Volcker rule!

But that gleeful analysis amounts to: We lost the war but hey, we might still win a battle!"

And finally, if you're curious as to how a $2 Billion loss by one of the TBTF banks is possible after all we've been through and the trillions of tax payer dollars that were handed over -no questions asked - to these masters of the universe, be sure to read Matt Taibbi's How Wall Street Killed Financial Reform, in Rolling Stone. It'll walk you through the millions spent on lobbying to whittle away at financial reform and how Congress and the White House have done little to stop it.

On a positive note, the SEC is opening an investigation into the JPMorgan debacle, but if they treat this like they have everything else it'll be like dousing a smouldering pile after the house has already burned to ground.

Follow the links, enjoy the show. I'm sure I missed plenty of good ones from the last week and left out a few. Feel free to add your recommendations in the comment section. Add to the discussion and keep it going.

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