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Last post 11 years ago by DadZilla3. 21 replies replies.
Just When We Thought Things Couldn't Possibly Get Any Worse...
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DadZilla3 Offline
#1 Posted: Tue, May 15 2012, 5:29 PM EST
Joined: 01-17-2009
Posts: 4,633
The 2 Billion Dollar Loss By JP Morgan Is Just A Preview Of The Coming Collapse Of The Derivatives Market

"When news broke of a 2 billion dollar trading loss by JP Morgan, much of the financial world was absolutely stunned. But the truth is that this is just the beginning. This is just a very small preview of what is going to happen when we see the collapse of the worldwide derivatives market. When most Americans think of Wall Street, they think of a bunch of stuffy bankers trading stocks and bonds. But over the past couple of decades it has evolved into much more than that. Today, Wall Street is the biggest casino in the entire world. When the "too big to fail" banks make good bets, they can make a lot of money. When they make bad bets, they can lose a lot of money, and that is exactly what just happened to JP Morgan. Their Chief Investment Office made a series of trades which turned out horribly, and it resulted in a loss of over 2 billion dollars over the past 40 days. But 2 billion dollars is small potatoes compared to the vast size of the global derivatives market. It has been estimated that the the notional value of all the derivatives in the world is somewhere between 600 trillion dollars and 1.5 quadrillion dollars. Nobody really knows the real amount, but when this derivatives bubble finally bursts there is not going to be nearly enough money on the entire planet to fix things."

"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 JP Morgan is nothing compared to their 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."

http://theeconomiccollapseblog.com/archives/the-2-billion-dollar-loss-by-jpmorgan-is-just-a-preview-of-the-coming-collapse-of-the-derivatives-market
wheelrite Offline
#2 Posted: Tue, May 15 2012, 5:33 PM EST
Joined: 11-01-2006
Posts: 50,119
it doesn't matter,,,

Dec 21,2012 is a little more than 7 months away..
rfenst Offline
#3 Posted: Tue, May 15 2012, 5:52 PM EST
Joined: 06-23-2007
Posts: 39,330
Exposure does not automatically mean "loss".

OK, so J.P lost $2billion of its own money. Sure- that is a hell of a lot of money! But, what percentage of J.P.'s assets does the $2 billion represent? 1%? 10%? 50%? 90%?...

I need to know the relative impact of the loss before worrying about its impact on our economy- if any.
wheelrite Offline
#4 Posted: Tue, May 15 2012, 6:03 PM EST
Joined: 11-01-2006
Posts: 50,119
Hybrid Securities,,

another Carnival Shell game Wall Street plays.
rfenst Offline
#5 Posted: Tue, May 15 2012, 7:14 PM EST
Joined: 06-23-2007
Posts: 39,330
wheelrite wrote:
Hybrid Securities,,

another Carnival Shell game Wall Street plays.



Oh, I thought it was a type mathematical equation that measures rates of change. My bad...
DadZilla3 Offline
#6 Posted: Tue, May 15 2012, 7:27 PM EST
Joined: 01-17-2009
Posts: 4,633
rfenst wrote:
Exposure does not automatically mean "loss".

OK, so J.P lost $2billion of its own money. Sure- that is a hell of a lot of money! But, what percentage of J.P.'s assets does the $2 billion represent? 1%? 10%? 50%? 90%?...

I need to know the relative impact of the loss before worrying about its impact on our economy- if any.


JP Morgan's reported net income for 2011 was US $18.9 billion, so that cost them about 10% of their 2011 net.

Their reported operating income for 2011 was US $26.7 billion, so 2 billion is about 7.5 % of that.

You know what they say on Wall Street...a couple billion here, a couple billion there...before you know it, we're talking about a lot of money.
jackconrad Offline
#7 Posted: Wed, May 16 2012, 12:21 AM EST
Joined: 06-09-2003
Posts: 67,461
Derivatives are frequently hedges against Negative movements in the Markets.While they actually help level things out and provide a decent Risk management strategy they are not well understood and in my opinion are under regulated. But even when the Markets are tanking you can make money with them if you are a expert investor. In a sense they profit not from the success of the market but the actions resultant from market movements.
rfenst Offline
#8 Posted: Wed, May 16 2012, 1:10 AM EST
Joined: 06-23-2007
Posts: 39,330
DadZilla3 wrote:
JP Morgan's reported net income for 2011 was US $18.9 billion, so that cost them about 10% of their 2011 net.

Their reported operating income for 2011 was US $26.7 billion, so 2 billion is about 7.5 % of that.

You know what they say on Wall Street...a couple billion here, a couple billion there...before you know it, we're talking about a lot of money.



The way I see it... a billion dollars just isn't... what it used to be....

Seriously, 10% of NI doesn't seem so bad and 7.5% of OI doesn't either. If that is all that was lost and the amount represents a small percentage of net worth, it doesn't seem like such a big deal- other than a PR mess. If there was little further downside and a potential giant upside, it may have been a good investment/gamble, huh?

On the other hand, they could be lucky as $hit...

Maybe we can get Madoff or Arthur Andersen to do the audit and analysis... Guess we'll just have to wait until the whole story comes out,huh?
DadZilla3 Offline
#9 Posted: Wed, May 16 2012, 4:06 AM EST
Joined: 01-17-2009
Posts: 4,633
rfenst wrote:
Seriously, 10% of NI doesn't seem so bad and 7.5% of OI doesn't either. If that is all that was lost and the amount represents a small percentage of net worth, it doesn't seem like such a big deal- other than a PR mess. If there was little further downside and a potential giant upside, it may have been a good investment/gamble, huh?


There's always the potential of a big payday. The problem is, like Jack mentioned, the derivative market is still pretty much an unregulated black box.

Morgan was always thought of as one of the better managed banks. Me, I'm hoping this is an anomaly and JP Morgan (and everybody else) stays healthy. Beer
rfenst Offline
#10 Posted: Wed, May 16 2012, 8:53 PM EST
Joined: 06-23-2007
Posts: 39,330
DadZilla3 wrote:
There's always the potential of a big payday. The problem is, like Jack mentioned, the derivative market is still pretty much an unregulated black box.

Morgan was always thought of as one of the better managed banks. Me, I'm hoping this is an anomaly and JP Morgan (and everybody else) stays healthy. Beer


Do you really support regulating derivatives trading?
wheelrite Offline
#11 Posted: Wed, May 16 2012, 9:22 PM EST
Joined: 11-01-2006
Posts: 50,119
rfenst wrote:
Do you really support regulating derivatives trading?

yes..
jackconrad Offline
#12 Posted: Wed, May 16 2012, 9:27 PM EST
Joined: 06-09-2003
Posts: 67,461
All Securities are regulated by The SEC or FinRa or NasdaQ etc so why not?


Ever since the Public was forced into the Market after employers abandoned Pensions and switched to 401k's etc the market needed a much stronger watchdog.


Options are like educated gambling and anyone who thinks Inside Info isn't happening there

must be blind.
rfenst Offline
#13 Posted: Wed, May 16 2012, 11:28 PM EST
Joined: 06-23-2007
Posts: 39,330
jackconrad wrote:
All Securities are regulated by The SEC or FinRa or NasdaQ etc so why not?


Ever since the Public was forced into the Market after employers abandoned Pensions and switched to 401k's etc the market needed a much stronger watchdog.


Options are like educated gambling and anyone who thinks Inside Info isn't happening there

must be blind.


Inside info isn't the issue here. Instead, it is the concern caused by the $2 billion loss. As described above, the amount doesn't seem to be a big loss relative to JP's annual income.
yardobeef Offline
#14 Posted: Wed, May 16 2012, 11:36 PM EST
Joined: 10-25-2011
Posts: 849
Yeah! You didn't see nothin', see.
DrMaddVibe Offline
#15 Posted: Thu, May 17 2012, 5:38 AM EST
Joined: 10-21-2000
Posts: 55,440
What we need is MORE regulations!horse horse horse
Buckwheat Offline
#16 Posted: Thu, May 17 2012, 7:40 AM EST
Joined: 04-15-2004
Posts: 12,251
The problem as I see it is that you shouldn't be able to make money when the market is moving down. Someone (i.e. the tax payers and working people) are the ones that end up paying for these profits that are "made" on these types of investments. You can't create money from losses unless you are either stealing or borrowing it. All of these types of investments hurt our economy more than the entire welfare state. Just my unlearned opinion.

http://news.blogs.cnn.com/2012/05/16/fbi-opens-investigation-into-jpmorgan-trade-loss/?hpt=hp_t2
DadZilla3 Offline
#17 Posted: Thu, May 17 2012, 3:35 PM EST
Joined: 01-17-2009
Posts: 4,633
rfenst wrote:
Do you really support regulating derivatives trading?

Pick one:

1. Strict regulation of derivatives trading. Call it the 'Brooksley Born was right all along' solution.
2. No regulation of derivative trading, and absolutely no backstopping the banksters with public money when the contracts blow up. Call it the 'Lehman Brothers on steroids' solution.
FuzzNJ Offline
#18 Posted: Thu, May 17 2012, 8:28 PM EST
Joined: 06-28-2006
Posts: 13,000
Why do you hate capitalism and by extention baby jesus?
DrMaddVibe Offline
#19 Posted: Thu, May 17 2012, 8:32 PM EST
Joined: 10-21-2000
Posts: 55,440
FuzzNJ wrote:
Why do you hate capitalism and by extention baby jesus?



[email protected]
rfenst Offline
#20 Posted: Fri, May 18 2012, 7:17 PM EST
Joined: 06-23-2007
Posts: 39,330
FuzzNJ wrote:
Why do you hate capitalism and by extention baby jesus?



LMFAO!!!
DadZilla3 Offline
#21 Posted: Sun, May 20 2012, 4:31 PM EST
Joined: 01-17-2009
Posts: 4,633
Did we say Morgan stands to get a 2 billion dollar haircut? We meant to say a 3 billion dollar haircut...

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://www.cnbc.com/id/47455430
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