Banking industry is at it again

[rumborak]

So, we're barely getting out of the recession, and JP Morgan Chase manages to fumble $2,000,000,000 by hedging on risky assets:

https://online.wsj.com/article/BT-CO-20120511-710858.html

Thoughts?

rumborak

[skydivingninja]

Well, the more risk you take, the greater the potential return, but part of taking on risk is that you can also lose a lot of money.  Its part of the industry and shit happens.  Its when so much risk is taken on irresponsibly across most of the industry that it becomes a huge problem.  So yeah I don't see this as a herald of another recession, but its a pretty bad move on their part. 

You need to subscribe to WSJ to see the article, but what kind of assets did they hedge on? 

[gmillerdrake]

As long as they don't recieve a taxpayer funded bailout for being idiots....I have no problem if they loose Billions of dollars. I don't know the details of thier investment or where it went wrong but like skydivingninja said, it's a high risk high reward type deal. That headline could just as easily read 'JP Morgan Chase profits 6,000,000,000 from risky investment.'

[Rathma]

As long as they don't recieve a taxpayer funded bailout for being idiots....

JP Morgan has already been declared too big to fail brah!

[rumborak]

As long as they don't recieve a taxpayer funded bailout for being idiots....I have no problem if they loose Billions of dollars. I don't know the details of thier investment or where it went wrong but like skydivingninja said, it's a high risk high reward type deal. That headline could just as easily read 'JP Morgan Chase profits 6,000,000,000 from risky investment.'

What is the difference between your tax money and your investment money? Quite a few people's investment will have gone "poof" because of this I assume.

rumborak

[Nick]

As long as they don't recieve a taxpayer funded bailout for being idiots....I have no problem if they loose Billions of dollars. I don't know the details of thier investment or where it went wrong but like skydivingninja said, it's a high risk high reward type deal. That headline could just as easily read 'JP Morgan Chase profits 6,000,000,000 from risky investment.'

What is the difference between your tax money and your investment money? Quite a few people's investment will have gone "poof" because of this I assume.

rumborak

People choose which company to invest in, you have no choice in whether or not to pay your taxes.

[rumborak]

I see that difference indeed, but I find losing vast amounts of your money through risky behavior of your bank not too far from "someone else fucking with your hard-earned money" either.

rumborak

[Ben_Jamin]

Epic fail.

[cramx3]

I am no investment guy and i am not a banker. I will say this though,

I spent the last two years working at Jp Morgan.  I worked in the Global Technology Infrastructure department so i was in no way involved with the business. I like using their credit card and retail banking, but they are a terribly run organization. I think their decisions to cut so many talented people will bite them in the ass one day. I wouldn't trust them with any serious amount of money.

[Riceball]

It's probably not a great time for any bank in the US to be making any kind of large, too-risk-driven loss; it just opens it up to the political process given the election is in a few months. From what I have read, the traders basically took a stupid, "this-will-either-make-us-really-rich-or-fuck-shit-up" position on US corporate debt turning bad (ala many banks in the housing crash) and it didn't come off.

I would also add that a $2 billion loss by one trading unit within one bank is chicken feed really compared to a) the kind of positions these units within banks will take and b) the profits banks generally make from these kinds of positions. Is it bad? Hell yes, given they are both not just an investment bank but also a retail bank and that they have an implicit guarantee against bankruptcy due to their size. But is it world-ending? Nah.

[Rathma]

From what I have read, the traders basically took a stupid, "this-will-either-make-us-really-rich-or-fuck-shit-up" position on US corporate debt turning bad (ala many banks in the housing crash) and it didn't come off.

That's funny, I heard it was because they were betting on the economy recovering. Oh well, both versions are probably fabrications/distractions.

[Riceball]

Yeah that was the bet, with corporate bond derivatives as the instrument.

[ariich]

I see that difference indeed, but I find losing vast amounts of your money through risky behavior of your bank not too far from "someone else fucking with your hard-earned money" either.

rumborak

If it was a high street bank, I'd agree with you absolutely. When it's an investment bank... eh, I'm not so bothered. They exist to make very rich people more rich.

[Scheavo]

Those two things aren't separate in America. They were, then we repealed Glass-Steagal.

[ariich]

You mean banks are still able to invest money from high street banking (i.e. normal people just needing somewhere for their savings and salaries to be stored) in whatever they want with their investment branches?

If that's true then that's insane.

[eric42434224]

No, it wasnt customer deposit money...they cant invest deposits into anything they want  It was their own capital.  But if you are a "too big to fail" bank, and can rely on government bailouts, you need to reign in the exotic investment strategies.

[Scheavo]

You mean banks are still able to invest money from high street banking (i.e. normal people just needing somewhere for their savings and salaries to be stored) in whatever they want with their investment branches?

If that's true then that's insane.

That's how it's been explained to me.

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

The reason those "too big to fail" banks can rely upon government bail outs, is I believe, due to the repeal of Glass-Steagall. But I could be wrong on that.

[ariich]

The wiki article doesn't make it entirely clear unfortunately. I sort of get the impression that the two arms need to be separte (i.e. you can't take normal retail bank deposits and invest them in high-risk equities) but that the problem with the repeal is that commercial banks can own investment banks, which is why they can rely on the bail out. As in, they can't use that money in high-risk investments, but if their investment arm fails and the bank will go under, the Government will need to bail it out because of the high-street banking arm affecting normal customers. I might be wrong though.

[Scheavo]

I think that's the impression I get. I should state, though, that I don't know of any normal banking that JPMorgan does... but then again, I live in bumfucknowhere, and with modern corporations, it get's really confusing.

[Riceball]

I think Rich has it. They are a 'conglomerate', in so far as they have a retail bank and an investment bank in the same broad ownership structure. So while they don't directly take deposits and use them as play money, they implicitly do through the JP Morgan balance sheet. Their presence in retail banking means they are a systemically important institution (aka too big to fail) and so they have the government backing that other investment banks dont. This means they are probably rated higher than they really should be (Australia's four major banks are the same and S&P says its worth two notches), and this means that the risk/return matrix is out of whack; hence rhe'outrage' over the loss.

Hopefully thats clearish?

[Rathma]

I think that's the impression I get. I should state, though, that I don't know of any normal banking that JPMorgan does... but then again, I live in bumfucknowhere, and with modern corporations, it get's really confusing.

Do you know the bank Chase? In Manhattan there's pretty much a Chase ATM at every corner. They're owned by JPMorgan.

[Scheavo]

I think that's the impression I get. I should state, though, that I don't know of any normal banking that JPMorgan does... but then again, I live in bumfucknowhere, and with modern corporations, it get's really confusing.

Do you know the bank Chase? In Manhattan there's pretty much a Chase ATM at every corner. They're owned by JPMorgan.

Didn't know they were owned by JPMorgan. I've heard of Chase, but don't remember seeing any Chase banks in Montana.

[Odysseus]

Meanwhile Europe continues to circle the drain.... I'm getting all dizzy.... wheeee!...   

[Scheavo]

Well, the good news is that they're going to to start trying to stimulate the economy, instead of pure austerity measures. If Europe had done this 3 years ago, things wouldn't be as bad right now.

[cramx3]

I think that's the impression I get. I should state, though, that I don't know of any normal banking that JPMorgan does... but then again, I live in bumfucknowhere, and with modern corporations, it get's really confusing.

Do you know the bank Chase? In Manhattan there's pretty much a Chase ATM at every corner. They're owned by JPMorgan.

Didn't know they were owned by JPMorgan. I've heard of Chase, but don't remember seeing any Chase banks in Montana.

Chase is big in the north east. Before the purchase of wamu. They didn't have much if any presence on the west coast.

[Riceball]

Well, the good news is that they're going to to start trying to stimulate the economy, instead of pure austerity measures. If Europe had done this 3 years ago, things wouldn't be as bad right now.

I've got a post in the other economic-y thread about Europe for those who are interested.

https://www.dreamtheaterforums.org/boards/index.php?topic=32327.0