The financial markets have been silent, if you consider the reaction to the debt crisis in Europe and the reaction to the French and Greek elections as silent, but there is a flip side to all this uncertainty and it seems the chickens have come home to roost again. And where would you expect it to happen, right in the very place where risk is offset. Deritatives. It is about time this form of gambling on a huge scale was stopped
JPMorgan loss: Ghost of the credit crisis – Business 360 - CNN.com Blogs

How many times have we seen huge losses because of deritative trading and yet we still allow it to go on unabated. Now once again a bubble will burst with much breast beating and the dabtes will rage about too much and too little regulation. Because of the nature of deritatives I propose a simple solution, no bank or hedge fund is to be allowed to commit themselves beyond the sum of their available cash

What's wrong with derivitives ? Wish I had one to purchase to hedge against the value of my home declining.

The real problem is this concept that banks like JPMorgan are 'too big to fail.' If they make lousy decisions then they should go down. Instead these bailouts like TARP create moral hazard and reward bad decisions. Dimon et al continue to have the freedom to take on reckless risk. And those 'too big to fail' banks get bigger. Trading derivitives is not reckless. Trading them without doing sufficient homework is reckless.

Here is another alternative. The US still had the Sherman Act .

The Lesson of JP Morgan's $2 Billion Loss: Break Up the Big Banks - David Rohde - Business - The Atlantic

One more thing . The Fed is thinking QE III . I can't think of a worse thing for the nation's fiscal health . We need to get back to a strong dollar policy.

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Originally Posted by tomder55

What's wrong with derivitives ? Wish I had one to purchase to hedge against the value of my home declining.

The real problem is this concept that banks like JPMorgan are 'too big to fail.' If they make lousy decisions then they should go down. Instead these bailouts like TARP create moral hazard and reward bad decisions. Dimon et al continue to have the freedom to take on reckless risk. And those 'too big to fail' banks get bigger. Trading derivitives is not reckless. Trading them without doing sufficient homework is reckless.

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what's wrong with deritatives, well Tom it is the way they are used to overcome prudential regulation. If bank is subject to a regulation which says that its liablilties can't be, let's say longer than 90 days, this should force it to sell off some long dated securities but what the bank does is purchase a credit swap for a small fee with a total value which might be 100 times more than they paid. If the transaction goes bad they have to pay out the total amount or quit the transaction and replace it with another, and this is what happened to JP Morgan. According to news articles their position was in the trillions at one stage. You see once you start down this road the liabilities can pile up quickly as you try to keep the book within the regulations. Derivatives aren't just used for trading they are used for other purposes and Tom you can purchase that derivative, it just depends how much you are prepared to pay for it

In other words... nothing is wrong with derivitives. Banks get criticized when the make profits and when they take losses . No way to win. Was it JP Morgan money ;or was it their customers money like in MF Global ? If it was bank money then too bad . Let them deal with the loss as best they can. This is but a blip on the radar ;about 5 cents a share? The bank isn't at a risk of going down and they will probably make up the loss by the end of the year. Heck ,after this loss JPM earned $4 billion for the quarter
Compare this $2 billion to the more than $100 billion a month spent than revenue collected by Congress ,and tell me who is really out of control. And yet all I hear is calls for the losers in Congress to impose more "reforms " on the financial industry. The saddest part is that they let one of their most irresponsible players ,Barney Frank put his name on the massive legislation(Dodd- Frank) that would reign in the banks . Frank of course was one of the key bad actors in the events that led to the 2008 crash.

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Originally Posted by tomder55

In other words ... nothing is wrong with derivitives. Banks get criticized when the make profits and when they take losses . No way to win. Was it JP Morgan money ;or was it their customers money like in MF Global ? If it was bank money then too bad . Let them deal with the loss as best they can. This is but a blip on the radar ;about 5 cents a share ? . The bank isn't at a risk of going down and they will probably make up the loss by the end of the year. Heck ,after this loss JPM earned $4 billion for the quarter
Compare this $2 billion to the more than $100 billion a month spent than revenue collected by Congress ,and tell me who is really out of control. And yet all I hear is calls for the losers in Congress to impose more "reforms " on the financial industry. The saddest part is that they let one of their most irresponsible players ,Barney Frank put his name on the massive legislation(Dodd- Frank) that would reign in the banks . Frank of course was one of the key bad actors in the events that led to the 2008 crash.

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No way of knowing whose money it is but if I were a depositor in JP Morgan I wouldn't want to be exposed in this manner. Banks are one thing and governments another, yes your government is on a slippery slide to a very deep hole and they haven't got the good sense to say stop. This is because they are self regulating. The financial industry needs to be reigned it to stop excesses in trading of securities whether they be derivatives or other phony instruments. Tom you really don't get it, it isn't about earnings, what good is earning $4 billion if the risk is a collapse of the system, who did this $4 billion benefit and don't tell me JP Morgan stockholders because they won't see much of it and the value of their investment is degraded by letting the cowboys loose again. The great mistake government makes and this is because of their ineptitude, is they ask the industry how they should be regulated and of course you will find the peopele who perpetrate these frauds in the halls of government where else would a scoundrel hide.

Apparently the traders worked outside the regulations, so its case of we will do what ever it takes, not we will comply with preduntial regulation and the availability of exotic instruments is part of this which apparently has been going on since 2007.
See over and over again we see the Superman syndrome emerge in this market and kryptonite is just around the corner. You know what I mean by Superman don't you Tom, fighting for the american way. I think it was described in the movie the Bank as "the big swinging Dlck" So if the traders can't be regulated then there is only one answer remove the instruments on which they rely, Alternatively you could make the Board criminally liable for failure to implement proper controls

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Apparently the traders worked outside the regulations, so its case of we will do what ever it takes, not we will comply with preduntial regulation and the availability of exotic instruments is part of this which apparently has been going on since 2007.
See over and over again we see the Superman syndrome emerge in this market and kryptonite is just around the corner. You know what I mean by Superman don't you Tom, fighting for the american way. I think it was described in the movie the Bank as "the big swinging Dlck" So if the traders can't be regulated then there is only one answer remove the instruments on which they rely, Alternatively you could make the Board criminally liable for failure to implement proper controls

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Or if the trader worked outside the regulations then the trader was committing a criminal act . But you will find that wasn't the case. What you had was a trader who screwed up . That is for JPM to handle .What you want to do is regulate away risk in the marketplace . A nice utopian ideal of course... but not doable. The reasons a bank as big as JPM can exist in the marketplace in the 1st place is that execessive regulations (and yes constructed by the cronies inside government ) squeeze out the small players making the market less competitive.

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No way of knowing whose money it is but if I were a depositor in JP Morgan I wouldn't want to be exposed in this manner.

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Depositors are not exposed. I doubt seriously that any depositor's money was involved . This is not the same as MF Global where criminal use of other people's money was used in the trading . Besides as a depositor at Chase myself ,I know my deposits are insured up to $250,000 . If I was foolishly inclined to keep more money than that in any bank savings instrument ,I would at least be smart enough to split my savings in several institutions. But I will give you this... If my deposits weren't guaranteed by the government ,then maybe I would look closer at the financial risks my bank takes. Another unintended consequence of government activity ? By guaranteeing the deposits ,the government is reducing the systemic risk of playing the derivative markets by the banks .

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Tom you really don't get it, it isn't about earnings, what good is earning $4 billion if the risk is a collapse of the system,

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Oh I think I do get it. The reason I bank at Chase is because JPM did not want a bailout in 2008 .They were forced to take it by those fine competent lawmakers . Then JPM wanted to pay back the TARP funds early ,and the government refused to allow them to pay it back early. The reason I bank at Chase is because Dimon did not try to hide this loss .Instead he called a press conference to lay it out to everyone . That makes me confident that JPM isn't trying to hide their risks ,and how they manage risks . I know they have the capital to cover it.
Gains and losses happen in the financial markets . If it wasn't these instruments it would be another dating back to the days when people speculated on Tulips... or even before when Aristotle told of Thales olive speculations. Outlaw derivatives and something else will emerge. Coercive regulations intended to restrict bank activities will be unable to keep up with financial innovation.

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Originally Posted by tomder55

Or if the trader worked outside the regulations then the trader was committing a criminal act . But you will find that wasn't the case. What you had was a trader who screwed up . That is for JPM to handle .What you want to do is regulate away risk in the marketplace . A nice utopian ideal of course... but not doable. The reasons a bank as big as JPM can exist in the marketplace in the 1st place is that execessive regulations (and yes constructed by the cronies inside government ) squeeze out the small players making the market less competitive.

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Tom you live in a phantasy world, The word is the CEO of their trading division is known as voldemart a reference to being a very evil dude. JP Morgan Chase is as big as it is because of mergers and takeovers, once anti trust wouldn't allow a organisation like this to exist. Regulation once kept a reasonable number of players in the market but it is big money pushing big risk that has pushed them out

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Depositors are not exposed. I doubt seriously that any depositor's money was involved . This is not the same as MF Global where criminal use of other people's money was used in the trading . Besides as a depositor at Chase myself ,I know my deposits are insured up to $250,000 . If I was foolishly inclined to keep more money than that in any bank savings instrument ,I would at least be smart enough to split my savings in several institutions. But I will give you this... If my deposits weren't guaranteed by the government ,then maybe I would look closer at the financial risks my bank takes. Another unintended consequence of government activity ? By guaranteeing the deposits ,the government is reducing the systemic risk of playing the derivative markets by the banks .

Oh I think I do get it. The reason I bank at Chase is because JPM did not want a bailout in 2008 .They were forced to take it by those fine competent lawmakers . Then JPM wanted to pay back the TARP funds early ,and the government refused to allow them to pay it back early. The reason I bank at Chase is because Dimon did not try to hide this loss .Instead he called a press conference to lay it out to everyone . That makes me confident that JPM isn't trying to hide their risks ,and how they manage risks . I know they have the capital to cover it.
Gains and losses happen in the financial markets . If it wasn't these instruments it would be another dating back to the days when people speculated on Tulips... or even before when Aristotle told of Thales olive speculations. Outlaw derivatives and something else will emerge. Coercive regulations intended to restrict bank activities will be unable to keep up with financial innovation.

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So there we have it you are a depositor, fully at risk by whatever they do, some of the money is depositors, some stockholders and a whole lot of it is borrowed short term to enable them to play the market. OPM is how they do this Tom. Don't be niaive, they can't hide the loss not without risking criminal prosecution. The days of creative accounting where doing an enron are gone, they must tell the market and the stockholders where conditions have changed. This affects the stock price so it must be disclosed, but more than that it had a devastating affect on the market as investors priced down financial institutions. You are protected by that very regulation you distain not because of JPMorgan largesse and responsibility

That protection also gives the banks the protection to take on systemic risk. Just like the implied guarantee of a bailout affects their risk tolerance . Let a few of them fail... problem solved .
Another thing that gives them this protection is the fact that our Fed allows them to borrow money at 0% and to loan it back to us at 2-3% .How can they lose ? BTW ;if JPM lost 2 billion ,then one or more other institutions made 2 billion. The money didn't just disappear(unlike MF Global where a theft happened ).

You want to talk about fraudulent trading instruments ? All you have to do is go to the Chicago Carbon exchange ;or any institution that sells that fantasy called carbon credits . But that is a politically correct trade .

Like I said. The Sherman Act is still the law of the land. But I am right in saying that JPM and the other big banks grew because over regulation allowed them to squeeze the smaller players out of the market. I've see that happening now in my industry I see it happening whenever government takes an interest . There was a time when an immigrant could come to this country ;buy a used car ,put a taxi sign on the roof ;and start a business. Now they are squeezed out by medallion fees that cost into the millions of dollars to purchase. So now that immigrant becomes an employee instead of an owner ;and only a few large taxi companies exist. That is what happens in an over regulated environment.

Thinking of buying some JPM stock after these couple days of hysteria ends.

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Originally Posted by tomder55

Like I said. The Sherman Act is still the law of the land. But I am right in saying that JPM and the other big banks grew because over regulation allowed them to squeeze the smaller players out of the market. I've see that happening now in my industry I see it happening whenever government takes an interest . There was a time when an immigrant could come to this country ;buy a used car ,put a taxi sign on the roof ;and start a business. Now they are squeezed out by medallion fees that cost into the millions of dollars to purchase. So now that immigrant becomes an employee instead of an owner ;and only a few large taxi companies exist. That is what happens in an over regulated environment.

Thinking of buying some JPM stock after these couple days of hysteria ends.

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So you think it is a good idea to have some immigrant buy some crappy car and start a taxi business, man we already have enough camel drivers as employees of taxi companies, not a clue as to where any place is, incapable of communication, and ability to drive negliable. This si risk on a new level. The answer to your problem is to allow as many medellions as there are applications, then your cities would be filled with taxis like any third world country should be.

Personally Tom I would stay away from bank stock for a long while, but if you are thinking of buying do it while it is cheap

I used the taxi as an example. Here there are laws against a kid mixing a pitcher of lemonade and selling it by the glass.
Midway Police Shut Down Girls' Lemonade Stand | The Coastal Source
There are all types of ridiculous regulations meant solely to restrict who has access to the opportunity of engaging in the business. You think that the medallions are meant to keep the streets safer ? Well that is true only if you mean safer for the company that can shell out the $ million necessary to purchase the medallion.
http://www.nyc.gov/html/tlc/download...2k12_april.pdf
Traditionally in times of economic downturn ,some of those out of work would open new businesses ,and that in turn would help reverse the economy. But the regulatory environment has made it increasingly difficult to take that path. If I go by the example of my industry ,then what I see is consolidation into the hands of the few companies that can afford to comply to the new laws .I'm sure that is true in the banking industry too.
http://www.mibiz.com/news/finance/19...-industry.html

Tom I sympathise with you that regulation might have been necessary to keep shysters from starting businesses, that this in some way stymes your entrepheniacial spirit but the reality is the shysters we need to be protected from abide in large corporations and the banks and hedge funds are chief among them

Like it or not we all live in a society made possible by regulation because without it we would just have chaos. Can you imaging a society where a utility would just dig up your streets at will, not erecting any sort of safety barrier, or leave those gas mains unmaintained. Can you imagine a society where motorists can decide their own speed limits, Can you imagine a society where a bank can just change any interest rate it wants and by the way, banks don't borrow money at 0% interest, the Federal reserve borrows from the banks at 0%

The problem is you continue to think that because I don't like burdensome unnecessary regulation ,that means I don't want any. Have you not been reading what I write. Twice already I have praised the Sherman Act... The Sherman act is a regulation. If you asked me if I thought Glass - Steagall should be reinstated ,I'd say yes. Glass Steagall separated financial instuututions that played the market from those that took savings depositors money. Anyone who depositied in a bank knew their money would not be affected by the insitution's trades. Glass Stegall was about 7 pages long. Dodd Frank is 2319 pages long and is chock full of unnecessary burdensom regulations that will not address the problem of the financial industry.

America has always promoted risk taking . But there was always the assumption that the risk taker sinks or swims on their own. These fools have completely upended that formula to include government choosing winners and losers in the marketplace. Why should JPM worry about a $2billion loss when they already know that Uncle Sam is there to pull their feet out of the fire ?

Then Tom all I can say is GOYA, apply it to your legislators and if your side of politics won't do it give them the flick