Saturday, July 14, 2012

J.P. Morgan Losses Reach $5.8 Billion

'Whale' Tab Hits $5.8 Billion. The Wall Street Journal. Sat-Sun July 14-15, 2012, p. B1

[Paraphrasing] The article explains that traders within one of JP Morgan's offices, the Chief Investment Office, may have been recording fraudulent numbers on their positions.

[end discussion of article]

See also New Fraud Inquiry as JPMorgan’s Loss Mounts by Jessica Silver-Greenberg at the New York Times, which values the losses at 7 billion

In May 2012 Obama described JP Morgan as one of the best managed banks

In 2008 JP Morgan received $25 billion in bailout funds

The reason the big banks were able to pay back the bailout funds is because they were granted 0 interest from the Federal Reserve. The 0 interest rate is why I can barely get 1% interest on my savings' accounts.

The banks took the free money provided by the Fed and purchased assets at rock-bottom prices in 2008 and 2009. The return of some value to those assets allowed the banks to pay back the bailout funds.

Furthermore, the big banks such as Goldman Sachs also continued receiving backdoor bailouts through AIG. The government's rescue of AIG rescued JP Morgan also from its derivatives losses:

Here is what the Nation had to say about the AIG Bailout

William Greider. Aug 6, 2010 The AIG Bailout Scandal: The Nation,0

[Excerpted] The government’s $182 billion bailout of insurance giant AIG should be seen as the Rosetta Stone for understanding the financial crisis and its costly aftermath. The story of American International Group explains the larger catastrophe not because this was the biggest corporate bailout in history but because AIG’s collapse and subsequent rescue involved nearly all the critical elements, including delusion and deception...

...The problem was derivatives. During the housing bubble, AIG had reaped a fortune selling derivative contracts based on mortgage-backed securities—hedging devices that made investors feel safe holding these assets. When the bubble burst and housing securities plummeted in value, AIG’s derivatives became its instrument of self-destruction. The counterparties, as per their contract, demanded immediate payment to cover their losses—more and more capital, as housing prices continued to fall....

...JPMorgan and Goldman offered no public explanation for rejecting Geithner’s proposal [for the private banks to help bailout AIG]. The public wasn’t ever told the banks were asked to do their part. Nor did Federal Reserve officials argue with the decision or try to apply persuasive pressures

....Late on Tuesday, the central bank lent $12 billion to AIG. The next day, it lent another $12 billion. This was only the beginning. The AIG operation became a gigantic spigot for circuitously distributing public money to private banking interests. As the New York Fed pumped more money into AIG, the insurance giant pumped it right out the door to satisfy the demands from counterparties like Goldman Sachs. Having helped scuttle the private rescue, Goldman collected $13 billion from this backdoor public assistance. The Fed did not stop AIG’s hemorrhage. It began financing it, with no questions asked....

JPMorgan Chase was vulnerable in a different way. It was not a counterparty holding AIG derivatives, but the Morgan bank was itself the banking industry’s largest issuer of derivatives. It held $9.2 trillion in credit derivatives—four times its capital assets—and many trillions more in other forms of derivatives. By its actions, the Fed greatly reduced the risks for the Morgan bank.
“The rescue of AIG distorted the marketplace by transforming highly risky derivative bets into fully guaranteed payment obligations,” the COP explained. “The result was that the government backed up the entire derivatives market, as if these trades deserved the same taxpayer backstop as savings deposits and checking accounts.”

JP Morgan and all the other major financial players in the US, Britain, France (Societe Generale), and Germany (Deutsch Bank) are parasitic blood suckers that need to be broken up.

They create financial havoc, disrupting the global economy and produce NO VALUE for citizens.

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