Published on May 15, 2012
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JP Morgan held its shareholder meeting today in the midst of whale-gate. The Wall Street Journal reported the DOJ and FBI have begun a criminal probe surrounding the banks $2 billion trading loss.
To be sure the lid has been blown off of Jamie Dimon's "tempest in a teapot" narrative. These were the words he used to originally dismiss concerns that the bank's whale positions were too large. But though the tempest is out - there are still plenty willing to downplay the significance. At the storm's eye is the issue that even though $2 billion dollars isn't going to derail JP Morgan, what if it's $20 billion, and what if there are more trades like this lurking beneath the surface?
There are also plenty of people willing to parrot the conventional wisdom that Jamie Dimon and the largest bank by assets in the US that he heads up represent the best of Wall Street.
But there seems to be a more fitting description of Dimon, as a clown. This image is inspired by one of our guests Janet Tavakoli who writes in her latest piece, "JPMorgan's Chief is the World's Funniest Financier." And as so often happens when we're talking about too big to fail banks, it appears the jokes is on us: the savers subsidizing the bank's speculation.
While JP Morgan is considered the best risk manager, there is a question about changes it made to the way the Chief Investment Office evaluated risk, while at the same time it was growing its trading positions and their complexity. Tavakoli, who wrote the book on credit derivatives & synthetic structures writes:
The thing about credit derivatives is that the models are very vulnerable to the assumptions one uses in the model. So you wouldn't want to say, push your people to make more money for JPMorgan and then let the people whose multi-million dollar bonuses depend on the outcome influence the assumptions. But that's only if you don't have Dimon's flair for comedy.
Under Dimon's watch, that's what appears to have happened in the CIO, though there are a lot of details we still don't know. We get into what we do know and the questions that arise from what we don't know with Karl Denninger, Trader and Author of: "Leverage: How Cheap Money Will Destroy the World."
We discuss what this means for regulation as we hear calls for the Volcker Rule. We talk about how big the trading loss at JP Morgan could get, what this indicates about risk more broadly at large banks, and a depression scenario in Europe that could cause all of this to blow up.