What Does The JPMorgan Loss Mean?

Posted by Phil Ferguson on May 16th, 2012 – 4 Comments – Posted in Finance

Post by Phil Ferguson

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NOTE:  This post is part of an ongoing education series.  This information is for educational purposes only.  This information does not constitute investment advice.  No rational person would make investment decisions based on a blog post.  Please consult with your financial advisor before taking any action.  If you wish to have specific advice for your situation please contact Polaris Financial Planning.

Via CNN Money.

 NEW YORK (CNNMoney) — President Barack Obama said Monday that a $2 billion trading loss suffered by JPMorgan Chase is “why Wall Street reform is so important.”

It is not just important – it is critical.  You have heard the phrase before..these banks are too big to fail.  Sadly this is true.  However, that phrase is too long.  It should be, “These banks are too big.”  The solution is to break them up.

“…six financial institutions, the largest six, that have assets that are the equivalent of 60 percent of the GDP of the United States of America…” – Bernie Sanders

Here are the top 6….(numbers in BILLIONS)

JPMorgan               $2,265

Bank of America   $2,136

Citigroup                $1,873

Wells Fargo            $1,313

Goldman Sachs        $923

Metlife                         $799

These 6 banks own $9,313 BILLION in assets and US GDP is $15,462 BILLION (that is around 60%) .  JPMorgan alone has 15% of the total and they just lost $2 billion – $2,000,000,000!  This is a huge amount of money and it is from a division of the company that is supposed to hedge against risk.  This is the part of the bank that should balance out anything risky that the bank may do.

Banks need to be safe and stable and they need to loan out money to companies so they can grow.  However, a large part of their business is now gambling on risky activities.  The banks need to be just banks and they need to be smaller.  We as a country have done things like this before.  In the early 80′s AT&T was split into several companies and in 1911 Standard oil was divided.

It is time to do it again.

Here is a clip of Elizabeth Warren and she explains it better than me.  She is the former Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau.  She is currently a  candidate in the 2012 United States Senate election in Massachusetts and could be one of the most important voices in our government.  She will have my vote if she runs for president in 2016.

 

  1. JIm n says:

    It’s wild that Dimon was so charismatically sanguine a week before this and now it’s like no problem 2 billion isn’t much compared to the total but they still have to fire someone. It’s an oligarchy of banks where big money rules and they need to be split up so there can be some hope of competition. It’s like they want world domination but at the same time they claim they are for the little guy while still fighting the Volcker rule saying it wouldn’t have prevented the problem–don’t want that at any cost.

    No one likes regulation but financial savants are still prone to bias and greed. We have handrails so fools won’t jump off the bridge and we need handrails so fools won’t jump to the rainbow’s ephermeral pot o gold as if certain and already banked. Banker hybephrenics that should be locked up.

    But then they wail and still remember the good old days of Ayn Rand’s boy Alan Greenspan who’s word was next to god but his authority was blindly followed as somehow we want to believe that regulations aren’t necessary. That somehow we will be the best and know the best but in fact we all will go just a little too far for the better deal, the best deal, the greatest deal. Wouldn’t it be great if we could just cut through the shit and all be rich and once we have it protect it from those bastards who would take it from us to support the lazy ilk that just won’t motivate. As if it were only fate of death that would motivate them, them the other, the ilk below.

    I can’t recall a time ever where the rich would ever say tax us, please, and the poor say no, it’s my fault, mea culpa and then go back to bastard wages as if they were shit and didn’t deserve more. That it’s really about starvation or success and starvation is good. Unless I fear death I won’t work. While the really rich party, laugh, and passively earn more because they have psyched out the largess that could actually have enough voting power to do something; and they fear nothing because the cowards at the bottom are drugged out like migrant workers in Florida and can’t see their toes from their hands. Sheesh, it’s the greatest con job since Jesus walked on water.

  2. Darrel says:

    That $2 billion just got 50% bigger. It’s now over $3 billion and counting.

  3. JIm n says:

    Yeah, it could go to 4 billion. And it’s all about derivatives again. Forbes had their take on resolving the banking industry at http://www.forbes.com/sites/stevedenning/2012/05/17/what-should-be-done-about-jpmorganchase/.

    The son of a friend of mine was involved in the last derivative mess and the bank moved him and his family to the UK. Sounds like the Vatican moving bad American priests to Europe who then chastise American nuns and girl scouts for not being pure enough.

    No offense to the son but the banks, like corporations, promote failure because thinking big is what counts.

  4. Darrel says:

    And counting…

    “An initial $2 billion trading loss has likely resulted in a total loss of more than $30 billion, when you include a 19 percent drop in the bank’s stock price. By itself, the trading loss alone might balloon to more than $6 billion, according to one estimate.

    …And CNNMoney said estimates of the bank’s initial $2 billion loss due to poor risk-management have tripled to at least $6 billion.

    …Ironically, the regulations he hates most might have saved his bank at least $2 billion, and possibly $5 billion or even $7 billion. Bad bets on unregulated credit derivatives cost the bank an initial $2 billion, and now Morgan Stanley estimates the losses will rise to $5 billion by the end of the year, the Financial Times’s FT Alphaville blog writes. That is $2 billion more than Dimon has publicly estimated, but increasingly nobody believes Dimon on this.”
    http://www.huffingtonpost.com/mark-gongloff/jamie-dimon-jpmorgan-chase_b_1533126.html

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