Intro: how Dimon reacted when the senate was trying to pursue greater capital markets.(When, How, Why?) – His changed reaction after the announcement that JPM has lost by betting on a thinly slice of derivatives markets. – Reasons for the loss – Was it reasonable loss or not?
Body 1: Dimon’s depend
Body2: – Hedging? Seems more like a prop trading (London Whale tally) Body3: -- violation of Volcker Rule, meaning that the bank loan was excessive Body4: other regulations were to blame.
Jp Morgan : recent $2 billion loss from its bad bet on a thinly traded slice of the derivatives markets * Trades were built around contracts tied to corporate bonds (sold huge amounts of protection on an index of 125 highly rated corporate bonds, known as the 10 year CDX investment Grade Index Series 9, or IG9. * Overall market has worsened and thus it has cost even more for JP Morgan to sell protection against possible bankruptcies on corporate bonds. * Over two weeks, the cost of providing that protection has jumped by about $1 billion for every $100 billion protection.
How JP Morgan made its multi-billion dollar blunder
* Investors are hoping to get more insight from JP Morgan CEO Jamie Dimon. * Dimon recently said that he wouldn’t provide a running tally to the public so it’s unlikely that anyone will know the extent of JP Morgan’s losses before the bank reports second quarter results. JP Morgan lacked risk controls – regulator
* The real issue here is lack of oversight, reasonable standards and risk control
The bets were indeed prop trades.
* Whitney (CEO of Meredith Whitney Advisory Group) : “A credit hedge in banking should be a loan-loss provision, plain, and simple. Anything else is proprietary bet”
Questions from the Senate
Dimon insisted that the trades were hedging and the $2 billion loss was purely a management mistake and emphasize of the role of...
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