I'm not sure how much debate this will generate but it might be of interest to some. [url=http://ftalphaville.ft.com/FT Alphaville[/url have [url=http://ftalphaville.ft.com/blog/2012/05/11/996131/too-big-to-hedge/an excellent analysis of the trade it seems The London Whale put on[/url ([url=http://ftalphaville.ft.com/blog/2012/04/19/965511/the-curve-trade/background reading also here[/url) that has potentially caused a $2bn mtm loss at JP Morgan.

Two interesting bits here for me:

1. the demonstration of how ineffective regulators still are: (from the FT article) "99 per cent of all CDS trades live in an information warehouse called DTCC, to which the regulators of the banks have access in however much detail they want!!! What kind of regulator doesn’t go and look at the that". It's highly unlikely that these trades were in the 1% of trades that are paper confirms (ie. outside DTCC) so you have to wonder how this wasn't spotted by a regulator? They're asking banks to build global trade repositaries and yet they don't even (know how to?) use them.
2. the demonstration of how easily a trader can go from putting on a perfectly legitimate hedge to breaching the Volcker rule. [url=http://economicsofcontempt.blogspot.co.uk/Blogger Economics of Contempt[/url provides some excellent analysis of the Volcker that demonstrates just how messy the regulation is getting in banking for those who don't work in the industry. Particularly when the regulation is being drawn up by people who have little to no understanding of what actually happens within a bank.

Only caught a bit of this on the news last night, but it did make me laugh.

Basically, he's a professional gambler with other people's money. When his bets come off, which it would seem, are quite regular, he's on a 6/7 figure annual bonus, which his bosses are delighted with. When they fail as spectacular as this, he's the fall-guy, and his bosses will quickly distance themselves from him. Seems to happen on a regular basis, Nick Leesom and the French trader last year spring to mind.

So because some useless c**t manages to lose the GDP of a sub-Saharan nation, it's the regulator's fault?

Nothing at all to do with the culture of gambling and greed that has been fostered by this guy's employers then?

Yet another reason these shysters should be put out of business.

The fact this guy has a nickname of The London Whale says it all to me.

It says the culture on the trading floors of the banks and in the banks themselves has just not changed. They have just carried on since 2008 as before.

The nickname conjures up visions of a Harry Enfield "Loads a money" fat git from the 1980's wearing red braces

Apparently he is very different from what you describe - [url=http://www.independent.co.uk/news/business/news/the-city-trader-who-lost-2bn-and-he-was-the-risk-expert-who-was-meant-to-play-it-safe-7738004.htmlLINK[/url

This type of transaction shouldn't be regulated, it should be abolished. It offers absolutely no benefit to anyone other than the protagonists, it is not an investment, simply because there is buggerall to invest in. It is gambling, pure and simple, no different to the turn of a card or a roulette wheel. The fact it is generally used to mitigate potential losses in real investments is no excuse, all it does is offer a safety net to those making the investments. If they need that, perhaps they shouldn't be making the investment in the first place.

This could be a good thread

I should have resisted the temptation to describe his possible appearance. It is the fact he even had a nickname and what that says about the culture prevalent in investment banking post 2008 is what is important IMO.

I agree the transactions should be abolished. It's all a bloody great ponzi scheme. They produce nothing but can generate income out of thin air. The income is so far removed from any form of real production it's untrue.

I read a good piece last year, extracts from a book a former female trader brought out. Basically, a trader has a shelf-life of 4 years, after that, they are burnt out. Working week starts sunday evening with the Asian markets and ends 10pm on a friday night. They are pressured into making money, money, money, with the dangled carrot as the big annual bonus. So much so, that even when not working, family holidays, Xmas etc, making money and watching potential markets, is still their life, nothing else matters. They are totally obsessed with money, and then 4 years later, burnout. Body and brain cannot take anymore. They know this, hence the need to make as much money for themselves in the 4 years.

Quite a sad, insular way of life imo.

On the other hand, someone lost £4 billion means that someone else made £4 billion. Swings and roundabouts.

Someones pension fund takes a big hit, someones pension fund shows a profit, some trader somewhere gets fired and starts to liquidate his toys to see if he's got enough to live on for a year or two.

Do people still pay into a pension scheme?
Bloody madness if you believe what some random bloke tells you what you will get in 20/30/40 years time.
Ask him what the weather will be like tomorrow.

Some people don't have any choice.

I stopped giving the t0ssers my money to "invest" (read, gamble) when NatWest wrote to me with an end of year statement telling me they were "pleased to enclose your annual statement".

They had LOST 20% of the value of my pension pot in one year, and they were "pleased" to tell me that - I'd hate to open a statement and find that they were sorry to tell me something.

Having said that NatWest have finally seen the light and come to understand what I told them many years ago - that they are fookin useless at gambling on the stock market and they have sold all of their pension and investment business to Aviva - who then went and lost some more of my money last year, I'll be glad when they've spent all of my money and they stop sending me those fookin annoying letters.

You can clearly see in my original post where I blame the regulator for this happening.



Rubbish. I joined my bank in September 2008 and the culture is vastly different than it was when I joined.



You haven't read the links at all have you? Or if you have you're too thick to understand what is going on (and hence shouldn't be commenting).

The City of London (and the global financial system in general) is so riddled with fraud that these financial shenanegans will eventually bring down the entire world economy.

double post

Go on then, enlighten all of us:

What benefits, other than a bit of tax (if they don't manage to avoid paying it), do such transactions bring to society?

What jobs do they create?

What saleable, useful item do they produce?

Assuming the trade the FT have outlined is accurate (and it's highly likely it is) then JP are hedging the risk they have against the top 125 US corporates. So I don't know - do you think (look it up) they might be trying to offset any potential losses on loans they have made to top US corporates? Loans which allow those corporates to invest and create jobs?

I am consistently astonished at your ignorance. It's all there for you.

What do they "invest" in to hedge those bets though?

They are placing bets on the misfortune of other companies, commodities, currencies etc among other activities. What exactly does that bring to the party, especially when the temptation is there to hurry the potential misfortunes along a little?

I had to stop paying into mine when our company had to put us on a three day week due to lack of orders and pressure from the bank to cut costs yet again.

It sounds like a big game of pass the parcel.

Not again surely?

They wouldn't do that again would they?

The problem here isn't primarily the regulators - clearly in this case yet again its internal risk management which is the primary issue. No external regulatory scheme could ever be as good as decent internal systems.

This guy's role was supposedly to hedge the positions taken out by traders within the bank - exactly the thing which should help prevent major losses due to a trading position. Basically the bank lends money to companies, and takes out hedges to partially offset the risk associated with those loans. The sole aim of this should be to minimise exposure in the event of an asset price/loan portfolio collapse.

Clearly in this case the roles of risk and trading have been blurred to the extent that this idiot was able to take a massive position in the name of 'risk management', and the bank's genuine risk managers (they don't have the capability to enter trades themselves - that's the whole point) were nowhere to be seen.

Yet again, if you read the articles about this case, it seems that senior management within a bank have been seduced by someone making big profits from trading, and allowed them to enter positions which they never should have gone near.

A simple solution for this particular issue would be to completely decouple the money people like this earn from the results of their investments. Serious alarm bells ought to be ringing when someone who is there to supposedly protect the bank can earn big money from taking significant positions themselves. That's just pure idiocy.

[url=http://liberalconspiracy.org/2012/05/18/will-jp-morgan-be-able-to-walk-away-from-billion-dollar-losses/Looks like the losses could be considerably more than expected[/url

Also looks like JP Morgan have been deliberately downplaying the scale of the potential loss too.

I agree. I would have no problem if these people got paid very high basic salaries with bonuses banned. I am convinced it is the bonus culture that drives these people to take greater risks. The fact the banks encourage that by coming up with bonus pay structures that give such massive rewards is bonkers.

The bonus culture is just wrong IMO. A lot of US companies (not just banks) pay their staff a relatively small basic wage and "the rest" as a bonus and it is seen as a way of saving money because if the company doesn't perform they don't have to pay the wage. The trouble is the higher you get and the bigger the bonuses you can earn the more you will do to get that bonus. Cut a few corners? Why not! A bonus today won't be clawed back if the proverbial hits the fan down the line as a result of you cutting corners now.

It's just like commission based salesmen in IT. For years where I worked they were salaried. It took a long time to sell the systems we produced so the salesmen where salaried, paid well and so had a vested interest in making a good sale - not promising stuff that could not be delivered to pick up commission (which is what happened when we got taken over and the new management switched to commission based sales).

To be honest I am surprised anyone is shocked these things happen given there is every incentive to take the risks.