Should Anything Happen...

[lizbethrose]

...to Jamie Dimon and/or JP Morgan Chase? Jamie lost $2b because of a 'wrong bet' on a hedge fund. The problem is, he wasn't using his own money to back his bet--he was using people's money. Will he be prosecuted, or will it simply be shrugged off as a 'losing bet?'

So far, the loss seems to be of little concern. Should it be? Should huge international banks be regulated or are they considered too 'big to fail' without regulation? How can as complex a financial system as JP Morgan Chase be regulated? How can an equally complex Wall Street be regulated?

If it can and should be regulated, does that mean it should follow the rules of an international financial regulatory board? Or should it be left up to ineffectual US Federal Government regulatory boards?

Either way, how would any regulation be enforced--policed, iow?

[Duality]

Just keep your monkey on it's leash. Not like That.


Thats more like it. -

[James L Walker]

Rumor has it that two billion dollars is just the surface where it could exceed as much as sixteen from my sources. Then there is added derivative exposure also.


The risk exposure could be huge. A lot of people are keeping their eyes on the show.

[lizbethrose]

Rumor has it that two billion dollars is just the surface where it could exceed as much as sixteen from my sources. Then there is added derivative exposure also.


The risk exposure could be huge. A lot of people are keeping their eyes on the show.

Yet, last I read Jamie Dimon will get to keep his 25M as CEO . .

[James L Walker]

Rumor has it that two billion dollars is just the surface where it could exceed as much as sixteen from my sources. Then there is added derivative exposure also.


The risk exposure could be huge. A lot of people are keeping their eyes on the show.

Yet, last I read Jamie Dimon will get to keep his 25M as CEO . .

Of course he will. He is in bed with the FED.

Were talking about the guy that is also in charge of the New York federal reserve as it's head.

[James L Walker]

Looks like JP Morgan Chase & CO might just collapse after all creating a tidal wave ripple effect everywhere.

Burn mother fucker burn.

[Carleas]

What does the size of the loss have to do with anything? The market fluctuates, people investing should know that there is a possibility of losing money. Unless they were defrauded, what's to punish? Perhaps it was unwise to invest through an organization whose CEO gets paid either way. That does seem like the wrong incentive structure, and one it seems obviously should be avoided. But it hardly seems criminal.

[James L Walker]

What does the size of the loss have to do with anything? The market fluctuates, people investing should know that there is a possibility of losing money. Unless they were defrauded, what's to punish? Perhaps it was unwise to invest through an organization whose CEO gets paid either way. That does seem like the wrong incentive structure, and one it seems obviously should be avoided. But it hardly seems criminal.

The money lost was not due to investments but instead irrational speculation by hedging. Essentially JP Morgan lost money betting with other people's just like MF Global did last year.

Size has everything to do with it as it comes to basic mathmatics.

Should make for a interesting next four weeks.

The rumor is that the losses exceed far more than two billion dollars not to mention some think there could be seventy trilllion dollars of derivative exposure by JP Morgan.

[James L Walker]

Also:

Burn motherfucker burn!

[Carleas]

"Irrational speculation by hedging" is investing. I agree that hedge funds are a poor investment, but not everyone agrees and some people think they can beat the market. When they do, everyone's happy. When they don't, do we want to call it criminal?

Besides the fact that people have chosen these risky bets, investments like hedge funds are valuable by keeping money flowing to productive sectors. As long as the managers of these funds are incentivized to find sectors where more money will produce more value, the investments will tend to allocate resources efficiently. Punishing people criminally when they fail heavily disincentivizes valuable risk taking.

[James S Saint]

Encourage the naive to take more risks, so that we can make money, especially if they are merely risking other people's money.

[James L Walker]

"Irrational speculation by hedging" is investing. I agree that hedge funds are a poor investment, but not everyone agrees and some people think they can beat the market. When they do, everyone's happy. When they don't, do we want to call it criminal?

Besides the fact that people have chosen these risky bets, investments like hedge funds are valuable by keeping money flowing to productive sectors. As long as the managers of these funds are incentivized to find sectors where more money will produce more value, the investments will tend to allocate resources efficiently. Punishing people criminally when they fail heavily disincentivizes valuable risk taking.

It is criminal because they are using TARP or ZIRP money to place bad bets because if they fail they can just continue squeezing the federal governent through the reserve in having the populace perpetually bail them out. It stopped being about investments a long time ago and is now straight up gambling with other people's money.

What is it that the banks are giving back to society at large?

[Carleas]

What is it that the banks are giving back to society at large?

Liquid capital. When you want to start a business, buy a home, go to school, the banks lend you money depositied with them by the government or by other people, and you give it back as your investment pays off. Investments allocate funds among businesses when they expect businesses to produce more value in the future, so if e.g. a company wants to expand to a new sector or region, it can seek investments by e.g. selling shares, and if investors think that the prospects are good that the expansion will produce value, they can allocate their funds there. Hedge funds theoretically farm out the time intensive process of evaluating investments to people who specialize in it (though people overestimate how much expertise plays a role).

So, in short, the banks provide liquity, which makes the production of value easier. Sure, we should curb the extent to which the government creates a floor for banks, but that's different from completely diong away with the banking system.

[turtle]

looks like morgan-chase was speculating not investing...that is ok as long as federal funds [my money] are not used for a bailout...those bailouts were setting a very bad example....corporations and persons need to be held responsible for their behavior....

[James L Walker]

To Carleas:

Liquidity is the last refuge of scoundrels. Is there such a thing as too much liquidity?

All this trading creates nothing, creates no value, and actually subtracts value.

I have read from one source that 0.05% of the actual activity on wallstreet goes toward investment. Think about that for a moment.

There is more speculation or gambling as I like to call it than there is investment on wallstreet. Even worse they are gambling with other people's money.

It is all one rigged casino where other people's lives are gambled away because let's face it when we are talking about a economy we are talking about the lives of people at stake.

How is that Keynesian economic theory working out for you?

[Carleas]

Liquidity is the last refuge of scoundrels. Is there such a thing as too much liquidity?
All this trading creates nothing, creates no value, and actually subtracts value.

There can be too much, or at least too much confidence in it. If additional liquidity were added by people saving (i.e. not expending the value they create), I don't think there could be too much liquidity. But when liquidity comes from lending the same dollar again and again, there can absolutely be too much. But liquidity does create value. A simple example:
Jana has a car that's broken, it will cost $1000 to fix. Jana has no job, and not enough money to fix her car. In order to get a job, she needs the car so that she can drive there. With no liquidity, she can't get a job, so she stays at home and produces no value. If she takes out a loan for $1000, she can fix her car and get a job, produce value for the business that hires her and earn money to pay off the loan. The bank makes money lending the money, Jana gets out of a rut, and the business gets an employee.
This is a simple example, but it's an example of how liquidity can quickly resolve a situation that would otherwise at best drastically decrease the value output of society.

How is that Keynesian economic theory working out for you?

There's a difference between the liquidity and government attempts to manufacture it.

[lizbethrose]

Jamie Dimon did nothing illegal--I didn't say he did. His company gambled (and I think all stock holders' investments are gambles) on a hedge fund and lost. It's his ultimate responsibility to ensure his company's gambling pays off--he didn't do that. His salary is guarantied, despite his company's loss, so he really has no incentive to do anything other than business as usual. By giving JPM-C tax payers' money--$25B--as a 'bail out' because it was 'too big to fail'--but not putting any restrictions on the use of that money, did JPM-C do anything to 'stimulate' the economy by making loans easier and cheaper? Did any of the banks too big to fail do that?

Banks can charge 30% in interest and fees on a small, personal loan, depending on your ability to repay the loan. If you need $1000 to fix your car in order to use it to look for work, your total charge for that loan will be higher. How does that answer the 'liquidity' question?

Do banks need to be regulated or do bank fees and interest rates need to be regulated?

[Carleas]

It's his ultimate responsibility to ensure his company's gambling pays off--he didn't do that.

He didn't, so maybe he should be fired, but you ask if he should be prosecuted. If he did nothing criminal, the answer is clearly no.

What you seem to be saying is that we should be upset with the deal the banks got. I agree, the incentives were poorly aligned, the loans werent' restricted in such a way that they were limited to the sorts of uses that would be most helpful, and the people responsible weren't faced with the consequences of their poor decisions. But that is a crime to be prosecuted at the ballot box. JD made a good contract for him, he did so without breaking any laws, and he played his hand as he should have been expected to. His benefit from the stupid agreement we entered into doesn't make the contract void, or him punishable. Our recourse is to punish the people who were supposed to make good contracts on our behalf.

If you need $1000 to fix your car in order to use it to look for work, your total charge for that loan will be higher. How does that answer the 'liquidity' question?

The liquidity itself is valuable. If I'm stuck at home, and thus unemployed, I will be at $~0 in perpetuity. If I borrow 1000, and have to pay back 1300, if I can get a job that pays 1000 a month I'll pay it back in a month and half, and after two months I'll be better off, even though I had to pay extra to get there.

On the other side, the bank lends you money. The people who own that money could use it for any number of things. They could start a business, get cosmetic surgery, or buy a whole lot of ice cream. Instead, they choose to postpone the benefits of spending that money, and in exchange they get paid interest. The bank, in theory, provides the service of connecting the money to its valuable use, thereby earning the difference between the interest they charge and the interest they pay.

Do banks need to be regulated or do bank fees and interest rates need to be regulated?

Neither. Instead, we should scale back guarantees on bank debt to discourage aggregation. We should decrease regulation to encourage competition. And we should prosecute fraud and let people enter legitimate contracts freely, and let the market sort it out.

[Contra-Nietzsche]

I'd sooner sign up with a Islamic bank bond than trust a bank loan or seriously pursue interest as a means of becoming richer. The Islamic system won't bust a business, they pay if they can, no foreclosures, etc.

Also..... know this woman isn't gonna get a 1000 bank loan for fixing her car..... no bank will loan someone that low on the totem.

Should he be prosecuted though? No. Not if he did this within the budget allotted to him as a investor... it's a corporation. Now, if he secretly was betting company assets and made everything fuzzy so the accountants couldn't figure out the money trail, only to tell them when if succeeded and get the credit (assuming this case fail- on one invests that much expecting to fail).... yes. Even if he succeeded, still should be prosecuted.

However, the entire system is inherently unstable. Yes, the individual assessor can look at a loan application, and use sound judgment as to whether it's good or not to loan (as I said, that lady trying for the 1000 loan is screwed..... crying that you'll lose you job will only send up more red flags to the bankers) but there comes a point where the regional capacity will begin to systematically choke up if the economy isn't growing at a faster rate than the loans are being issued. If everyone jumps on the banking bandwagon, from individuals to corporations, then we end up with a economic paradox of interest being generated every damn time money is transacted electronically, taxes being taken out, and somehow profits by the banks are being made. We peons make like 6 percent interest if we're lucky, but most never notice it.

Unfortunately, we all bought into it, and it's fucking us hard, and the banks are not in the position of the corps of engineers, the insurance agencies, and the military, and individual police forces, and geologists and a assortment of others who each have a separate segment of the puzzle as to how to make loaning viable in a environment where banking itself powers the engine of economics. It's damn difficult, and the best solution we have are communist saying 'oh hell, we got this guy name Ted, and he's really smart, and he'll figure it all out, and will make everything work until we become a utopia and Ted won't be needed anymore.... we swear and promise this is the truth'.

No..... that crap never works out all that well. Every government administration, no matter it's ideology, has to take off from psychological cues- the needs of those in power, those who abide, and those who become the points of friction, purposely or accidentally. It usually turns out in the end the vast majority of the population falls under friction in the end.... though they will have it that it just takes a little re-education and a occasional, isolated shooting to make this happen- such as the mythological story that the Russian revolution under Lenin only had 17 casualties. Yeah....

So.... if we accept loans are good, and encourage everyone to join in, then we gotta deal with making the traffic go, and the water run, etc. Seems simple, we already do this, right? Yeah.... but so much fails, so much breaks down, and more and more funding is required, and people do odd things when they see something they want, or go out of their way to avoid a pitfall they can see in their microcosm the bigger picture isn't picking up on.

Ultimately, a little chaos in the machine is needed to keep it functioning, in the same way a little chaos in a city is required to keep it from being overrun by thugs and paramilitaries hacking the system. Economics require the ghetto, if we are to have the city. Requires the thieve if we are to have the tie. It's because of the impulse to become more exacting, and the disregard to consider the larger effects when others follow suit. We're exiting the goldie-locks zone of bank-centric economics.

[lizbethrose]

It's his ultimate responsibility to ensure his company's gambling pays off--he didn't do that.

He didn't, so maybe he should be fired, but you ask if he should be prosecuted. If he did nothing criminal, the answer is clearly no.

What you seem to be saying is that we should be upset with the deal the banks got. I agree, the incentives were poorly aligned, the loans werent' restricted in such a way that they were limited to the sorts of uses that would be most helpful, and the people responsible weren't faced with the consequences of their poor decisions. But that is a crime to be prosecuted at the ballot box. JD made a good contract for him, he did so without breaking any laws, and he played his hand as he should have been expected to. His benefit from the stupid agreement we entered into doesn't make the contract void, or him punishable. Our recourse is to punish the people who were supposed to make good contracts on our behalf.

If you need $1000 to fix your car in order to use it to look for work, your total charge for that loan will be higher. How does that answer the 'liquidity' question?

The liquidity itself is valuable. If I'm stuck at home, and thus unemployed, I will be at $~0 in perpetuity. If I borrow 1000, and have to pay back 1300, if I can get a job that pays 1000 a month I'll pay it back in a month and half, and after two months I'll be better off, even though I had to pay extra to get there.

On the other side, the bank lends you money. The people who own that money could use it for any number of things. They could start a business, get cosmetic surgery, or buy a whole lot of ice cream. Instead, they choose to postpone the benefits of spending that money, and in exchange they get paid interest. The bank, in theory, provides the service of connecting the money to its valuable use, thereby earning the difference between the interest they charge and the interest they pay.

Do banks need to be regulated or do bank fees and interest rates need to be regulated?

Neither. Instead, And we should prosecute fraud and let people enter legitimate contracts freely, and let the market sort it out.

I don't believe I asked if he should be prosecuted--how can he be when he's done nothing illegal? Instead I asked of banks need to be regulated or do bank fees and interest rates (on loans) need to be regulated? You say, no-- we should scale back guarantees on bank debt to discourage aggregation. We should decrease regulation to encourage competition. The way things seem to be going now, with uncontrolled loan fees and loan interest rates, the only market competition appears to be which banks will loan money to already rich people with which they can speculate. I know, I know, that can be taken as an absurdity, but is it, really?

In the case of Chase, we have no idea if the money used in JD's bet was our tax-payer money, investors' money, or bank profits. And the $2B loss doesn't affect JD at all--he's still going to get his multimillion dollar salary.

BTW, have you noticed how this story has simply slipped out of sight?

[Contra-Nietzsche]

Chase has the money to insure it won't go bankrupt.... so it's not too big a issue. Yes, 2 billion, but divide that by the number of cities over 500,000 in America (minus alaska and hawaii). Not that much. Just don't want this sort of thing happening alot.

[Carleas]

Also..... know this woman isn't gonna get a 1000 bank loan for fixing her car..... no bank will loan someone that low on the totem.

Well, first, I was only presenting that anecdote to show how liquidity is beneficial, even if it wouldn't happen practically the same principles are transferable. But a bank probably would give someone like this a loan if they were less restricted. Microcredit institutions in the developing world are successfully lending small amounts to poor people.

Also of note, a credit card is basically a small pre-approved loan. If the woman could get a credit card with a $1000 dollar spending limit, it would be functionally the same thing as getting a loan: she could fix her car and get a job and then pay off the card.

the only market competition appears to be which banks will loan money to already rich people with which they can speculate.

Same point as above. Regulation increases the cost of doing business, making small transactions less worth it. Banks lend to the rich because the rich are likely to be able to pay back their loans and the expected return is therefore higher. For small loans to poor people, there is an opportunity to set up a business that makes loans available at fair prices, but regulation makes that less likely. A lot of the laws that are meant to protect vulnerable groups have the perverse effect of simply drying up the services that they're meant to make safer.

[lizbethrose]

liquidity is certainly beneficial--if you're a small business owner and need the cash flow to carry you over lean times. This wasn't your example, however. Creation of debt, if you have the ability to pay off the debt, is a part of business. It's called deficit spending. Individual deficit spending is called 'going into debt.' But the thread was meant to show how American's appear to treat gambling on the stock market.

I.E., If you pay taxes, your money becomes Federal money and you have no control over how it's spent. If you invest, you've given your money to a broker and have no control over how it's spent.

Tax payers aren't going to sue the Federal Government for using our money to fight useless wars in Iraq and Afghanistan (we hired our politicians to look out for our welfare) and investors aren't going to sue Morgan-Chase or Jaimie Dimon because they were using investors' money to gamble (the investors hired the broker and the bank.)

Is it this sort of thinking that's led us into both public and private debt?