JPM) cannot escape its enormous loss on a credit derivatives bet gone bad.
The London Whale trade, as it is informally known, was originally reported as a $2 billion loss. But now The New York Times has reported the loss will total $9 billion -- and maybe more.
But Money Morning subscribers were well aware of the possibility JP Morgan's losses would exceed $4 billion or $5 billion. Money Morning Capital Wave Strategist Shah Gilani repeatedly said this "hedge" was really a bet, and was among the first to predict how large the losses would eventually turn out to be.
Gilani, who hosts the radio show "On the Money!" in addition to his Money Morning duties, had this to say about JP Morgan's ill-conceived bet:
"What it does is shine the light on what is actually happening. It's not the loss in terms of the money, it's the loss in terms of faith for [CEO] Jamie Dimon, that he has been pushing hard against the regulators... in particular to the Volcker Rule, saying there is no need for it and it and that banks have a good handle on their risk... and that we (JP Morgan) don't have a problem with it because we are just hedging."
Just hedging? Gilani certainly doesn't think so.
Gilani said that statement is a flat-out lie and that Dimon has basically lied to Congress in his testimonies over the past weeks.
In the testimony before the House Financial Services Committee last week, Dimon said the London unit had "embarked on a complex strategy" that exposed the bank to greater risk even though it had intended to minimize risk.
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JPM Losses Get Worse and Worse
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Credit Default Swaps:
Why Washington Ignored Our Warning
Three years ago, I told you that Wall Street's newest invention - credit default swaps - would cause a major financial crash.
Now, I'll concede that credit default swaps (CDS) weren't the only cause of the financial meltdown that brought about the collapse of Lehman Brothers Holdings (OTC: LEHMQ) and nearly brought down American International Group Inc. (NYSE: AIG). But these financial derivatives were a major exacerbating factor - which is why I also warned that credit default swaps should be banned.
Just three years later, we're embroiled in yet another financial crisis. But the stakes have grown: This time around we're talking about entire countries - and not just banks - defaulting on their debt. Not surprisingly, credit default swaps are once again at center stage.
Just yesterday (Monday), in fact, the possibility of a Greek-debt default drove spreads on Western European credit default swaps up to record levels, providing even more profits for those speculating against the overall health of the Western financial system. Those profits for speculators increase the overall losses in the world financial system whenever something goes wrong, creating the possibility that even moderate "credit events" could collapse the whole shaky edifice.
If Washington had heeded my warnings back before the first global financial crisis, you and I would be much better off today.
Now, I'll concede that credit default swaps (CDS) weren't the only cause of the financial meltdown that brought about the collapse of Lehman Brothers Holdings (OTC: LEHMQ) and nearly brought down American International Group Inc. (NYSE: AIG). But these financial derivatives were a major exacerbating factor - which is why I also warned that credit default swaps should be banned.
Just three years later, we're embroiled in yet another financial crisis. But the stakes have grown: This time around we're talking about entire countries - and not just banks - defaulting on their debt. Not surprisingly, credit default swaps are once again at center stage.
Just yesterday (Monday), in fact, the possibility of a Greek-debt default drove spreads on Western European credit default swaps up to record levels, providing even more profits for those speculating against the overall health of the Western financial system. Those profits for speculators increase the overall losses in the world financial system whenever something goes wrong, creating the possibility that even moderate "credit events" could collapse the whole shaky edifice.
If Washington had heeded my warnings back before the first global financial crisis, you and I would be much better off today.
To continue reading, please click here ...
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