It seems that JPMorgan Chase established such a HUGE position in this derivatives market that they now can't exit these trades... without driving the prices even lower. According to this
Bloomberg report, the potential loss from this "hedge trade" now stands at roughly
$5 billion! :eek: From $2 billion to $3 billion and now, in less than a week, $5 billion?!
Exotic derivatives are WAY above anything that I've ever done. On occasion I've traded options... but usually just generic covered call trades to protect a long stock position, or put trades that were established instead of trying to short a stock. But when I heard Warren Buffett say that even he didn't fully understand some of these "synthetic derivatives" back in 2009, that told me that semi-traditional banks have NO business playing in these markets with depositors' money!
Despite the faux libertarian chatter from people like Michelle Caruso-Cabrera, no one is suggesting that the largest banks be restricted to only making "little, tiny loans". She is such a clueless, hyperbolic wingnut (she has the tits for Fox Business News... too bad she got beaten by an ugly stick at birth - so I guess they won't pick her up). But as the same talking head who questioned the end of capitalism the Friday before the stock market took off on a bull market run,
that no one in my generation has ever seen, all I can say about her is, she should be happy that CNBC pays her, despite her not having as much sense as an empty thimble.
I thought a hedge was supposed to limit the risk on an an overriding position - not establish
more risk than the overriding position. But what do I know?
JPMorgan Chase & Co. (JPM)’s loss from derivatives trading may widen to $5 billion, the Wall Street Journal reported.
Chief Executive Officer Jamie Dimon personally approved the strategy that led to the trades, without monitoring how they were executed, the newspaper said, citing people familiar with the matter that it didn’t identify. His failure to closely regulate that activity caused resentment among executives whose departments face tighter oversight, according to the Journal.
JPMorgan last week announced a $2 billion trading loss on synthetic credit products, or derivatives tied to credit performance. Dimon said the transactions, intended to manage risk, were “egregious” failures by the bank’s chief investment office. JPMorgan has said the amount could increase by $1 billion or more as it winds down the positions.
Joseph Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on the $5 billion estimate.
