Dancing With Derivatives 'Pas De Deux'

The newly coined phrase, from Maureen Dowd of the New York Times comes from the latest two-step by Jamie Dimon, CEO at JPMorgan, where he managed to orchestrate Wall Street's latest big bank debacle.  He'll soon be "Dancing with the Stars" in front of congress explaining his mis-adventure that created a $2 Billion trading loss, which could exceed $3 Billion when the dust settles, from a credit-default swap deal gone wrong.  Keep in mind that these are the same derivatives that helped trigger the financial crisis - sans mortgages.  Even though Ina Drew, JPM's Chief Investment Officer immediately got the ax, there will surely be more hell to pay before this is over.

Scheduled to appear in front of Congress in the spring, Dimon this week apologized to the bank's shareholders for the loss. "This should never have happened. I can't justify it. Unfortunately, these mistakes are self-inflicted," Dimon said at JPMorgan's annual meeting. And he later told reporters, "The buck always stops with me."

News of JPMorgan's 
trading loss has reinvigorated the Democrats' push to strengthen a key rule (known as the the Volcker Rule) mandated under the 2010 regulatory overhaul that would restrict banks from trading for their own profit.


Dimon has been among the most outspoken critics of the rule. He says "their recent loss came from a hedging strategy that backfired, and not a bet with the bank's own money. Whose money was it then I wonder?

He and other bank executives successfully pushed for an exemption, which would allow banks to make trades for their own profit if they are hedging against risk.

"They simply got caught short" said one anonymous trader. While J.P. Morgan shareholders continued to back Dimon, Washington isn't quite as forgiving given the huge bank bailouts recently granted.

The good news is this latest loss only wiped out about 1% of the firm's capital. Even with a $2 billion write-off the bank reported $190 billion as equity in its just-released first quarter 10Q. Dimon also said that the bank would still earn around $4 billion for the quarter, versus $5.4 billion last quarter.

Too big to fail, you bet! But what would you do?


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