The other day during a somewhat intensified news scan to try and understand the 2012 JPMorgan bank scandal, I got to thinking about sharks and barracudas. This was aided when I happened across an article about a German women that was attacked by a sharkwhile on vacation in Florida. Although it seems she will survive the attack, she has lost a large amount of flesh and tissue of the lower part of one of her legs and it will probably end up being amputated. Then I thought about how much experience I’ve had with these animals – and not just sharks. For example, I grew up near a beach and there were regular shark attacks. There was also a glorious moment where I swam near a four meter long white tip shark after interrupting it’s hunt for a yellow fin tuna while scuba diving in the red sea. And then there was the time, while fishing in the Florida Keys, my sister hooked an adolescent hammer head that was about a meter and half long. When we finally got the animal aboard we had the daunting task of getting the hook out of it, which it had swallowed. In the mean time another fisherman hooked a barracuda that was larger than the hammer head. Both fish were squirming around on the deck of a fairly small boat and there were feet and legs all dancing around trying not to get between sharp teeth and clapping jaws. Suddenly, with a quick lash, the barracuda just missed a leg and latched on to the mid section of the shark. The barracuda tasted blood and turned frantic, instantly killing the hammer head. At that point we gave up on getting our hooks back and decided to just throw them both overboard. The problem was the barracuda wouldn’t let go of the shark. We couldn’t lift both animals while they still had hooks, lines and fishing poles attached to them. The only way to get to them was to kill the barracuda. I will never forget the intensity of the moment where I knew that the barracuda lusted to devour that shark – and he seemed glad to give his life to do it. Then someone grabbed the trusty baseball bat. Even dead the barracuda didn’t want to let go. But we eventually did get our hooks back.
I’m upping the position of William Black’s book “The Best Way to Rob a Bank Is to Own One” on my reading list. Reason. Black seems to have a grasp of the intricacies, or perhaps better put, the mechanics of what’s actually behind the recent JPMorgan multi billion dollar derivative loss. But this makes me wonder if there’s something more, something so complex that it can’t be explained. Here’s what Black has to say:
JPMorgan had about $15 billion in distressed European debt. … Europe has been in just a ton of trouble. And so, those investments were losing all kinds of value. Now, the story, which, again, doesn’t make a whole lot of sense, is that they decided to hedge this position. A hedge is something where you invest in a second asset that is supposed to offset losses that you suffer in the first asset. In this case, the first asset was that distressed European debt, and the second asset, the supposed hedge, was a derivative of a derivative. In this case, it was an index of credit default swaps, which are a form of derivative that blew up AIG. Now then, the story gets even murkier, but it—the claim from out of JPMorgan is nobody was looking very carefully at the supposed hedge, and the hedge didn’t perform to offset losses, instead it increased the losses and increased the losses dramatically. And supposedly, no one was looking, and no one adjusted for this. And they woke up, and they had a $2 billion loss. (Source: DemocracyNow transcripts)
Here’s what’s important about this statement. The wild claim that the hedge JPMorgan was making to counter their distressed European debt investment using a derivative of a derivative leads to one question: What did JPMorgan do with their bail out money? Of course, with such a question, I’m making the wild assumption that the bail out money was for dealing with the huge amount of bad investments all the banks were stuck in. Hence this trade was JPMorgan’s attempt to find another way to get out of a mess riding on the back of someone else, i.e. the standard, status-quo Wall Street way of doing things. The problem is that no matter what trickery Wall Street comes up, these banks are gonna have to face reality eventually. That may also mean that the debt problem American’t has is approaching an unmanageable state and not even these monstrous banks (and their trickery) can handle it – with or without being bailed out. I wonder if it’s possible that banks and Wall Street have actually been lying to our government concerning reality (sarcasm off).
Now. What is a derivative of a derivative? A derivative can be a credit default swap. But a credit default swap isn’t good enough. All these really, really smart bankers like Jamie Dimon of JPMorgan must think anew. Remember, if they can’t get more carpet to sweep under then they will find something or some place else to sweep the krapp. And guess what they’ve come up with to help them do this? You guessed it. Credit default swap index. Things any clearer for you now?
A credit default swap is a form of insurance against a default on an investment. Adding “index” to it means that you’re basically just bundling a bunch of credit default swaps. Ok. Credit default swaps are used to insure investments like bonds. A bond subsequently can be a vehicle that can contain things like subprime mortgages. A bond can also contain the debt a country or state gets when it finances the building of a bridge or taking care of a city. But let’s focus on mortgages. As we all know, subprime mortgages played a major role in the economic meltdown that culminated in 2008 and surprisingly coincided with the glorious ending of Bush’s reign. As most are unaware, these tricky-dick investments are basically being used to prop up the American’t lie regarding life, liberty and the pursuit of being stupid. Hence, American’t can continue doing what it does best: finding the easiest way to make a buck off the back of others without actually working hard for it. Flash to the present and what we have are same-as-usual and too-big-to-fail banks that still haven’t really dealt with the main problem they facilitate and are unable to quit, namely, debt.
The truly amazing thing about JPMorgan and its recent loss is that it will probably be posting huge profits at the end of 2012 – regardless of how much it loses in these trades. The reason for that is it is literally experimenting with whether or not it can dump on a sucker nation or über-investor any of it’s junk debt made up of American’ts way of life. Is there a sucker in this world of trading nut jobs that is willing to take on this kind of stuff? My guess is that JPMorgan tried to get a country to take either its distressed European debt or – and this is what hedging is all about and what JPMorgan really wanted to do – its derivative of a derivative – a credit default swap index full of American’t mortgage debt that is part of all the housing foreclosures that is now the basis of American’ts economy.
But what sucker could or would take on such a trade as what JPMorgan was offering? Here we have a game where sharks and barracudas are gonna get it on. In the second segment of the interview with William Black at democracynow.org, he blatantly blames “The Germans” for Europe’s problems and he does it in a way that got me thinking. He claims that the Germans are holding too tightly to austerity for the Eurowasteland countries that are failing. Such a statement makes my head spin. The reality is all those countries agreed that they would hold their deficits to a set percentage of GDP. It’s now common knowledge that the failing countries systematically lied about their debt the whole time. What he doesn’t mention is the fact that if Germany doesn’t hold to austerity then it will have to be the one, by default, to pay for all those failing countries. And the reason for that is simple: Germany, relatively speaking, has a functioning economy that isn’t completely dependent on debt.
Now. This might come as a surprise but I have to speculate here. Obviously all Eurowasteland countries have serious debt problems. Some more than others. Is it possible that JPMorgan has finally run into a wall regarding its tricky-dick antics? Also, is it possible that JPMorgan has literally run out of betting partners? Remember, it was trying to dump its “distressed European debt” and if that wouldn’t work it was then gonna cover it’s ass (hedge) with dumping its derivative of a derivative – which didn’t work either. Isn’t this a blatant example of trying to negatively manipulate the Euro? In the one hand it had Eurowasteland debt that it couldn’t sell and in the other hand it had American’t debt. What? No buyers?
To go even further, as bad as things are in Eurowasteland, there are parts of it that are relatively thriving, especially if you speak German. It is common knowledge that what JPMorgan and other investment banks are doing is nothing but gambling. The thing that people forget is that, unlike Vegas, tricky-dick investment banking requires that two parties participate in each bet. In other words, you’re not betting against cards or dice or a small ball finding its number on a spinning wheel. Two entities have to stand across from each other and gamble. In this case, no one was willing to stand across from JPMorgan and so it lost in excess of $2billion dollars. So I have to ask: who was on the other side of this bet? Who kept turning down the trader that was begging to dump all this junk? Ultimately, the answer to that question probably doesn’t matter. This is all just no big deal because the apathetic American’t voting constituency is more than willing to support its oppressor, the JPMorgans and other wall street institutions that got us all in their jaws.
Personally, I’d rather go hang out with sharks and barracudas.
- Karin Ulrike Stei, German Tourist, Attacked By Shark In Vero Beach, Florida (VIDEO)
- JPMorgan’s Trading Loss Said To Rise
- Credit default swap – Wikipedia, the free encyclopedia
- Credit default swap index – Wikipedia, the free encyclopedia
- Bush Tells American’t To Go Shopping For 9/11
- 2012 JPMorgan Chase trading loss – Wikipedia, the free encyclopedia