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Post Info TOPIC: JP Morgan loses $2 billion


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Date: May 18, 2012
RE: JP Morgan loses $2 billion
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yes, I know they got bailed out a few years ago and I am aware it was under GWB. I only mentioned Obama b/c I read an article that said he has personal money in JPM. I read what I can, but it's very difficult to find a "news" article that does not have a biased lean to the left or right. Even the former stalwarts of American journalism have quite clear political leanings.

I appreciate your explanation. I am by no means a financial expert. Now my question is: how can something (JPM) be insured by something (FDIC) that doesn't have enough money to provide the insurance?

My personal belief is that commercial banks should be lending money to people and companies. They should not be playing in the derivatives market. If they want to play in that market, they shouldn't be backed by the taxpayers. My understanding is that the Glass-Stegall changes in the 90s were a bipartisan effort.

I am very clear about how precarious the financial system is. And I appreciate and understand the losses that older Americans have incurred, but houses should not automatically double in value every 10 years. Older Americans did not save any of their own money (as a whole) and just spent spent spent.

In 1990, the stock market (djia) was at approximately 2500. It hit 12000 before the tech bubble (almost 5x ROI), over 14000 before the 08 crash (almost 6x ROI) and is now at 13000. It's a shell game. You "had" money that never actually existed. It was propped up by bubbles.

Unless you are going to tell me it is fair for me to expect the stock market to hit 60000 by 2020 or 84000 by 2030, it's hard for me to be sympathetic. My generation missed out on the huge booms (bubbles) that your generation used to multiply their wealth by 4/5/6 times over 10 years (or 20 years). Meanwhile my generation can save via a CD at 1%, or invest in the stock market when it is close to its all time high. Neither of those are especially attractive options.

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Date: May 17, 2012
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"I appreciate your explanation. I am by no means a financial expert. Now my question is: how can something (JPM) be insured by something (FDIC) that doesn't have enough money to provide the insurance?"

The FDIC's insurance funds has been severely depleted by failed banks. It is thought that the bigger banks have better checks and balances and therefore the fund does not need reserves to cover big bank depositors. Further, corporations/people with big deposits are not insured by the FDIC. 

So since the Banking industry does not have enough insurance funds, and the Government is loathed to bail banks out for "moral hazard" a compromise is reached to Regulate the Banks-IOW, To share the blame. 

Does anyone want to get rid of the FDIC, bank audits, good lending practices-all of which cost banks (you in deposit yield and loan fees)? 


-- Edited by longprime on Thursday 17th of May 2012 11:42:24 PM



-- Edited by longprime on Thursday 17th of May 2012 11:44:35 PM



-- Edited by longprime on Thursday 17th of May 2012 11:51:26 PM

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Date: May 17, 2012
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You concern is a concern of the Democratic MOC. The Republicans MOC fought the Dodd-Frank Act and still fight its rule determnation and implementation on the banking, insurance and securty industry on the premise of excessive government intrusion and rules that impede commerce. 

We all live in a world of leverage and derivatives. (sung to Yellow Submarine, Beattles).You're finishing your academic degree is a derivative of the future expectations of making a success in your field. If you are financing your education  then this is a second derivative to the degree and its future earnings. Do you have enough backup money or other skills (the insurance) to recover if you fail in your first career job?-So you see its all leverage and derivatives. The more confident you are, the bigger the derivative and possibly the bigger the risk to you. The political questions are; Do you regulate, How do you regulate, and if you do regulate will it achieve its purpose? 

Why are you lamenting missing the past economic booms? We are just starting another cycle. For those with money and foresight, [they] will make money (Rich get Richer).

Some pretty good books by Peter L Bernstein, Martin Mayer, Options Council



-- Edited by longprime on Thursday 17th of May 2012 11:33:05 PM

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Date: May 17, 2012
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soccerguy315 wrote:

if the only options are keep giving taxpayer money to Wall St. or the economy crashes, then the economy needs to crash. The sooner the better. We need to stop living bubble to bubble.


 You are just starting your work life and still in college in 2008. Middle America lost 40% of their wealth if they had IRA, 401ks, investments other than RealEstate. This family lost 40% of our wealth that was 50%/50% equity/bond (balanced Mutual Fund based) Late 50's age. If you had realestate, you lost even more $$$$ in unrealised and possibly realized wealth. 

You should read MainStream Media financial articles in 2001, where people where moving money IRA and investing new money into RE because of the TechBubble burst of 2000. 

I don't know if you are aware how us older citizens are afraid of investing, spending money of any kind. Because us Boomers are holding what remains of our wealth, it is no wonder why this USA economy is not moving. 

You have no idea on how precarious our financial system still remains. 



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Date: May 17, 2012
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BTW. 

Stop reading / listening to hate media from either parties. 



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Date: May 17, 2012
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First thing: The Money's that bailed out the banks, came from GWB era. October 2008. Don't you remember when the Henry Paulson (US Treasury sec, 2006-2009, formally of GoldmanSachs ( http://en.wikipedia.org/wiki/Henry_Paulson ) told Congress that if they didn't approve of TARP (written by Republican Treasury officials) that the US and possibly the World's economic systems may collapse by the next week. http://en.wikipedia.org/wiki/United_States_Emergency_Economic_Stabilization_fund

JPMChase is a retail/commercial bank that takes deposits (Chase and banks aka Washington Mutual Savings). FDIC. I don't think there are anymore "investment banks" since their demise in 2008 or their conversion into a bank holding company (Goldman). 

The Dodd-Frank Financial Reform Act 2010, again separated the Insurance, Banking, and Trading entities (Glass-Segall Act 1933). http://banking.senate.gov/public/_files/070110_Dodd_Frank_Wall_Street_Reform_comprehensive_summary_Final.pdf

The summary: " Create a Sound Economic Foundation to Grow Jobs, Protect Consumers, Rein in Wall Street and Big Bonuses, End Bailouts and Too Big to Fail, Prevent Another Financial Crisis"

So now we come to the explanation on why JPMChase is a big deal; Theoretically JPMC is prohibited in proprietary (own account) trading and must keep a capital ratio no worse than 15:1 (prior ratio was 10:1) (modern fractional banking). From known information, JPMC wanted to hedge their loan portfoilio (meaning that they were betting that loan portfolio may lose money-ie bad lending, bad underwriting, bad management, inflation). Rather than syndicate their loans, they went into the derivative markets where one can win big with very little money down OR lose catastrophically if you bet wrong (liar loans 2003-2008, no doc, alt-A mortgages and BearStearns-Merrill Lynch leveraging 30+:1, WaMu, etc). The hedge itself is not illegal, probably a wise banking practice, but the type of hedge and the rapidity of the hedge turning against JPMC is alarming. A big enough hedge could have endangered JPMC and the intent of Dodd-Frank Act (prevention of Too Big to Fail banks)

A failure of JPMC would mean  that the retail depositors (Chase and former WaMu) would lose their deposits because there is not enough money in the FDIC (federal deposit insurance corp, which is funded by member banks and theoretically no longer backed stopped by the US Treasury/Federal Reserve)

Now do you see why this is a big deal. 



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Date: May 17, 2012
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longprime - doesn't JP Morgan lend money that people give them? I mean, I see that they have some of Obama's money...

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Date: May 17, 2012
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if the only options are keep giving taxpayer money to Wall St. or the economy crashes, then the economy needs to crash. The sooner the better. We need to stop living bubble to bubble.

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Date: May 16, 2012
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"john doe = the taxpayers only got the bill b/c the politicians all (both parties) came to help their buddies. the market doesn't work correctly if you can't fail and go bankrupt and lose the business. "

Yes exactly like 1929.



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Date: May 16, 2012
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You still have not answered the question of, Whose money does JPMChase lends? Once you have that answer then the other answers will follow logically.

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Date: May 16, 2012
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JP Morgan is backed by the fed? All the other investment banks are too then, I suppose?

Then my proposed solution is cut the tie. Those enterprises should not be backed by taxpayer money.

Is JP Morgan really that big? Do we need Teddy the trust buster to make another appearance?

john doe = the taxpayers only got the bill b/c the politicians all (both parties) came to help their buddies. the market doesn't work correctly if you can't fail and go bankrupt and lose the business.

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Date: May 15, 2012
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"This is a reason that private companies should be able to do what they want and if they lose money, oh well!"

and the taxpayer gets stuck footing the bill when the company blows up - oh well!



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Date: May 15, 2012
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why is this a big deal?

 

they are a private company right?  So they have their money, and they lost some?  Who cares?

 

This is not a reason that there needs to be more regulation.  This is a reason that private companies should be able to do what they want and if they lose money, oh well!



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Date: May 14, 2012
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Not exactly true.

Ask this questions:

Money that the bank lends out, is whose money? IOW, where does a bank get the money to lend or in this case "trade/hedge"?

JPMChase is NOT private. It is a public company (symbol JPM-NYS), chartered by the Federal Reserve Bank to be a National bank to other banks. It is also one of the biggest companies in the world. And if you own a mutual fund, or participate in a pension plan or have an IRA then you are nearly 100% an owner of JPM thru the plans. If you have a credit card, there is a fairly good chance that it is a Chase card. 

BTW, very good reading on the JP Morgan, Rockefeller, Jamie Dimond. Makes one proud to be an American. Really.biggrin

Come on, this is high school stuff. 

evileye

-- Edited by longprime on Tuesday 15th of May 2012 12:03:10 AM



-- Edited by longprime on Tuesday 15th of May 2012 12:11:05 AM



-- Edited by longprime on Tuesday 15th of May 2012 12:13:17 AM

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