BBC Interview with Nassim Taleb on JPMorgan

"It is one of the serious evils of our present system of banking that it enables one class of society, and that by no means a numerous one, by its control over the currency to act injuriously upon the interests of all the others and to exercise more than its just proportion of influence in political affairs."

Andrew Jackson, Farewell Address

Rational people keep struggling with the 'why' of all this. I think the struggle is because they start with some wrong assumptions about morally rational behaviour and motives. As Rick Santelli likes to say, traders are not moral when they are trading.

I keep coming back to William K. Black's explanation for this enormous attraction to multi-trillion dollar bets at JPM

"Financial institutions such as JPMorgan love to buy derivatives because they are opaque, create fictional income that leads to real bonuses and when (not if) they suffer losses so large that they would cause the bank to fail, they will be bailed out."

William K Black

The more I look into this and think about it, the more that Barack Obama's 'favorite banker' looks like Enron in their heyday.

I wonder how far the US will go to prevent the failure of their 'best bank' from spoiling the grand illusion, and how many lives of the poor and the middle class will be sacrificed to the god of greed and power.

CFTC Commissioner Bart Chilton On the Irony of JP Morgan's Trading Loss

"Financial institutions such as JPMorgan love to buy derivatives because they are opaque, create fictional income that leads to real bonuses and when (not if) they suffer losses so large that they would cause the bank to fail, they will be bailed out."

William K Black

When the next financial crisis occurs remember the things that Bart Chilton says in his op-ed piece below. Things like widespread bank fraud and a financial collapse do not just happen. Sandy Weill led a determined and well funded lobbying effort to overturn Glass-Steagall and open the public pocketbook for the banks. And his protege Jamie Dimon continues on with his work, with a lobbying effort and use of the courts to circumvent the return of sensible banking reform.

But this would not have been possible without the lapse in the stewardship of public figures in the Congress, the Executive Office, and private institutions like the media and the Federal Reserve.

The breadth of the fraud makes reform difficult, because the money flowing from the symbiotic relationship between the monied interests and Washington is a highly addictive drug to those for whom money brings power.

But reform will happen. It is just a matter of how bad it has to get before change comes.  The more the resistance, the more sweeping and powerful will be the change.    Corruption never lasts; even the great empires of history, so intimidating and seemingly insurmountable at the height of their power, have fallen.  

And so surely will a few recklessly selfish bankers, with their political hacks and corrupt enablers, fall in disgrace and eventually be forgotten, or if remembered, only as a warning, a tarnished stain on the enduring Republic of free people.

See also: How JPMorgan Is Like Enron

McClatchy
JPMorgan: Isn't life strange?
By BART CHILTON
May 17, 2012

By now, folks have heard much about the announcement that JPMorgan Chase had somehow lost $2 billion over a six-week period. In an irony of ironies, here's what one JPMorgan risk officer had to say about the behemoth bank just a few months ago: "Our metric of success is 'no surprises'; no surprises in terms of the impact on the firm of any individual behavior or outside event."

Hmm. Actually there was good reason to say that at the time as JP had just been named Risk Magazine's "Derivatives House of the Year." As the Moody Blues sing: "Isn't Life Strange?"

Here's a little perspective: $2 billion represents 10 percent of JPMorgan's profits for all of last year. In fact, $2 billion is more than four times the amount the U.S. government prints in one day. And, $2 billion over six weeks is more than $47 million a day!

None of this means we're going to have a repeat of the colossal calamity of 2008. But, it's scary isn't it? The "scary smart," "greed is good," "regulations are bad" folks on Wall Street may be flying below the clouds today.

But think about why. Here we are four years after the collapse of Bear Stearns, Lehman Brothers and AIG, and we're still working toward implementing the rules that Congress and the president put in place to keep another 2008 from happening, i.e. the Dodd-Frank Financial Reform and Consumer Protection Act.

The act itself has been around almost two years and yet, of the roughly 300 rules and regulations, less than a third have been completed - and that's 10 months after the mandated deadline. The JPMorgan announcement reminds us that our financial markets remain susceptible to the impact and contagion of these major market players. Maybe it's just the java jolt we need to wake folks up.


Lots of things have slowed the rulemaking process, not the least of which are lawsuits brought against regulators by the scary smart people. Remember, to some of them, regulation is a dirty word. Then there are those in Congress who never wanted financial reforms in the first place and are either trying to repeal them a piece at a time; drown regulators in their own version of red tape; or just hold back funding to the watchdogs who would keep an eye on the JPs of the world.

Four years ago, the economy was on the verge of collapse for two reasons: the high-flying, above the clouds captains of Wall Street and lax regulation. Is history repeating itself? I hope not and I don't think so, but scary it is.

Are we more secure now than we were when the economy collapsed? To some extent, yes. There's new transparency in markets that will allow us to see the kinds of things JP was doing to lose $47 million a day. But, could our markets suffer significantly before all the rules are in place? Unfortunately, yes. And that's bad for investors, markets, and yes, consumers. To quote the same JPMorgan official, "Investors love not being surprised." Isn't life strange, indeed?

Gold Daily and Silver Weekly Charts - Something Wicked This Way Comes

“Something has to be done because it’s totally out of control these days. I mean you can’t have bank runs like we’re seeing. The one thing the powers that be, the central banks and the governments, have tried to do is to avoid what I call a ‘Liquidation Event.’

Ever since we saw what happened when Lehman was liquidated, they realized we can’t go there. Fannie was taken over as well as AIG and GM to prevent this liquidity event. But I think the market is just liquidating, irrespective of whether the powers that be want it or not.

I just think that process is picking up into a tsunami and the world will start focusing back again on precious metals."

Eric Sprott, interview at King World News

I tend to agree with Eric.   If the markets see Greece slip out of the Euro and fold its debts up and toss them away, the consequences for the banks and debt in some of the other Euro countries are going to be enormous. 

They are deathly afraid of uncontrolled runs on the banks.   And even moreso, they are concerned of contagion to US and UK banks, and a run on the currencies. At the end of the day, when the fundamentals are shot to hell, its all down to running a confidence game.

That is why I think that they will fight the inclusion of gold and silver in the world currency systems tooth and nail.  Once you open the door to alternatives, you erode the span of your control.  And that is fatal to an overextended control fraud, which is what the paper financial markets look like today.

And that is why the price of gold and silver have to be controlled.  They have an objective, but they need to avoid panics and sudden uncontrolled movements from the chose path to reach it.

The key word is 'orderly.'  

Make no mistake and have no illusions.  For all their bravado, I think these guys are scared shitless.  You can have faith in your free market gurus I'm sure. Faith that they will drop you a postcard of gratitude and encouragement from Paraguay and Switzerland, Abu Dhabi and Singapore.

And when they inevitably lose control it could go quite a few ways, but no matter which way it goes, it is likely to be memorable.

SP 500 and NDX Futures Daily Charts - Facebook Face Plant

The Commencement Address That Won’t Be Given
By Robert Reich
Friday, May 18, 2012

Members of the Class of 2012,

As a former secretary of labor and current professor, I feel I owe it to you to tell you the truth about the pieces of parchment you’re picking up today.

You’re f*cked...

Read the rest here.

Facebook closed largely unchanged from the IPO price after an initial pop up to 42. On the first day of trade the underwriters are obligated to support the IPO price. Let's see how it does on Monday.  They seemed to be eating a lot of High Frequency Inventory into the close.

As a point of order, Facebook really went quietly IPO about a year or so at $15, and was being traded on 'private exchanges.' Today was its general public IPO.

NASDAQ blew the open of trade on Facebook in several ways. The NYSE was touting their human backup systems in response.

I think Bernanke will wait until the market is begging before he throws them the next QE bone.

See you Sunday evening.