Go, Economy!

[Razor Ramon]

Why do people mention the Constitution and the Bill of Rights as separate things? They are the same document essentially the Bill of Rights is just the first ten amendments, if they can be called that.

[Anthony]

If JPMorgan had made $2B, then someone else had lost it. Based on this mess, would you assume the alternative is less productive?

Or Jp Morgan made $2 billion because of purchasing stocks in a few good startup companies, providing the capital it needed to provide us with a great product. Nobody loses here.

[Yoshi]

Or Jp Morgan made $2 billion because of purchasing stocks in a few good startup companies, providing the capital it needed to provide us with a great product. Nobody loses here.

But JPMorgan could have lost $2B by selling short on companies that succeeded as well. And that would have the same benefit you are describing.

[Yoshi]

Why do people mention the Constitution and the Bill of Rights as separate things? They are the same document essentially the Bill of Rights is just the first ten amendments, if they can be called that.

Speaking for myself, I separated them so I could make the point that I wasn't ignoring any of the amendments.

[Anthony]

But JPMorgan could have lost $2B by selling short on companies that succeeded as well. And that would have the same benefit you are describing.

Not entirely, while a good chunk of that might be made back by other companies, the bad investment would be an inaccurate change of the value of the stock. This does have a negative effect.

[Diff-chan]

But JPMorgan could have lost $2B by selling short on companies that succeeded as well. And that would have the same benefit you are describing.

The issue isn't that some other company made money that JP Morgan lost. The issue is that this $2 billion loss could have turned into $5 billion, or $10 billion, or whatever, and then we are right back at where we were in 2008.

That is what happened in 2008. These companies were so overleveraged that once it became obvious that the underlying assets (mortgages) were in fact worthless, they couldn't pay their bills. The "bets" on these asset types exceeded the actual value of the assets by many times. That is dangerous.

Before 2008, JP Morgan was a TBTF bank engaging in risky behavior that was, functionally, subsidized by taxpayers (FDIC, Greenspan put, Fannie/Freddie, etc.). Today, JP Morgan is a TBTF bank engaging in too-risky behavior that is subsidized by taxpayers. Nothing has changed. I see no evidence these companies are any better at evaluating tail risk than they were four years ago. That is a bad thing, anyone paying taxes should know that.

[Yoshi]

But it's the subsidy that is the problem, not the fact that they lost money. People (not necessarily here) are freaking out because they think $2B is a lot of money. They don't understand that it's not a lot to JPMorgan and that shit like this is going to happen again and again forever, no matter how many regulations are put in place. As long as people expect a return on their savings accounts or CDs, the banks are going to take some amount of risk to be profitable. And sometimes that risk is going to lose.

[Diff-chan]

You know nothing. "some amount" of risk is a big difference from what these companies do.

A 5-year CD at my bank is getting about 1.45%. The 5-year treasury rate as of 3/31 was 1.039%, corporate spread was about 50 basis points. So basically, a CD gets you a little less than investing in investment-grade corporate bonds.

The risk from investing in a bunch of high quality corporate debt is nowhere near that of engaging in the bullshit big banks do. Or do you think that JP Morgan was doing that shit to get a 1.5% return?

[dave is ok]

This two billion loss has likely already turned into five billion plus btw.

An FDIC insured bank doesn't need a prop desk. They should stick with more boring and conventional ways of making money.

[Yoshi]

You know nothing. "some amount" of risk is a big difference from what these companies do.

A 5-year CD at my bank is getting about 1.45%. The 5-year treasury rate as of 3/31 was 1.039%, corporate spread was about 50 basis points. So basically, a CD gets you a little less than investing in investment-grade corporate bonds.

The risk from investing in a bunch of high quality corporate debt is nowhere near that of engaging in the bullshit big banks do. Or do you think that JP Morgan was doing that shit to get a 1.5% return?

JP Morgan can't shoot for 1.5%, because they've promised that to their customers, so they have to have their investments net out to 1.5% plus whatever they need to pay their employees and other expenses and return to shareholders. Thus, their investments are going to inherently be more risky than a CD. My point is that the accountability needs to be on the decision makers at the company and not the Feds. If shareholders aren't calling for the CEOs head, then neither should the general public, though the bailout bullshit in a way made us all shareholders. I view that as sunk costs at this point though. We're unlikely to recover it, so just don't make the mistake of bailing anyone out again.