There's been a lot of talk lately about the losses incurred by JPMorgan. What exactly happened?
Bruno Iksil, a trader employed by JPMorgan in its London office, placed large bets on the health of bonds issued by large corporations. In essence, Iksil wagered on the proposition that "investment grade" bonds issued by companies like CBS and Freddie Mac would never default, by issuing credit default swaps and selling them to rival financial institutions. These swaps would only pay off in the event of a default in the underlying bonds.
The sheer size of Iksil's bets led market participants to dub him the "London whale."
Was that name engineered so that comedy writers could make Fail Whale jokes in the event the bets turned out poorly for JPMorgan?
Are these questions really asked frequently?
Okay. These bets were a worse kept secret than the fact that Secret Service agents like hookers. In fact, they weren't secret at all. So why is this news now?
As part of its regular reporting to the SEC, JPMorgan announced that their positions weren't going to work out and the bank was going to incur at least $2 billion in losses on these trades.
Wow, that's a lot of money. Will anyone be fired for this?
Yes! Chief Investment Officer Ina R. Drew, one of the most powerful women on Wall Street, and two other executives will lose their jobs. JPMorgan's outspoken CEO, Jamie Dimon, will stay on and collect his $23 million+ pay package.
Umn, that's a lot of money. I'm willing to oversee poorly thought-out trades for half that salary. And what do you mean by outspoken?
Shut up. Do you know how much money it costs to fill a swimming pool in one's Greenwhich home using nothing but the tears of workers whose livelihoods have been wrecked by risky trades made by Wall Street institutions? Hint, hint you dirty hippie, it takes's A LOT of money.
As for Dimon, he's been famously outspoken in his opposition to the Volcker Rule, which would require that banks stop placing bets themselves and return to acting as middlemen for their clients. That means no more putting money in hedge funds or issuing the kind of credit default swaps created by the London Fail Whale.
So what's the political fall out from this?
It's likely to undermine public admiration for huge, opaque, finance-driven corporations, previously the most likable of American institutions. Haha.
In all seriousness, we're unlikely to see a bolstering of financial regulation in the near future because politicians remain Wall Street's highest performing asset class.
Photo by Jemal Countess/Getty Images Entertainment/Getty Images
Tags: JPMorgan Chase, Money, Wall Street