Good Morning!
Longwood Gardens. February, 2013. Photo by joanneleon.
Neil Young - Heart of Gold (Live at Farm Aid 1985)
Liveblog: Senate Permanent Committee on Investigations Hearing - TBTF Banks
Feel free to use this diary as a liveblog for the hearing today too.
Committee web sites: Senate Homeland Permanent Subcommittee on Investigations (site attached to Levin's site)
Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations (main site)
Hearing on C-SPAN3
Hearing title: JP Morgan Chase Derivatives Trading Losses
Some people and hashtags to watch on Twitter:
@mtaibbi
@ddayen
@emptywheel
@cate_long
@alexisgoldstein
Search terms: JPMorgan, JP Morgan, FailWhale,
Hashtags:
#whalefail, $JPM
Documents:
JP Morgan emails (PDF) (via alexis goldstein, emails Levin committee is using)
Opening Statement at PSI Hearing on JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses
JP Morgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses (Committee Report released in conjunction March 15 Hearing)(Warning: PDF downloads when you click this link)
Liveblog Updates:
3:30pm Levin asks about optimization. Sullivan says the regulators do not allow changing the rule once in awhile, as JPM claimed. Sullivan says no, you follow the rule. He did not directly answer the question though, when Levin asked if he had authorized them to change the rule once in awhile. Levin asks Curry when Volcker rule will be done. Curry says as quickly as possible, but doesn't say. Mentions the different versions of it (e.g. Merkley's). Risk rules, looking to Basel III, says Curry. Says he was taken aback by press stories on fail whale situation, and the complexity of it when they looked into it. Levin asks whether they have found safety and soundness problems in certain areas (enumerates them). OCC answers yes to all of them. Levin asks if whale trade is not just a problem with traders but firm wide problems. Curry says yes. Levin wraps up questioning. Makes a closing statement. OCC has already lowered JPM's management rating, has issued a cease and desist order. Says he believes OCC has a challenge getting America's biggest bank back on track, and derivatives are a problem especially synthetic. Adjourned.
2:28pm Waterhouse says comment about how they received a lot of pushback, particularly from Ina Drew, was something Mr. Krumlish said and he paraphrased. Curry says it is absolutely not the role of the bank to decide what info to give regulators and then. Cites John Hancock about examiners should have full and free access to info, that foundation of our banking system depends on it. Levin asks Waterhouse, if Dimon says you shouldn't have it, not his role to decide. OCC witnesses agree. Levin is friendly to the OCC witnesses. Seems to trust them. Mostly softball questions. Waterhouse says the expectation is that banks have a rigorous process. Waterhouse confirms that they did not get the daily profit and loss reports that Ina Drew said they got. They did get an aggregate mark to market for the CIO portfolio. Did not get daily P&L data for the SCP. Exhibit 1C. P&L were reported internally, not disclosed to OCC. Downward sloping line, increasing losses. Shows the synthetic credit portfolio was not reducing risk, it was a rapid increase in risk. In March went on a buying spree, doubling down. Levin asks why examiner used term "doubling down" which is a gambling term. Waterhouse says examiner said it looked like instead of trying to get out of the position, he tried to take advantage of pricing anomalies, a high risk approach.
2:15pm Break is over. New panel - the regulators. Tom Curry OCC, Scott Waterhouse OCC, Michael Sullivan OCC.
1:24pm Precious moment between Weiland and Levin. Levin says, so you think the regulators say it's okay to optimize once in awhile, but just don't do it all the time? They are discussion splitting portfolios, moving trades between portfolios. Weiland, long pause, sheepish "That's my understanding". With that, Levin announces another break. Finished with this panel.
1:13pm Levin asked Weiland about emails talking about how they shouldn't be talking about certain things via email. Email was between Hagan (a quant) and someone else. Weiland says that Hagan was sending out his opinions about optimization and capital requirements, which was not the company policy. Weiland told him to stop putting this into emails. Levin says that Weiland never said "don't do this because it's not our policy" but instead told him to stop talking about this in emails.
1:00pmI've been reading in various tweets that Levin is the only Dem at this hearing. Where are the other Dem senators. Nobody else on this committee? Yes, there are many other Dems on this committee. McCaskill, Landrieu, Pryor, Tester, Baldwin, Heitkamp, Carper. Many other Republicans too, including Rand Paul. One other R senator besides McCain is there, Ron Johnson, that I know of. I think Johnson had to leave early, not sure if CPAC was the reason or not.
12:50pm Levin questioning Cavanaugh about the synthetic credit portfolio being hedging activity (prudent trades designed to protect the banks assets in crisis scenarios), or proprietary trading activity (gambling, including w/ govt insured money, purely profit motive). Levin identifies how based on their own identified scenarios, synthetic credit portfolio book (SCP) does not look like hedging, even though that is what Dimon told Congress.
Kind of funny that JPM tweeted this earlier this morning:
12:21pmGAAP accepted accounting principles. Levin asks of Cavanaugh's task force said in their report that shifting mark prices to minimize losses is unacceptable. Cavanaugh admits it was not in their report and yet it is significant and important. Levin confronts Ina Drew about an email to Artajo, saying it would be "helpful to tweak" the mark. She claims that she had been told that the marks were conservative, and market was shifting in their favor, and she suggested he tweak the numbers if he had data to back it up. Cavanaugh: we believe marks on all positions should be spot on. Levin: mismarking tainted reports to govt. and public filing was wrong. Cavanaugh says 600M error was signficant and errors in public filings signficant. Recommended independent pricing. Levin discusses earnings call on April 13, disclosure problems here as well. Asks whether Bacon or Hogan approved positions for synthetic credit portfolio. On April 11, chief risk officer Hogan (exhibit 87) email, sent to Braunstein, Dimon, et al, told them to implement ? ASAP. Execs did not tell investors that chief risk manager wanted an immediate overhaul, didn't tell about many breaches. (Exhibit 94, p. 6-7) key statements from earnings call in exhibit 1F. Hogan says he learned of the trades from the newspaper. Cavanaugh and Levin talk about some misleading semantics with term risk management, risk management organization. Cav: on 9th Ms Drew met with regulators and they rec'vd other reports on regular basis, but not on these positions, did contain "components" of these positions. Jan thru April exec reports were not sent to OCC - Cav says we changed our reports and unfortunately did not go to OCC, did go to Fed. On April 13th Cav believed he was being accurate in saying JPM was transparent with regulators but later found they weren't. Levin says he has a lot of trouble believing that Cav's statements in earnings call was "anything other than an effort to calm the seas".
12:17pm Levin and Cavanaugh agree that shifting prices to minimize loss numbers is not acceptable. Cavanaugh says their auditor, Price Waterhouse, approved of what they did.
12:09pm Mismarking mark to market portfolio(book): everyday CIO had to report internally, P&L value of the book that day. Red flags on March 30 that something was wrong. (Traders misvaluing). CIO should have reviewed, applied price testing thresholds. Exhibit 82. Sudden rise of huge disputes between CIOs and counterparties was another red flag - collateral disputes. After media reports, JPM head accountant, Shannon Warren? report released on May 10, said values applied to credit derivatives (the marks) were consistent with industry practices but report showed they were not valued correctly. Trader in London had to record fair value. Acctg rules say use midpoint price. Phone and voicemail, Julian? and Bruno were upset about doing them. Marks they were using were idiotic (exhibit 32A). Used inflated prices, 5 days, failed to report 432M in losses. (exhibit 28 is analysis of mid prices vs inflated prices). 18 credit derivatives. January, via may 10 reviews, CIO marks were close to mid prices, with some exceptions. By March, prices were at extremes, bank benefitting by understating losses. Levin asks about practices at JPM changing numbers to minimize appearance of losses. Braunstein says they reached conclusions, believed at the time that marks were done consistent with USGap. Levin questions that. Long pause by Braunstein, who restates same thing. Levin says in every case, extremes made bank look better by understating bank losses by changing the rules of how prices were marked. Asks again if it is common to change pricing practices to minimize losses. Braunstein says no. Webster (OCC?) confronted JPM, Mr. Artajo? Exhibit 32D? Webster said that in March the marks had migrated to the aggressive side. Artajo said prices reflected prices CIO was trading at in March but when committee checked actual trades for that time and this was not accurate. Exhibit 34a. Levin asks Cavanaugh why his task force did not address this. Asks if it is an acceptable accounting practice (changing marks to make your losses go away). Cavanaugh talks about the markets being affected by the news, caused movements in prices. May 10 review process was "reasonable work".
11:50am Levin says record shows on May 4 Braunstein and Hogan called Waterhouse (OCC regulator). Losses 1.6B. Exhibit 1G. Day before May 4 losses had already accum to $2.3B (based on JPM internal numbers on Levin's chart). JPM lied to regulators. Braunstein says they are two diff numbers. 1.6 is 2Q losses. 2.3B is year to date. $700+M in Jan + 1.6B = $2.3B. Drew tells Levin that financial risk dept did provide profit and loss (P&L) reports were sent to OCC regulators, based on her understanding when she asked finance in April. CFO at the time, Mr. Wilmont.
11:41am Drew says CIO mark to market profit loss reports for synthetic credit portfolio were given to OCC regulators on a daily basis, to the best of her knowledge. Levin says he thinks she is incorrect on this.
McCain asks Braunstein if Dimon ordered data reports to OCC to be stopped for two weeks. Braunstein says yes, on the basis of confidentiality concerns. Braunstein says he is not sure that was a required report and they were worried about information leaking about these reports. McCain says it is remarkable that required reporting to regulators, JPM would just decide not to give a report and that he thinks there are not many companies in America who could get away with this. Refers to email from Waterhouse to Brasman (name?) Ina called Krumlin in London, sternly says investment decisions are made with knowledge of execs including Jamie Dimon. April 13 call, Braunstein said firm was very comfortable with investments of ?? but realizes now that this was wrong and based on bad data given to him. As soon as he realized there were behavior patterns, he, Hogan and Dimon looked into it more closely.
Who should be held accountable? I concur with task forces report. CIO, risk, finance, sr. mgmt. He deeply regrets the mistakes. McCain: what penalty? Braunstein says company as fired people and reduced compensation for some. 50% reduction in Braunstein's 9.5m in 2011 to 5m 2012.
$5.8 b loss through June 2012 and some modest losses since. McCain: ongoing exposure? Cavanaugh: doesnt have a number. Will be litigation but no estimate of exposure yet.
11:30am
Based on an email, Drew was revealed to have said that these decisions were made with the full knowledge of the senior execs, that everybody knew what was going on. She agrees, yes, she said that. Levin says, meeting between Braunstein, Dimon, Waterhouse - it was Dimon's decision to stop sending data to regulators (OCC). Says there had been some bad/misleading data sent to regulators that indicated losses that were not valid. Also wanted to make sure info got to regulators and only to the regulators (not the press or analysts, presumably). Levin asks if regulators knew why JPM stopped sending them data. Braunstein says he doesn't know if he told Waterhouse or (another name?). Asks if Dimon was unhappy when the data was turned back on, despite his order to turn it off. Braunstein doesn't recollect the specifics of that meeting. Levin seems to know that Dimon was very angry about it.
Levin: After the whale trade was exposed by the media OCC regulators started demanding information/data. There was a briefing with OCC and told OCC 1Q losses were 500+ million but inside the bank had been reported as 700+ million.
11:28am
Douglas Braunstein. Short statement. Says Cavanaugh has already made statement on behalf of the firm. Both were sworn in.
11:20 Expanded panel now by two: Ex-CFO Douglas Braunstein, Michael Cavanaugh, co CEO corporate and investment bank, JP Morgan.
Cavanaugh says: "Some of what we found was frankly very disappointing and does not reflect our institution at its best." Those responsible: traders, managers, risk managers, senior mgmt of firm. Firm has taken wide remedial actions. Responsible personnel at CIO dept have been fired and money clawed back. Risk and finance control resources increased. New limits. New governance measures.
11:03am Levin: new VAR limits/VAR model was full of errors. Asks Bacon what he thinks of a VAR limit change that cuts that cuts things by half overnight, with limited testing of back data. Bacon says that's not the way to do it. Mr. Hagan, model designer, PhD, had to do this every night by hand, with spreadsheet. Was run manually using error prone spreadsheets and data entry, staying up into the wee hours to do it. Weiland says he wasn't really aware of situation but did know spreadsheets were being used. Bacon agrees it was "shocking and unacceptable". Levins asks why the bank allowed that to happen. Drew says it was very disappointed; risk management group are highly intelligent, educated, PhDs and Hagan worked for her. Levin: Nobody was told to stop trading because of breaches in VAR limits. Says the warnings are trigger to investigate but that did not happen? Problem wasn't that they didn't have enough risk limits, it was that they didn't enforce the limits they had. Bacon says there have been changes to procedures, 3 days of breaches sends it to the firmwide risk committee, including Mr. Dimon. Levin and his staff are very impressive here, really know their stuff. Short break begins at 11:13am.
11:03am Levin says Dimon personally approved a temporary increase in VAR limit. Activated Jan 27, made it look like a 50% drop in risk (VAR how much money at risk of loss in one day period). Levin asks whether the new model was backtested against old data. Drew says that would be risk dept. job, she doesn't know if it was done. (This woman was paid tens of millions of dollars per year).
11:00amLevin to Weiland. You were ignoring breach of risk limit by 1000% for 71 days. Weiland says they were in the midst of a reevaluation of risk limit. Changes going on in regulatory and markets. Levin says: "For three years?" Weiland says no. OCC regulation says it has to be reviewed every year. Levin asks Drew if she know it was being breached for 4 months. She says yes, she was told it was not useful limit and was being reviewed. Iving Goldman wrote to her, said we have a global credit CSBV1, says we have been breaching for a year. Her response was that she had no recollection at time, talking about different limits, she got her limits confused. Says she was aware of limits but not that they were 1000% over the limit.
10:50am Levin shows chart. Risk limits were breached in Jan 2012, past VAR limits. VAR models were changed. Then shows reports of breaches of risk limits "page after page after page" of warnings, end of 2011, 1Q 2012. Over 170 breaches.
10:48am Bacon says (to McCain) he does not believe JPMorgan is too big to fail and they are doing things to demonstrate that.
10:42am Sen. Ron Johnson asked Bacon (who was brought in to assess everything after the fact) if there was a "too big to fail" attitude at JP Morgan that caused this situation. He says no, it was just a series of egregious mistakes. Does not know if the TBTF attitude has ended. Bacon is a very calm, smooth speaker. Now McCain begins questioning. Weiland still claims he doesn't know who failed to send reports to regulators (OCC). McCain tries to get the name of an individual. Weiland says he doesn't know. Asks Ms. Drew a question. She mentions again, deception and risk control issues (referring to London traders). McCain quotes Weiland saying in the past Weiland said it wasn't his job to enforce risk limits. Weiland says he doesn't recall saying that, it is his job, along with other senior execs. Asks Drew about when CFO Wilmont assured OCC that she planned on reducing portfolio but it tripled in size instead. Was OCC misled? She says plan was signed off by all senior mgmt. to have slightly higher number for 1st quarter, then reductions and things went terribly wrong. Very large purchases at end of March were done without her knowledge. Says it was not her job to tell the OCC about that. Weiland says referring to risk assessments as "garbage" is not typical language for him... it was 2x-3x usual but turned out to be accurate and predictive.
10:30am Levin reads an email revealing that one of the quants made them aware of big increase in risk due to portfolio increased in size by $30 billion in Jan/Feb 2012. Pete Weiland said their analysis looked like garbage. Quants were right. Weiland was wrong.
10:27am From Twitter: "@mccarthyryanj JPMorgan's Ina Drew made about $30M in 2010 and 2011. Retired with $60M in stock, pension, etc." Nobody knows who was responsible for sending the reports to the regulators. Won't reveal names.
10:20am Statements from Ina Drew, Ashley Bacon, Peter Weiland.
Drew says her risk management was undermined. VAR model was flawed. Some London traders valued assets improperly and hid that from Drew. Finishes her opening statement. Ashley Bacon, current acting Chief risk manager. From London office? Gives his opening statement. Talks about key steps taken to improve risk management for CIO. They meet more often. They transferred what is left of the sythetic credit portfolio to the investment bank. Changed some procedures, created new committees. Peter Weiland, head of CIO? gives very brief statement. Now the questions start.
10:06am Ron Johnson says regulators are incapable of preventing this, as things stand right now.
Levin introduces first panel of witnesses. Says this will be a long hearing. First panel have most first hand knowledge. Then a short break. Broaden the panel, adding two senior execs from the bank. Another short break. Final panel. Representatives from OCC, controller of the currency. Witnesses are sworn in. First panel: Ina Drew speaks first. She begins talking about her career.
10:05am Regulators fell asleep at the switch. JP Morgan actively impeded regulators. Losses were uncovered by the press. Top officials at the bank misinformed regulators and the public. Douglas Brownstein lied during an earnings call. Dimon called it a "tempest in a teapot". $6 billion lost, some of it insured by govt. Group of traders made reckless decisions with federally insured money, execs knew about it. Seems to have developed a business model based on the notion that they are too big to fail. What if it was $60-100 billion loss. Does JP Morgan think they would be bailed out for that. McCain mentions skepticism about a "truly free market".
10:00am Levin finishing up his opening statement. Most of the statement is very technical, but also pretty clear and understandable. Turns it over to John McCain at 10:00am.
Here is a link to Levin's opening statement, posted as a news release on the committee web site.
Opening Statement at PSI Hearing on JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses
News and Opinion
The analysis shows that the costs for the war we were lied into may grow to $6 trillion when debt interest and veterans benefits are taken into consideration. This assumes that veterans will continue to get benefits, which I always have doubts about, wondering whether at some point the government will find ways to just cut them off and toss them aside, or use more and more mercenaries for whom they have no obligation long term, I assume. Mercenaries cost more in the short term, less in the long term. I don't know what tis analysis assumes about health care costs going forward. What I wonder is -- why are these costs not taken into consideration when we launch wars of choice, wars of aggression? Bush never budgeted anything for these wars and used emergency supplemental bills to pay for them like a utility bill, paid with an ATM card.
With each year that we remain in wars, considering only the costs in treasure, the more troops we cycle through these wars, we create more and more obligations to pay health care benefits, disability for some, pensions for some, and various other benefits.
When a government chooses to go to war, these costs should be part of the whole equation. And maybe that is at least part of what is going on with the whole debt/deficit, entitlement cutting obsession. How long can a country sustain the long term costs of a very large, active military along with a retired civilian population? The logical answer is to decide that we can't afford wars of choice. But perhaps this government has decided that in order to sustain wars of choice, it can no longer afford civilian retirement benefits (along with the costs of running wars, of course). And this is basically what Joe Lieberman said on the floor of the Senate in the summer of 2011. So that is the neocon line of thinking. And this is only the cost of the war in Iraq we're talking about. What about the even longer war in Afghanistan, the numerous covert and/or "dirty wars"? What about the new wars, the expansion into Africa and the Far East while we show no sign of really leaving the Middle East?
Iraq war costs U.S. more than $2 trillion: study
(Reuters) - The U.S. war in Iraq has cost $1.7 trillion with an additional $490 billion in benefits owed to war veterans, expenses that could grow to more than $6 trillion over the next four decades counting interest, a study released on Thursday said.
The war has killed at least 134,000 Iraqi civilians and may have contributed to the deaths of as many as four times that number, according to the Costs of War Project by the Watson Institute for International Studies at Brown University.
When security forces, insurgents, journalists and humanitarian workers were included, the war's death toll rose to an estimated 176,000 to 189,000, the study said.
[...]
It was also an update of a 2011 report the Watson Institute produced ahead of the 10th anniversary of the September 11 attacks that assessed the cost in dollars and lives from the resulting wars in Afghanistan, Pakistan and Iraq.
The 2011 study said the combined cost of the wars was at least $3.7 trillion, based on actual expenditures from the U.S. Treasury and future commitments, such as the medical and disability claims of U.S. war veterans.
That estimate climbed to nearly $4 trillion in the update.
Is Lieberman the only one telling the truth about the reasons for panic about entitlements and long term benefits? No doubt, it's a Republican wet dream too, and a victory for all who have been trying to undermine the New Deal from the start. But what about the Democrats who are on board too? How is this being sold to members of a party that have made protection of the New Deal one of their highest priorities for 70 years? Is this the way they have brought them over to the dark side? If so, the neocons have won. Congratulations to all the idiots who are enabling them. Lieberman: "So bottom line, we can't protect these entitlements and also have the national defense that we need in a dangerous world while we're at war against the Islamist extremists who attacked us on 9/11 and will be for a long time to come."
With everything else that is going on, look what is happening in the Senate. You really have to wonder what goes wrong with the minds and consciences of people who spend years in that chamber. Schumer can't even give a rational reason for it, sputtering lies when asked to explain. Such the dutiful liberal he is. What a masquerade. I'm sure he will come out with some very brave and righteous position on a liberal shiny object, a social issue or some such, to smooth it all over, make you forget about the craven things like this, and boost his liberal creds. The fact that we could even be considering war with Iran after the past twelve years is straight up insanity.
The same kind of drum beat used to lie us in the Iraq war is pulled out, dusted off and used again, right down to the fixing/twisting the intelligence. Remember this from the Downing Street memo? "But the intelligence and facts were being fixed around the policy." To their credit, members of the Obama administration, intelligence community and high level DoD and military people have been trying to set the record straight every time the intelligence has been twisted and spewed out into the media. But there is also some faction in those areas who continue the drum beat. And the media, some, lap it right up.
The Senate's 10-Year Iraq War Anniversary Gift: War With Iran
When we mark the grim 10-year anniversary of the U.S. invasion of Iraq next Tuesday, most Americans will be reflecting on the enormous human, economic, and geopolitical costs that the disastrous war and occupation inflicted.
What they won't be doing is hoping for an anniversary gift from the people who got us into that war.
But Jeff Sessions (R-AL), Chuck Schumer (D-NY), and many of their Senate colleagues are busy wrapping up the perfect gift for a country who has been through everything: a new war of choice in the Middle East with Iran.
[...]
Meanwhile, the Senate is moving forward with an unprecedented resolution calling for the U.S. to provide support for Israeli strikes on Iran in the form military, economic, and diplomatic backing. The resolution, S.Res.65, is rightly being called a backdoor to war with Iran -- a convenient way to plunge the U.S. into war without a messy public debate but instead automatically, based on when Israel Prime Minister Netanyahu decides to pull the trigger.
Senator Schumer, an original cosponsor of the resolution, defended his support for declaring preemptive U.S. backing for a preventive Israel-led war on Iran by offering an argument so riddled with intelligence falsehoods that it would have made George W. Bush blush.
Iraq war killed at least 116,000 Iraqi civilians: study
“Many Iraqi civilians were injured or became ill because of damage to the health-supporting infrastructure of the country, and about five million were displaced.
“More than 31,000 US military personnel were injured and a substantial percentage of those deployed suffered post-traumatic stress disorder, traumatic brain injury, and other neuropsychological disorders and their concomitant psychosocial problems.”
[...]
In 2006, estimates by researchers at Johns Hopkins University in Baltimore, Maryland, also published in The Lancet, said 655,000 people had died in the first 40 months of the war. That figure was widely contested.
In 2008, a study by the Iraqi government and World Health Organisation (WHO), published in The New England Journal of Medicine, said between 104,000 and 223,000 Iraqis had died violent deaths between March 2003 and June 2006.
Promised things and then tossed aside.
U.S. pledge to help Iraqis who aided occupation largely unfulfilled
WASHINGTON — Ten years after the United States’ invasion that toppled Saddam Hussein and set off a sectarian war that continues to this day, thousands of Iraqis are eligible for resettlement to the U.S. because they risked their lives to help the war effort as interpreters, cultural advisers and other support staff.
But of the legislated allotment of about 25,000 “special immigrant visas” – which offer permanent residency as a reward to Iraqis who worked with the U.S. government – just 4,669 cases have been approved since 2008, and the program is scheduled to end in September.
Matt Taibbi is all over this. At the same time that the hearing is being held, Richard Fisher will be giving his speech at CPAC. Full court press from both sides of the aisle, or so it seems. Fingers crossed. A sight for sore eyes.
Live-Blogging Senate Hearing Tomorrow, When J.P. Morgan Chase Will Be Torn a New One
Beginning at 9:30 a.m. tomorrow, I'm going to be live-blogging a hearing held by Senator Carl Levin's Permanent Subcommittee on Investigations – the best crew of high-end detectives this side of The Wire, in my opinion – who will be grilling J.P. Morgan Chase executives and high-ranking federal regulators in a get-together entitled, "J.P. Morgan Chase "Whale" Trades: A Case History Of Derivatives Risks And Abuses." This follows this afternoon's release of a brutal 301-page report commissioned by Levin and Republican John McCain by the same name.
[...]
This new report by the Permanent Subcommittee answers the question of why the public needed to be involved in that episode. What the report describes is an epic breakdown in the supervision of so-called "Too Big to Fail" banks. The report confirms everyone's worst fears about what goes on behind closed doors at such companies, in the various financial sausage-factories that comprise their profit-making operations.
If the information in the report is correct, Chase followed the behavioral model of every corrupt/failing hedge fund this side of Bernie Madoff and Sam Israel, only it did it on a much more enormous scale and did it with federally-insured deposits. The fund used (in part) federally-insured money to create, in essence, a kind of super high-risk hedge fund that gambled on credit derivatives, and just like Sam Israel did with his Bayou fund, when it got in trouble, it resorted to fudging its numbers in order to disguise the fact that it was losing money hand over fist.
Hey, isn’t that. . .?: Jamie Dimon, Bill Daley, Newt Gingrich
– Jamie Dimon dining at BLT Steak downtown Tuesday night with former White House chief of staff Bill Daley. Two others at the table. The JPMorgan Chase chief executive was among the corporate CEOs attending a White House meeting on cybersecurity Wednesday morning. And hey, it’s his birthday, so if you see him around, wish him well.
If you go back and look at What's Happenin' diaries right after the Fail Whale trade (I think David Dayen made up that name) you will see that we knew this was really proprietary trading, not just prudent hedging on the bank's investments and there were stories here to that effect. Felix Salmon and others called it from day one. No wonder Jamie works so hard to prevent the Volcker rule from ever being implemented. Dimon called all of it a "tempest in a teapot" and now the proof is out there that it was no teapot, it was a BFD. But Dimon really may have missed his calling. That was some pretty good lying and spinning. Maybe he should go into politics. This is from Forbes. It's very interesting to watch how this whole thing is lining up.
Senate Report Slams JPMorgan For London Whale Debacle
The subcommittee’s report stresses that not only were the trades managed poorly, they were misrepresented as hedges when they were actually proprietary trades aimed at making money, not protecting against downside in other parts of the firm’s business.
[...]
By then the trades had drawn the attention of financial media, forcing Dimon to address the matter, which he did by referring to it as “a tempest in a teapot.” That tempest proved more severe than the bank was willing to admit, and while a $6.2 billion loss is not crippling for a bank that generated more than $21 billion in net income last year, Levin says it shows that banks “have not lost their appetite for risky trading,” and only stricter regulations – like the long-gestating Volcker rule – will keep them in line.
[Emphasis added]
What they are proposing is something like a new Glass-Steagall. Keep fingers crossed. Let's see how the fervent supporters come down on this, and the administration. Will Obama let the country "make him do it"?
Dallas Fed Cap Seen Shrinking U.S. Banking Units by Half
A proposal by the Federal Reserve Bank of Dallas to limit government support for banks could force JPMorgan Chase & Co. (JPM) and Bank of America Corp. to shrink their U.S. consumer and commercial-lending units by more than half.
[...]
The plan would cap assets at deposit-insured divisions of the largest U.S. financial firms at about $250 billion and wall off investment banking from traditional lending, Dallas Fed Executive Vice President Harvey Rosenblum said in an interview. The limit is needed to allow the Federal Deposit Insurance Corp. to shut a failed bank without using taxpayer funds, he said.
Bloomberg's editors are for it.
JPMorgan’s $6 Billion Loss Shouldn’t Be a National Matter
Allow us to suggest a follow-up question: Why should any bank be big and threatening enough to bring down the U.S. economy?
Growing Support
Lately, the idea that we should stop paying banks to become dangerous has garnered support on both ends of the political spectrum. Notably, the American Conservative Union has invited a major proponent of caps on bank size, Dallas Federal Reserve Bank President Richard Fisher, to address its annual conference this week outside Washington, D.C.
The essence of Fisher’s solution is twofold. He would impose an asset limit on banks that, according to Bloomberg News, could force some of the biggest banks to shrink their consumer and commercial-lending units by more than half. He would also roll back government subsidies from banks’ trading and investment-banking operations by requiring them to be walled off from the units that take deposits and make loans.
EXCLUSIVE - U.S. to let spy agencies scour Americans' finances
(Reuters) - The Obama administration is drawing up plans to give all U.S. spy agencies full access to a massive database that contains financial data on American citizens and others who bank in the country, according to a Treasury Department document seen by Reuters.
The proposed plan represents a major step by U.S. intelligence agencies to spot and track down terrorist networks and crime syndicates by bringing together financial databanks, criminal records and military intelligence. The plan, which legal experts say is permissible under U.S. law, is nonetheless likely to trigger intense criticism from privacy advocates.
Financial institutions that operate in the United States are required by law to file reports of "suspicious customer activity," such as large money transfers or unusually structured bank accounts, to Treasury's Financial Crimes Enforcement Network (FinCEN).
The Federal Bureau of Investigation already has full access to the database. However, intelligence agencies, such as the Central Intelligence Agency and the National Security Agency, currently have to make case-by-case requests for information to FinCEN.
[...]
The planning document, dated March 4, shows that the proposal is still in its early stages of development, and it is not known when implementation might begin.
The fire sale. Is this the new bubble, securitizing rents. Neofeudalism coming soon.
Blackstone Said to Get $2.1 Billion Loan for Home Purchases
Deutsche Bank AG (DBK) leads the syndicate of banks, said the person, who asked not to be named because the loan is private. Other lenders include Bank of America Corp., Credit Suisse Group AG (CSGN), Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM)
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“The deal demonstrates that the market for these types of loans is expanding and maturing as major Wall Street banks become more and more comfortable with the asset class,” Stephen Blevit, an attorney for Sidley Austin LLP who represented Deutsche Bank, said in an e-mail from Los Angeles.
Blackstone has invested $3.5 billion to buy 20,000 single- family rental homes since last year, [...]
The single-family home rental business, which has been dominated by small investors, is attracting more institutional capital. American Homes 4 Rent, a Malibu, California-based company headed by Public Storage (PSA) founder B. Wayne Hughes, has acquired about 10,000 properties. Thomas Barrack’s Colony Capital LLC has raised $2.2 billion for home purchases.
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More than 5 million former owners have lost their properties to foreclosure or in a distressed sale since home prices peaked in 2006 [...]
Margaret Kimberley at Black Agenda Report.
Freedom Rider: Rand Paul Exposes the Democrats
Republican Senator Rand Paul is a Kentucky conservative, and a proud Tea Party member. Paul publicly stated that he opposes the Civil Rights act of 1964, the legislation which at last gave some semblance of legal rights to black Americans. Paul typifies all of the beliefs central to right wing Republican dogma. He is against civil rights and a staunch opponent of abortion, a proud poster child for retrograde politics.
Yet when members of the United States Senate had the opportunity to stand against an imperial president claiming a right to murder, it was Paul instead of supposedly liberal Democrats who took to the Senate floor for thirteen hours in an act of protest against what ought to be a high crime.
Rand Paul proved that there is almost no one charged with upholding the Constitution who will actually do it. Democrats attacked the Bush administration when it claimed a right to designate anyone an enemy combatant and destroy their rights to due process. But in a twist reminiscent of Alice falling down the rabbit hole, it is now Democrats who stand idly by while both domestic and international law is torn asunder by one of their own.
In an example of politics making strange bedfellows, leftists can thank Paul for proving a point they have been making for years. The Democratic Party is not just ineffectual, it is actually a partner with the Republicans working against the aims of achieving a peaceful and just country and world. The Democratic Party still garners support because of an old and undeserved reputation as the champion of civil rights and workers and as the party of peace. Democrats are seen as the last bulwark against the barbarian Republicans at the gates. In point of fact the Democrats have a long history of making war around the world and of doing the right thing at home only when forced by the actions of masses of people.
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The right wing southerner exposed the cravenness of the Democratic politicians and the blatant hypocrisy of progressives. Why was the Tea Party conservative alone in asking attorney general Eric Holder if the president claimed the right to kill United States citizens on American soil? That question should have been on the lips of every member of Congress, not just a man who had been dismissed as a racist and a crackpot.
Blog Posts and Tweets of Interest
Evening Blues
Why Social Security Is the Best Retirement Saving Vehicle
Phish and Neil Young - Down By the River (Live at Farm Aid 1998)