Saturday, May 12, 2012

Rollin', Rollin', Rollin'

Though the streams are swollen 
Keep them dogies rollin' 
Rain and wind and weather 
Hell-bent for leather 
The herd stampedes all over J.P. Morgan Chase's Jamie Dimon;
In the light of JP Morgan’s stunning losses on derivatives, announced yesterday but with the full scope of total potential losses still not yet clear (and not yet determined), Jamie Dimon and his company do not look like any kind of appealing role model.  But the real losers in this turn of events are the Board of Governors of the Federal Reserve System and the New York Fed, whose approach to bank capital is now demonstrated to be deeply flawed.
That's just MIT's Simon Johnson in the Rowdy Yates role, with his chaps in a knot over a $2 billion loss (apparently due to a poorly executed hedging strategy).  As Deirdre McCloskey is fond of asking, 'How big' is that?

Well, according to this balance sheet, not very.  It would be slightly over 1% of their nearly $190 billion shareholder equity.  Comparatively, the change under the sofa cushions of their over $2 trillion in assets.

So, Dimon, whose bank famously emerged from the mortgage backed securities debacle with their dignity intact, should no longer be a role model because one unit of his institution's units lost (probably temporarily on paper) one percent of its capital.  What have you done for us lately, Jamie?

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