-by Sinclair Noe
DOW + 203 = 12,777
SPX + 22 = 1356
NAS + 42 = 2908
10 YR YLD +.02 = 1.50%
OIL +.99 = 87.07
GOLD + 17.20 = 1590.40
SILV + .13 = 27.44
PLAT + 15.00 = 1438.00
JPMorgan Chase reported second quarter earnings of $5 billion; part of that is from accounting gimmickery – turning loss reserves into profits and such; and that's after losses from the trading unit in London. The Chief Investment Office, or CIO, also know as the London proprietary trading unit, aka., the London Whale, sometimes known as Voldermort, occasionally referenced as he whose name can not be spoken – they lost $5.8 billion. Jamie Dimon, the CEO said back in May that the losses were $2 billion; now Dimon says that in a worst case scenario the London Whale losses will grow to $7.5 billion; the slow motion train wreck is still happening and Dimon can't stop it.
Dimon claimed traders may have deliberately hidden losses and the bank will restate first quarter earnings within the next week or so. So, there was this small trading unit in London and they accounted for about one-quarter of the bank's net income, several billions of dollars in profits, and wants you to believe that he didn't know what they were doing. His best story is that he is remarkably incompetent yet pleasantly surprised when billions of dollars of profits just magically materialized out of thin air. All right, MF Global and PFGBest client funds deposited at JPMorgan can vaporize -whooosh – into thin air, so maybe the London Whale could make profits materialize out of thin air.
And although Jamie Dimon seemed to be saying “it's not my fault” the SEC and the FBI will continue to look at what exactly did Jamie Dimon knew and when he knew it; further, there will be questions about why he didn't know more and why JPMorgan withheld vital information from regulators. Did Dimon mislead investors when he originally called the trade a 'tempest in a teapot' during the firm's first-quarter earnings conference call in April?
In addition to the FBI and SEC, the bank is being investigated by the UK's Financial Services Authority, the U.S. Federal Deposit Insurance Corp, the U.S. Commodity Futures Trading Commission, the U.S. Treasury's Office for the Comptroller of the Currency, and the Federal Reserve Bank of New York.
Today, Dimon said: "We're not making light of this error, but we do think it's an isolated event."
JPMorgan shares traded up 2.03 at $36.07, nearly a 6% gain.
The train wreck at JPMorgan is still happening but apparently the morons on Wall Street think the train wreck will stop soon and everything will be hunky dory. What they failed to realize is that the CIO, the London Whale was responsible for a big chunk of net income at JPMorgan, over the past few years, between 31% and 10%. The Whale was JPMorgan's private hedge fund, using excess customer deposits to account for a very big chunk of earnings. In other words, JPMorgan's business model was to use depositors' deposits to gamble. Today, JPMorgan lost about 30% of their net earnings moving forward; the casino is now closed; the profit center has now dried up. And the stock gained 6%. Go figure.
There was actually a video piece on Marketwatch today where the guy poses the question, since JPMorgan posted $5 billion in earnings, despite the London Whale, should we consider Jamie Dimon a hero? And should he be given a raise? Seriously.
I suppose it is nothing more than coincidence that the London Whale was making his biggest profits in 2008, making massive trades on interest rate derivatives and JPMorgan was one of the banks that reported to the British Banking Association to set Libor. So, the banks were lying about the interest rates and then betting on the interest rates that were set based upon their lies.
An unidentified employee of Barclays bank told the New York Federal Reserve Bank more than four years ago that Barclays was filing false reports on a key interest rate. The New York Fed released a bunch of documents, and it looks like the admission was distributed through the Federal Reserve and the US Treasury. The New York Fed released the documents in response to inquiries from members of Congress about the role of Treasury Secretary Timothy Geithner, then the head of the New York Fed, and its questions about Libor. Barclays continued reporting false Libor submissions until 2009, according to the Commodity Futures Trading Commission. Geithner and Fed Chairman Ben Bernanke are expected to be asked about the Libor scandal in upcoming Senate testimony.
In December 2007, Barclays told the New York Fed in a phone call that, in general, Libor submissions appeared unrealistically low.
On April 11, 2008, a New York Fed analyst asked a Barclays employee in detail about the extent of problems with Libor. “We [Barclays] just fit in with the rest of the crowd if you like,” the bank’s staffer said in a phone call. “We know that we’re not posting um, an honest Libor.”
The New York Fed statement says: “The Barclays employee explained that Barclays was underreporting its rate to avoid the stigma associated with being an outlier with respect to its Libor submissions, relative to other participating banks.”
The Fed analyst, her name is Fabiola Ravazzolo, reported the comment to senior New York Fed management and the comment was mentioned in a weekly briefing prepared by the New York Fed staff for the Fed Board of Governors in Washington and the Treasury Department.
On May 1, Geithner raised the subject of Libor with the President’s Working Group on Financial Markets, consisting of the heads of U.S. regulatory agencies, also known as the Plunge Protection Team. The New York Fed gave a detailed briefing to Treasury officials on May 6. Geithner then approached British regulators. In a June 1, 2008 memo to Bank of England Governor Mervyn King, released by the BOE, Geithner proposed six reforms of Libor, including steps to establish a “credible” reporting procedure and eliminating incentives to misreport.
And nothing was done.
Where else have we heard about wrongdoing, that was reported to people in position of authority, and those people in power did nothing? Just substitute the names of Tim Geithner, Ben Bernanke, Mervyn King, Bob Diamond, and Jamie Dimon with the names Jerry Sandusky, Joe Paterno, Mike McQueary, and Tim Curley.
What we have is institutional failure on a massive scale. And when the news first came out that Joe Paterno was involved with protecting a pedophile, Penn State fans rushed out into the streets to support their coach. And when Wall Street learned that JPMorgan managed to post a second quarter profit despite gambling losses and when Wall Street learned that the Fed and the Bank of England and the entire Libor scandal had been covered up – they pushed the Dow Industrials up 203 points and they bought up shares of JPMorgan.
George Osborne, Britain’s Chancellor of the Exchequer (the equivalent position to the Secretary of the Treasury) said recently, “Fraud is a crime in ordinary business; why shouldn’t it be so in banking?” The answer, of course, is that fraud is not allowed in any well-run country.
Anyone who takes personal responsibility seriously should want all those involved to be held accountable – to the full extent of the law in all jurisdictions. Anything that lets individuals escape consequences will further undermine the legitimacy that underpins all markets. Bankers should be leading the charge to clean up their industry. We know the difference between right and wrong, and if we are unwilling to stand up to what is wrong, then we are in the wrong.
We haven't talked about the Euro-crisis for a while. The latest fix in Europe is already coming un-fixed. The immediate problem was Spanish banks. They are insolvent and failing. The Euro-leders held a summit and developed a plan to bail out the banks directly, rather than funnel the money through the Spanish government, which is also insolvent.
German Chancellor Merkel couldn’t just hand out money without pushing the boot down on the necks of the Spaniards; it wouldn't sell in Berlin. She needed to go back and tell the German voters that she had fought the hard fight.The Spaniards were forced to make more cuts, 65 billion euro in cuts:
Spanish workers blocked streets and railways in Madrid today in protests against new austerity measures they said hurt ordinary people more than the bankers and politicians they blame for the economic crisis. The Spanish government approved the deepest cuts in 30 years, including a second round of wage cuts and reduced benefits for civil servants, and Spain's main unions called on public workers to strike in September.
The date of the strike will be announced at a later stage, the unions said in a statement. Traffic was blocked in central Madrid for hours as hundreds of public workers - many wearing black t-shirts in support of striking miners or green ones for public school teachers - shouted: "Cuts for bankers, not workers" outside ministries and public offices.
Railway workers blocked train tracks; other public workers blocked highways.
Several policemen took the unusual step of joining the protests. As one protester explained: "Civil servants tolerated the first round of cuts because we wanted to show solidarity, but this has reached a limit. It can't always be the same people paying the price."
It was the third consecutive day of protests since Spanish Prime Minister Mariano Rajoy unveiled fresh austerity measures designed to slash 65 billion euros from the public deficit by 2014 as he tries to dodge a full state bailout after requesting a European rescue for the country's ailing banks in June.