Last Thursday, after US markets had closed, JPMorgan Chase CEO Jamie Dimon disclosed that the bank had absorbed losses in excess of $2 billion from derivatives trading. Dimon blamed the losses on the failure of the bank’s systems to prevent trading activities which could result in losses of that magnitude.
On Monday, the bank’s chief investment officer resigned. More departures of high ranking executives are expected.
As expected, several politicians quickly proclaimed that the losses represented a failure of government regulation.
Although there has been extensive coverage on this story, there are several points missed by the mainstream media.
First, whenever a huge loss caused by mismanagement is first announced, the actual loss tends to be two to ten times that amount. Just look back at what happened to the losses suffered by MF Global Holdings, Lehmann Brothers, Bear Stearns, Enron, and Bernie Madoff’s clients for example.
Second, whenever a company suffers a catastrophic loss that can be accounted for as an extraordinary item, there is a tendency to pile on other losses. That results in one large loss that has to be reported rather than a string of losses over time. Kellogg’s has been suspected of this practice repeatedly. It is possible that Ford’s alleged billion dollar loss on palladium trading may have included lots of other losses. When a company has to take a bath in red ink, there is an incentive to overstate it to help ensure that future financial results will look better.
Third, JPMorgan’s losses were described in such vague terms that it is impossible for the public to understand exactly what happened. I’m sure this was not an accident.
Fourth, I have not yet seen the mainstream media discuss the fact that JPMorgan Chase is the lead trading partner for the Federal Reserve. This connection brings up a ton of further questions about what really happened, how it came to pass, and who was ultimately responsible. If JPMorgan Chase absorbed the losses following orders from the Fed, will taxpayers ultimately reimburse the bank?
Fifth, whatever trading activities resulted in the losses, it is almost certain that other major US banks have engaged in similar or identical practices. When will we hear about what happened at other banks?
Sixth, what did Jamie Dimon and Federal Reserve Chair Ben Bernanke discuss in their meeting just days before the loss was disclosed? It appears that Bernanke lied to the public last Thursday morning about what he knew about JPMorgan Chase’s finances. I haven’t yet seen any of the mainstream media investigating this deception.
There are so many potential global financial catastrophes looming that it is possible that the JPMorgan Chase losses could be the straw that breaks the camel’s back. Already this week, the International Monetary Fund (IMF) has stated that it needs to acquire an additional $2.3 billion of gold to manage heightened global financial risks.
For the past ten years or so, the IMF has pretended that it was going to sell some of its gold holdings. It eventually boxed itself in so that it was forced to really sell some gold. This week’s announcement is an unexpected abrupt reversal of its long-term posture. If the IMF, in contradiction of its own previous actions, says that it now suddenly needs to buy gold reserves, this change could have been sparked by the JPMorgan Chase losses.
The JPMorgan Chase losses, combined with the surprise IMF announcement, is all the more reason to make sure you own your insurance positions of physical gold and silver.