<You're a liberal?>
In 1998, I had a patient tell me how easy it was to get a car loan. She said because it was a secured loan, banks lent the money pretty freely. Since Bush passed bankruptcy laws in 2005, collecting bad debts has gotten even easier. Bear in mind, the spread wasn't much. Then banks borrowed at 5% from the Fed and loaned at 8%, and that was for people even with bad credit. Now they borrow at 0.1% and lend as high as 20%.
Of course, conservatives scream "the problem is people not paying their debt" wrap themselves in the Christian flag, and then ignore the Biblical and all other major religious covenants against usury.
So how come 15 years ago the spread was 3% and now is as high as 20%? It is not like people all of a sudden got irresponsible. The reason is that the public is paying through the nose for funding the bank's casino like gambling.
So banks ripping off consumers is okay with conservatives while consumers fleecing banks is okay with liberals, but in both cases, it is stealing. The pols have distracted the sheeple from the fact that stealing is now legal with their red v. blue, Dem v Republican dog and pony show. It amazes me how well this has worked.
Still, the largest private shareholder of a number of banks is Warren Buffett, a famed Democrat.
So what do you call it when a conservative doesn't pay back a loan from Wells Fargo, Buffett's bank? Good party politics?
<<< Warming up to the idea of owning some gold exposure yet? >>>
I actually am wins, just waiting to see if it goes lower. I bought some GDX last week and flipped it fast for a few bucks. I am interested in getting back into GDX and probable some GLD if the price gets low enough.
Like I've been thinking from the beginning--time to let these big banks take a bath.
Any operations or activities they do that are deemed essential to the econmomy and commerce can be taken on by other institutions.
Bailng out these TBTF's is a huge misallocation of resources and what is killing Main Street and the real economy.
Bernanke is a fool by directing so much attention and resources towards Wall Street but my guess is his puppetmasters are the reason for it and their agenda requires the TBTF's to retain their heft and dominance.
To think that the 5 biggest TBTF banks control 75% of America's banking assets (including a lot of FDIC-insured depositor money that gets co-mingled in various ways) says an awful lot.
<<The domino effect of counterparty failure that begins in Europe will bring the too big to fail U.S. banking sector down.>>
Warming up to the idea of owning some gold exposure yet?
The end game comes when the banks can no longer fleece the government/taxpayers. That is already the case in Greece where the Greeks have figured out that their future has been scuttled because of the greed of French and German banks.
The haughty belief is that no matter what the banks do, the fed or ECB will bail them out, but the banks have gotten too big.
So take Banco Santander of Spain which has assets of 92% of the GDP. Banking assets are a misnomer as they contain not savings but loans/bonds and derivatives/bets.
Is Banco Santander solid? Of course not. Moody's just downgraded it and a bunch of other Spanish banks. What if BAC has a $75 billion bet with Banco Santander and Santander goes down? Theoretically, BAC is then worthless.
The notion that pea brain optimists have is that the Spanish government will come in and assume control of the assets like they just did with Bankia. If Spain can't handle the burden, the Fed/ECB will not let them fail. Here is the problem. Most governments only get 20% of the country's GDP in the form of taxes. If the assets on Banco Santander's books go down by 20%, every tax dollar the Spanish government brought in would have to be used to prop up Banco Santander, an impossible scenario.
American banks were too big to fail. European banks are too big to bail.
So we are at 2008 all over again except worse. The world's central banks have shot all their bullets just to maintain the status quo. The domino effect of counterparty failure that begins in Europe will bring the too big to fail U.S. banking sector down.
Any bank holding a lot of derivatives will then be worthless. Despite the pain that they may cause I say, "Good riddance!"
In conclusion, anyone thinking they know something about a large bank's valuation is fooling himself. Jaime friggin' Dimon didn't know the value of JPM. If he didn't know, you all don't have a prayer.
And what did this trader bet on? You have to understand CDS and few people do. CDS are basically insurance, and they are traded like stocks. So if you want to insure a $100 bond payment from say Germany, the CDS may cost you $1. Buying the same CDS protection for Greece may cost you $95. The CDS market much like stocks trades out of greed and fear.
So the London Whale bought up U.S. corporate bond CDS thinking that they would go higher. He was betting the corporate bond market would get better right before the corporate bond market hit the skids.
And this wasn't a hedge. A hedge would be buying a small amount of CDS insurance and owning a much larger amount of corporate bonds. The London Whale in essence was selling not buying insurance. So the JPM spokesmen were lying through the teeth. This was an effing bet!!! Period.
You can read more in detail about JPM here:http://www.ritholtz.com/blog/2012/05/understanding-j-p-morgans-loss-and-why-more-might-be-coming/
<Every play in the market comes with risk...if you don't believe this to be the case.>
This is such a simplistic statement. Maybe some of you have seen slot machines advertising 98% payouts. Well, how many times have you gone to a casino with $100, played slots, and left with $98? Never right? The reason is if you bet enough times with 48-52% odds against you, you will eventually lose all your money.
On the flip side, card counting in Vegas is illegal and considered cheating. Under the best scenarios, the player flips the odds to 52% in his favor. If you do it right (and the casino doesn't cheat), you can theoretically never lose and make an infinite amount of money.
So the concept there is always some risk is a lazy way of not quantifying the risk especially given that a variance of just 2% can be the difference between huge wins and losses.
So Bank of America has $50 trillion (trillion with a T) in derivatives/bets. Its total value is $75 billion and its PE is well nothing because they aren't making money.
To value BAC, you would need to know where those $50 trillion in bets are and who is taking the other side of the bet and if the party you are betting against (counterparty) is good for paying you if he loses the bet.
And seeing as how BAC may be betting against say JPM, you would need to know all of JPM's positions as well.
But you can't know BAC's or JPM's positions. Because if you did, you could force a short squeeze onto them. Just like Goldman Sachs did with Semgroup on oil. See the link: http://www.forbes.com/forbes/2009/0413/096-sachs-semgroup-goldman-goose-oil.html
So the banks are going to guard knowledge of their bets with all the strength they can muster.
The end game with all these bets is a heads BAC wins and tails the taxpayer/fed loses. What is happening is the banks get fed money at 0.1% and lend it out to people for as much as 30% and governments for 3%. The spread between what banks borrow from the fed at and what consumers pay in interest has NEVER been higher. That is how banks are stealing from us to support their profits.
<Since you have no idea what I do, (unless you've done a background check, which wouldn't surprise me) often working with an organization can allow you to "put your finger on the pulse) of how they might be doing.>
This is an amateur statement at best and a narcissistic statement at worst. How do I know? Take a look at this WSJ article: http://online.wsj.com/article/SB10001424052702304587704577336130953863286.html
"Joe Evangelisti, a spokesman for J.P. Morgan, declined to comment on specific trades, or Mr. Iksil, except to say that recent trades were made to hedge the firm's overall risk."
They repeated the same lie on April 13th:
“The CIO balances our risks,”, “They hedge against downside risk, that’s the nature of protecting that balance sheet.”
Braunstein added the bank is “very comfortable with the positions we have” and that all of the positions are “very long term in nature.”
It turns out Braunstein was wrong, and Jaime Dimon admitted to it in his own press conference:
Jamie Dimon: Regarding what happened, the synthetic credit portfolio was a strategy to hedge the firm’s overall credit exposure, which is our largest risk overall in this stressed credit environment. We’re reducing that hedge. But in hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed, and poorly monitored. The portfolio has proven to be riskier, more volatile, and less effective as an economic hedge than we thought"
How much money did this London whale control? "Mr. Iksil's group had roughly $350 billion of investment securities at Dec. 31, according to company filings, or about 15% of the bank's total assets."
Let's put that $350 billion in perspective. JPM's total market cap is $127.5 billion. This one goofball had bets that total about 3x the value of JPM and 20x the size of JPM's annual earnings.
And when did JPM get a handle on what this London Whale trader was doing? If you think it was from an internal source, you would be wrong:
Q – Brennan Hawken: And the implication I guess might have been that there
was all this press speculation about certain trading individuals out of
London. Were some staff fairly new that came into execute this new or this -
some of this new angle, and are those folks no longer in that? That’s been
re-jiggered, I think you said, right?
A – Jamie Dimon: No. No, no, it was nothing to do with new folks; a little
bit to do with the articles in the press.
Got that ladies and germs? It wasn't JPM's internal security that alerted Dimon to the risks the London Whale was taking but the media.
Q – Mike L. Mayo: You said you had
some smaller losses in the first quarter. Were there – even in retrospect
were there any signs that perhaps you should have paid more attention to,
A – Jamie Dimon: Yes, in retrospect, yes.
Q – Mike L. Mayo: And what would those be?
A – Jamie Dimon: Trading losses.
So Dimon admits the truth. These weren't hedges but bets that went bad AKA trading losses.
Bear in mind because of the deregulated nature of derivatives, we don't know who owns what. In fact, I am sick of the term derivatives. Can we just call them bets because that is what they really are?
Wow! VERY cool about your friend having known Jaco! I actually want to read this bio on him. I have heard a lot of the stories.
The guy was brilliant.....Yep, he had his problems as well, but still a genius.