Daily Archives: 05/26/2012


CAPE CANAVERAL, Fla. (AP) — The privately bankrolled Dragon capsule arrived at the International Space Station for a historic docking Friday, captured by astronauts wielding a giant robot arm.
It succeeded in making the first commercial delivery into the cosmos.
U.S. astronaut Donald Pettit used the space station’s 58-foot robot arm to snare the gleaming white Dragon after a few hours of extra checks and maneuvers. The two vessels came together while sailing above Australia.
“Looks like we’ve got us a dragon by the tail,” Pettit announced from 250 miles up once he locked onto Dragon’s docking mechanism.
“You’ve made a lot of folks happy down here over in Hawthorne and right here in Houston,” radioed NASA’s Mission Control. “Great job guys.”
NASA controllers clapped as their counterparts at SpaceX’s control center in Hawthorne, Calif. — including SpaceX’s billionaire maestro, Elon Musk, of PayPal fame — lifted their arms in…

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Mashed Potato Bulletin

An increasing number of former Republican representatives and close associates are making their criticisms of the current GOP known. Is it too late to make much of difference this election cycle or will these voices make moderates and independents sit back and employ a bit more introspection into their own beliefs before making their final choices come November?

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Brucetheeconomist's Blog


Face Of The Day – The Dish | By Andrew Sullivan – The Daily Beast.

Am I the only one who wonders: why does President Obama provide so many bad photos ops of himself? Like this one, he doesn’t seem to be looking at the gift he’s received or with a look of gratitude at the young fellow who handed it to him.

Instead, he looks like he thinks: ‘I am so cool’. I’d say this is not necessarily unusual either. How many times do you see photos of Barack on hostile website, always with his chin out Mussolini style, the claim he’s a fascist I suppose. Some of that is selection of photos by his enemies, but the Air Force one shot was from the Daily Dish, a very Obama friendly site.

I don’t think the President is a jerk at all, and I’d think he smarter…

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JPMorgan’s debacle, and its parallels to AIG


JPMorgan’s debacle, and its parallels to AIG

Published on The Big Picture | shared via feedly mobile

JPMorgan’s debacle, and its parallels to AIG
Barry Ritholtz
Washington Post May 19 2012





Last week, the once-future Treasury secretary and current JPMorgan Chase CEO Jamie Dimon revealed a $2 billion loss. This previously undisclosed derivative trade should be a wake-up call for those claiming that finance has been “reined in” and no longer presents a threat to the global economy.

As it turns out, nothing could be further from the truth.

Finance has become a low-margin, high-leverage business. This is not surprising in an environment in which trading volumes are exceedingly low and interest rates even lower. In any other industry, a slowdown in economic activity sends management scurrying to cut costs, develop new products, become more productive. In short, to innovate. Companies can throw money at new products, marketing campaigns or discounted pricing, but a slowing economy brings down demand. What we have today is a deleveraging economy, and that is even more challenging — limiting the options that CEOs can take to increase their company revenue.

The world of finance refuses to accept that reality. Whenever Wall Street is confronted with a decrease in profits, we see the same response: Increase leverage. We usually don’t hear about it until some market wobble causes the excessive leverage to blow up in someone’s face. This time, the novelty cigar was smoked by Dimon, and the damage was inflicted on his reputation. The losses, we learned, were a “mere” $2 billion, described as manageable.

Consider any major finance disaster of the past 30 years, and what you will invariably see is the result of trying to spin dross into gold. The magic of finance is that this can work for a while. The reality of finance is simple mathematics. Eventually, the probabilities play themselves out and the dice come up snake eyes.

One thing that makes the JPMorgan trade look especially foolish is that it’s nearly the same sort of recklessness that AIG exhibited: selling derivatives against zero reserves. As Doug Kass, who heads the hedge fund Seabreeze Partners Management, explained: “Under the knowledge of Dimon, the JPM investment office sold massive amounts of CDS [credit-default swap] premium on large U.S. corporations in 2011. Like AIG, they accumulated a large amount of reported profits in the three-year period ending 2011. In an equally familiar manner, the principals of the London investment office were handsomely rewarded. And so was Dimon.”

Gee, why does that sound so familiar?

So how long did it take after AIG blew itself up selling derivatives until some trader came up short making the same reckless bet? Less than four years.

The parallels to AIG continue to mount, including on the JPMorgan risk management committee. Astonishingly, Ellen Futter, who was a director at AIG, was also on the risk management committee at JPMorgan. It’s unclear what you need to do to get kicked off that committee, but the directorial equivalent of steering the Titanic into the iceberg apparently won’t do it.

Most financial debacles have a few things in common:

1 They vastly underestimate the risks involved;

2 They assume the future will look nearly identical to the past;

3 They use lots of leverage to generate profits without enough capital in reserve;

4 And everyone always pretends to be surprised when the trades eventually go bad.

As to Dimon’s statements, I am not sure which is worse: whether he knew about it and was not forthcoming, or whether he (as claimed) simply had no idea.

Regardless, the error at JPMorgan unwittingly reveals much about the present state of finance:

• Bankers remain imperfect, overreaching and bonus-driven participants;

• When using other people’s money, the promise of enormous bonuses is still weighed heavily toward excess risk-taking;

• No major U.S. money center bank has demonstrated an ability to manage proprietary trading risks. None.

• If traders have forgotten the lessons of the financial crisis less than four years later, what sort of reckless speculative risks will mis-incentivized persons be doing after 10 years?

• Trades that are so enormous as to be “credit index distorting” are not hedges but pure speculation.

• Within banks, apparently the word “hedging” loosely translates as “speculation.” Actual hedging of existing positions appears to be nonexistent.

• This trade was called “hedging for profits” — there is no such thing. That is speculation.

• Value at Risk (VaR) as applied by banks today is a mostly useless concept. This model is such that even minor deviations have devastating consequences.

• Dimon, formerly praised as the Capo di tutti capi of bank CEOs, apparently has been more lucky than brilliant. This past quarter, his luck ran out.

• Because of the enormous built-in leverage in derivatives, they are inherently dangerous. They remain financial weapons of mass destruction.

• “Too big to hedge” is a threat to the stability of the global economy.

• Wall Street in its current configuration is trying its hardest to be “unregulate-able.”

Although this was “only” a $2 billion loss, it easily could have been much greater. That banks such as JPMorgan are still putting on trades that distort indices is, quite bluntly, astonishing.

Back to 1998!


Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture. You can follow him on Twitter: @Ritholtz

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