JP Morgan's Losses: "No Big Deal"

Wall Street and its Congressional and Fox news allies continue to play down the trading losses of JP Morgan Chase for gambling wildly on bad credit derivatives in May, as though they were quite small and normal, and should not be a reason for enforcing the regulation laws passed two years ago. Larry Fink, of Blackrock is only the most recent person to come to their defense saying on CNBC’s “Squack Box” on Thursday that the loss, which he said was only $2 billion, was “no big thing.”

However, by the time he said that, the losses had already risen to $5 billion and he knew that. Also, as soon as the losses came out, JP Morgan’s stock price also fell by around another #30 billion. So, all tolled, the loss of the bad and foolish and risky gambling action cost them between $30 to 35 billion. And surely someone in the very the smart people at JPM must have known that if they lose $5 billion, they will lose even more than that in investor confidence. Surely they knew that.

JP Morgan’s profits last year were in the neighborhood of $90 billion, so the tiny, no big deal loss was one third of their income. That is a VERY big deal. 
May 13, 2012, 1:11 PM


Paul Krugman

Some of us have been talking it over, and here’s what we think the end game looks like:
1. Greek euro exit, very possibly next month.
2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.
3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.
3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.
4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:
4b. End of the euro.
And we’re talking about months, not years, for this to play out.