Greed and Capitalism

What kind of society isn't structured on greed? The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.
- Milton Friedman

Friday, May 25, 2018

The London Whale Guy

 

 Banks

The London Whale Guy Would Like To Have A Few Hundred Thousand Words With Jamie Dimon



Bruno Iksil, the trader who rose to infamy as JPMorgan’s London Whale in 2012, has finally decided to tell his whole story. It’s not a simple tale. Nor is it a brief one. In fact – at more than 150,000 words spread across a half-dozen pdf documents uploaded to a website called the London Whale Marionette (first reported by Financial News London) – it’s longer than most novels. But if one overriding theme can be gleaned from the rambling and minimally organized welter of information Iksil has regurgitated into the web, it’s this: Jamie Dimon is a jerk.
But it takes a heroic expenditure of time and concentration to get to that conclusion. Single-spaced paragraphs that go on for pages at a time spell out a stream-of-consciousness narrative that is only loosely chronological. As Iksil writes early on:
Many readers will find the text dense and at times difficult to grasp. I apologize for that. What makes it difficult is not the underlying trading and banking universe that is pictured in the background. The real challenge is that this case is just a series of smokes and mirrors.
He later apologizes that “my English is sometimes quite clumsy.” This is true, but sometimes his diction sings. E.g., this sentence: “Who could gobble such a gross bluff?” Really, who?
In his version of the London Whale story, Iksil was a patsy, or, in a characteristic gallicism, a “marionette.” He was simply a tool for higher-ups in JPMorgan’s Chief Investment Office, swallowing his own misgivings to wind and unwind massive and risky trades whose ostensible purpose was to hedge the bank’s overall risk profile but in actuality functioned as soon-to-be-verboten proprietary trades intended solely to make money. When the music stopped, he was discarded.
This much can be reasonably inferred from previous overviews of the London Whale imbroglio, including the 2013 Senate investigation and, to a lesser degree, JPMorgan’s own, somewhat exculpatory self-examination. But the full story hasn’t been understood yet, Iksil writes, thanks to a credulous press and lazy regulators:
Only a small fraction of the existing evidence on that matter is available today for the public eye through the US Senate report exhibits…. And this small fraction itself is sort of buried in the middle of 2500 pages with no thread to guide the reader.

Apparently seeking to outdo the incomprehensibility of the Senate’s muddled report, Iksil’s saga weaves together emails, court documents, press clips and personal reflections into what is either a post-modern literary masterpiece or a length demonstration of the importance of having a good editor.

Anyway, the short version is this:

The “London Whale” is a genuine scandal. It appears to be a genuine manipulation of the markets, a genuine manipulation of the bank accounts, and a genuine manipulation of the media. It may be even worse than that if the final outcome on the “London Whale” is the one that prevails today in 2017.
Contrary to public perception, the ill-fated maneuver that caused such embarrassment for Dimon et al didn’t leave JPMorgan $6.2 billion in the red, Iksil writes, but some $25 billion in the black. That’s because the synthetic credit derivative shorts that the CIO had piled into so heavily were balanced out by long positions in the investment bank. The whole thing – minus the whole losing-billions-on-a-single-position-and-paying-huge-fines part – had been planned all the way back in 2010, Iksil writes. Taken as a whole, the Whale days were actually a good time for JPMorgan:
The year 2012, far from being a catastrophe, was quite a unique successful vintage for JpMorgan since 1999 and would still look like the best one year on the record in 2017 when the tangible capital generation is considered. One would then better understand why, back in 2012, the bank simply did NOT plan to unwind the position of the ‘CIO hedge‘ in the markets…It was already positioned to make a profit on the long planned “CIO tranche book” transfer to the IB and to hedge funds. This sheds quite a different light upon the events that are described through the media coverage part before. This implies for example that the positions offsetting those of CIO were already present in the firm, valued by the IB (the Investment Bank of JpMorgan), and this suggests that the loss at CIO was not such a worry as far as the bank earnings were concerned throughout the period covering Q1 and Q2 2012. One may then rightly conclude that the losses at CIO were balanced everyday by quite equivalent known gains somewhere else inside JpMorgan. Hence nothing had been left to chance way before the rumor and the articles got to press in April 2012.
This is just the 30,000-foot view. Iksil goes into lugubrious detail about his own side of the story – the warnings he sent upper management, the browbeating he received for those warnings, his sole and fleeting interaction with Jamie (“ Iksil will reply that he is dealing day to day with the ‘nuclear wastes’ of the markets in credit”), his being told that “we manage the optics for regulators here” at the CIO, his acute case of “Burn Out” that took him out of commission during the worst of the fiasco, his unsatisfying interactions with the regulatory state, etc – but we’ll leave it to others to comb through for anything truly revelatory.
The real takeaway, I think, is this. Let’s assume that Iksil is right, that JPMorgan promoted him into a fake position so that they could later lay the blame for the CDS trading losses at his feet. The most important criterion in selecting a good patsy isn’t just whether they’ll play along at first, but whether you can count on them not to (a) blow a whistle, nor (b) prove to be a real liability when everything shakes out. That relies on believability and media savvy, among other things. So go ahead and visit www.londonwhalemarionet.monsite-orange.fr and decide for yourself whether Iksil fits the bill. 

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