Synthetic credit. Trading a black box. Small is beautiful? Hardly when it comes to banking. In light of JP Morgan’s announced “surprise $2Billion profit bust; soaked and also synthetic red ink, people are naturally worried about contagion and another bank run. Or maybe its all a game; an electric cow prod to get the Fed to open their wallet for more quantitative easing, QE3+ improved edition. One get the sense that there is not that much authentic credit changing hands, basic lending demands and banks need to resort to machinations and gymnastics to create the profits that support their massive structures and pay scales.
And the government as we know has been complicit in this failure, really a moral failure of stewardship in which pro-business has become a dirty word which posits the interests of the managerial and property owning interests in society, and in effect, controls the much of the bureaucratic non-elected apparatus of the state; where criticism from outsiders, the great unwashed masses of society is framed in contexts which characterize dissension as undemocratic, and against enlightened Western liberal values. A Mark Carney can debate a Jamie Dimon publicly, but outsiders are not permitted. In fact, this pro-business elite appears to act in efforts designed to sabotage a well-functioning market economy that would result in benefits to all; crisis seems to reinforce their position of power and a reason not to share, preferring instead to wallow within their own tragic flaws and absurdity.
The capitalist, The Warren Buffets, Soros’s etc. are the most esteemed person in our society; for some reason it has come to believed that making money,in addition to alchemy, is an advanced art form which implies that the very wealthy are endowed with creative gifts; like Michelangelo or Rembrandt. Divine rights. Godlike figures who have permeated most levels of society. There is no art world or literature world to speak of, they are all markets subject to the vagaries of sentiment ready to spit shine and lick boots in tribute and homage in order to reap the rewards.The deification at the high end of the quota is the Donald Trump marketing personality or Mitt Romney for that matter; the kinds of post-modern personalities produced by capitalism. They seem to be continually selling themselves to the world, more outwardly than inwardly oriented,and one has to wonder if an inner life of a Jamie Dimon or Lloyd Blankfein have inner lives that are of necessity, flat, stale, and ionically unprofitable means of affirming capitalism. There is always dancing with the stars. Problem is, the unimpeded pursuit of money and profit at the cost of the common good that might be achieved by corporate responsibility and social conscience is lacking; it signals a triumph of capitalism over the alternatives which don,t smell very good either; but the elections in Greece where extremist fringes gained a voice, does not augur well in the near term, serving as a prescient reminder of what may be in store.
( see link at end) …The bank JPMorgan announced last night that it had lost $2bn in trading on credit derivitives, through what chief executive Jamie Dimon called “errors, sloppiness, and bad judgment” and a “bad strategy, badly executed and poorly monitored”.
The loss was made by the bank’s chief investment office, which is under the aegis of Bruno Iskil, who earned the nickname “London Whale” earlier this year following accusations that his oversized bets on credit derivatives, one said to be as large as $100bn, were skewing the market.
Dimon insists that this trade was an example of hedging, telling a conference call that:
I know it was done with the intention to hedge tail risk… it was unbelievably ineffective.
Some have their doubts, with Matt Yglesias writing:
In general if you just lost $2 billion that’s a good sign that you’re not hedging.Read More:http://www.newstatesman.com/business/financial-services/2012/05/jp-morgan-loses-2bn-unbelievably-ineffective-hedging-bet
Mike Mayo ( see link at end) :Analysts are supposed to be a check on the financial system—people who can wade through a company’s financials and tell investors what’s really going on. There are about 5,000 so-called sell-side analysts, about 5% of whom track the financial sector, serving as watchdogs over U.S. companies with combined market value of more than $15 trillion.
Unfortunately, some are little more than cheerleaders—afraid of rocking the boat at their firms, afraid of alienating the companies they cover and drawing the wrath of their superiors. The proportion of sell ratings on Wall Street remains under 5%, even today, despite the fact that any first-year MBA student can tell you that 95% of the stocks cannot be winners….
( see link at end) …What we need is a better version of capitalism. That version starts with accounting: Let banks operate with a lot of latitude, but make sure outsiders can see the numbers (the real numbers). It also includes bankruptcy: Let those who stand to gain from the risks they take—lenders, borrowers and bank executives—also remain accountable for mistakes. As for regulation, the U.S. may want to look to London for ideas. In the last decade, the U.K. equivalent of the Securities Exchange Commission (called the Financial Services Authority) fired much of its staff and hired back higher-caliber talent, at higher salaries. This reduced the motivation for regulators to jump to more lucrative private sector jobs and improved the understanding between banks and regulators.
A better version of capitalism also means a reduction in the clout of big banks. All of the third-party entities that oversee them need sufficient latitude to serve as a true check and balance. My peer group, the army of 5,000 sell-side Wall Street analysts, can help lead the way to provide scrutiny over the markets. Doing this involves a culture change to ensure that analysts can act with sufficient intellectual curiosity and independence to critically analyze public companies that control so much of our economy.Read More:http://online.wsj.com/article/SB10001424052970203804204577016160354571908.html
Why does capitalism produce so few capitalists?
One of the most powerful moral objections people have to capitalism is that it allows some people to earn a living without actually doing any work, just living off the return on their investments. The force of this objection would be rather severely diminished if this advantage were more widely shared. Unfortunately, ownership of wealth in capitalist societies is far more concentrated than one might expect from looking at the distribution of income.
The benefits of saving are the same, regardless of whether one is rich or poor, and yet in industrialised nations, almost all financial assets are owned by people in the top income brackets. Over the course of the 20th century the American working classes could very easily have “bought out” the capitalist class, simply by putting a fraction of their pay increases into stock ownership.
Why they chose not to is actually a very complex question. But any program that seeks to combat inequality in the distribution of wealth needs to take this question very seriously, because the forces that led to this dismal rate of savings could also, quite easily, undermine any scheme to improve equality through redistribution of wealth.Read More:http://articles.economictimes.indiatimes.com/2011-09-30/news/30228764_1_capitalists-market-economy-financial-crisis