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The
market value of JPMorgan, the nation’s largest bank by assets, has
dropped more than $22 billion since Bloomberg News first reported on
April 5 that the firm amassed a large and illiquid position in credit
derivatives in the London office. The bank lost $5.8 billion on the
trades during the first six months of this year and has said it could
lose as much as $7.5 billion total while closing out the position.'
JPMorgan
Said to Face Escalating Senate Probe of CIO Loss
JPMorgan
Chase & Co.’s (JPM) wrong-way bets on derivatives are the focus
of an escalating investigation by a U.S. Senate panel led by Carl
Levin that has grilled executives from banks including Goldman Sachs
Group Inc. and HSBC Holdings Plc, three people briefed on the inquiry
said.
8
September, 2012
Levin’s
Permanent Subcommittee on Investigations is seeking testimony from
those who worked in or helped lead JPMorgan’s chief investment
office, according to the people, who asked not to be identified
because the inquiry isn’t public. The unit’s London staff lost at
least $5.8 billion this year on the botched wagers, which were large
enough to shift markets.
Tara
Andringa, a spokeswoman for Levin, didn’t respond to a message
seeking comment, and Joe Evangelisti at JPMorgan declined to discuss
the panel’s inquiry. “As always, the company has fully cooperated
with all regulatory and governmental requests around this matter,”
Evangelisti said.
The
bank, led by Chief Executive Officer Jamie Dimon, 56, faces a panel
of lawmakers that in recent years brought executives from Goldman
Sachs and London-based HSBC to Capitol Hill, barraging them with
questions that challenged their version of events. JPMorgan said in
July that its internal review found traders may have tried to obscure
the full amount of losses they faced on their transactions....
U.S.
Fiscal Cliff Endangers World Economy, Lagarde Tells APEC
9
September, 2012
U.S.
tax increases and spending cuts set to take effect by the beginning
of next year pose one of the biggest risks to the global economy,
International Monetary Fund Managing Director Christine Lagarde said
today.
While
Lagarde has warned about the U.S. fiscal situation before, this time
she took her case directly to leaders attending the Asia-Pacific
Economic Cooperation Summit in Vladivostok, Russia. She said the
fiscal cliff was one of “three key risks” -- the other two being
the euro crisis and medium-term public financing.
“We
discussed over lunch with the leaders of APEC, the global economic
situation, with the three key risks that we see on the horizon,”
Lagarde told reporters today. She said there are a “combination of
factors that could also increase the vulnerabilities of emerging
economies.”
Lagarde
made the comments to an organization whose membership oversees 56
percent of global economic output. The more than $480 billion
so-called fiscal cliff of automatic spending cuts and revenue changes
would probably cause a recession if left unchanged, the nonpartisan
Congressional Budget Office said in a report last month....
The
Fed Is Expected to Launch QE3 Next Week ... Which Would Help the Rich
and Hurt the Little Guy
8
September, 2012
Many
speculate that the Fed will launch QE3 next week.
\
But
independent economics and financial experts say this would hurt –
rather than help – the economy.
Dallas
Federal Reserve Bank president Richard Fisher said:
I
firmly believe that the Federal Reserve has already pressed the
limits of monetary policy. So-called QE2, to my way of thinking, was
of doubtful efficacy, which is why I did not support it to begin
with. But even if you believe the costs of QE2 were worth its
purported benefits, you would be hard pressed to now say that still
more liquidity, or more fuel, is called for given the more than $1.5
trillion in excess bank reserves and the substantial liquid holdings
above the normal working capital needs of corporate businesses.
William
F. Ford – former president of the Federal Reserve Bank of Atlanta –
notes:
One
of the overlooked consequences of the Federal Reserve’s recent
rounds of monetary stimulus is the adverse impact those policies have
had on the interest income of savers. The prolonged and abnormally
low interest-rate structure put in place by the Fed has made life
particularly difficult for retirees and others who depend on
conservative interest-sensitive investments. But the negative effects
do not stop there. They spillover into the overall performance of the
economy.
Our
estimates show that these negative effects, resulting from the Fed’s
two rounds of quantitative easing (QE1 and QE2), are sizable and may
help account for the lackluster character of the current recovery.
***
By
lowering interest rates to historically unprecedented levels, the
Fed’s policy deprives savers of interest income they normally would
have earned on the interest-sensitive assets they hold. Thus, there
is an income channel that no one is talking about, and its negative
impact can be powerful.
***
…..
Even by our most conservative estimate, which only looks at the $9.9
trillion in assets most directly affected by depressed yields on
Treasurys, the losses are impressive.
The
average yield on Treasurys in June 2010 was 2.14 percent compared to
an average of 7.07 percent in the previous nine recoveries, a
difference of 4.93 percentage points.
The
projected annual impact of this loss of interest income on just $9.9
trillion of rate-sensitive assets translates into $256 billion of
lost consumption, a 1.75 percent loss of GDP, and about 2.4 million
fewer jobs. (Our calculations assume that the recipients of interest
income face a 25 percent average income tax rate and consume 70
percent of their after-tax income.)
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