Since the onset of financial recession back in the year 2008, the US government has been struggling to weather the crisis in every possible way. But for some reason or the other US has at large failed to overcome the post-recession fatigue syndrome it is suffering from.
Details, However, are still patchy about how JP Morgan, a highly acclaimed and one of the best managed financial institutions of the country registered a massive trading loss of $2billion, deepening the economic turmoil at Wall Street.
Here is a Q&A that might come in handy:
Q. What was the trade about and what was being ‘bet’ upon?
The story starts from a London-based trader of JP Morgan Chase known as Bruno Iksil. He assembled a huge portfolio of investments for the bank through which the organization could easily curb any future risks by making use of its own money. The bet in numerical terms was so big that Iksil earned the title of The London Whale.
It’s kind of complicated, but Iksil was actually selling a form of insurance to other investors. Furthermore, it was based on the belief that certain some US corporate bonds are secure enough to shield them from any future market fluctuations.
Q. So, what went wrong?
Iksil was only worried about one thing. Since he had sold too much, he feared even a slight jolt would cause enormous pain and that is exactly what happened. The market blipped and resulted in a $2billion loss for JP Morgan.
Q. How did the looming crisis escape the sight of all other investors?
Details are sketchy, but according to Matt Levine, the editor of Dealbreaker, there has been some serious fiscal blunder in conducting the trade. Others suspect that there can be some criminal aspect to the loss also.
Q. Precisely, how much has JP Morgan lost on the trade?
Initially figures of $2billion are making rounds, but it can easily surpass $5billion mark. The area hurting most is that the trade isn’t over yet. JP Morgan Chase is still trying to get out of the mess.
Q. Will a bailout help in handling the situation?
No. Surprisingly, $2-5billion is not that much of an amount for JP Morgan keeping in mind that in 2011 the bank registered a profit of $19billion. More surprising is that chief executive Jamie Dimon referred to the 2-billion dollar loss as ‘mildly disappointing.’
Q. Why does this matter then?
Primarily because of JP Morgan’s leading position in US banking sector. It was able to insulate itself from the pinch of global recession. But this episode proves that JP Morgan is no different. It risked too much merely on the basis of highly speculative data.
Moreover, JP Morgan has proved that Wall Street is not willing to learn anything from its mistakes that rattled the economic system less than four years ago.
Q. What does this mean for US government?
President Obama has already called on for Wall Street reforms following the losses. Perhaps, such reforms upon timely promulgation must have played a more profound role in safeguarding institutions from such crisis.
Q. Which situation is more alarming? JP Morgan or Greece
Greece, without a doubt. Greece is turning the epicenter of economic chaos for the whole world. Or putting it simply, JP Morgan’s loss can definitely make you angry, but it’s useless worrying about it.
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