This is the kind of thing that makes me think about buying long term put options. The masters of the universe and their fearless leaders have stumbled again and the primary culprit is allegedly one trader in one class of derivatives who racked up at least $2 billion in losses. No one can say for sure if it’s just an isolated hiccup on the way to recovery or the start of another giant Wall Street heist:
(Reuters) — Two financial industry sources in Asia said they heard the JPMorgan trader took a position that a credit derivative curve, part of the CDX family of investment grade credit indices, would flatten, but was caught out by sharp moves at the long end. The CDX index gives traders exposure to credit risk across a range of assets, and gets its value from a basket of individual credit derivatives.
“It’s a pretty stunning admission for a company that prides itself on its risk management systems and the strength of its balance sheet,” said Sterne Agee analyst Todd Hagerman. “The timing couldn’t be worse for the industry. It will have ramifications across the broker-dealer community.”
Two billion isn’t much in the grand scheme of things. But when a company admits to shit like this you can believe they were out of options and its probably understated. It means something bad couldn’t be hidden away or postponed or quietly dragged out over several years, despite having the most talented money wizards on earth on the payroll and the most lax regulatory requirements since 1929. That’s the worry today, what if it’s just the tip of an iceberg that drags down other investment banks, hits a tipping point, and causes an economic collapse that few people understand but the 99% all pay for dearly? In our current weakened economic state, even a moderate screw up could be amplified and we’d be right back where we were a few years ago: job cuts across the board, small businesses folding right and left, maybe even massive government bailouts to keep ATMs spitting out bills and commercial paper rolling over to grease the wheel of capitalism.
Eyeing LEAP prices before the open, thinking of another cycle of endless lectures on debt and deficits from the same Wall Street scolds and their Kochwhore buddies who created the most toxic debt in history, it fills me with sweet nostalgia. Perhaps followed by a big round of million dollar plus bonuses for the same assholes, along with some nice perks for their legislative enablers in the halls of power who feed them trillions of taxpayer dollars. No doubt while gutting the dwindling assistance and unemployment programs the rest of us working class suckers would rely on for ready-to-eat potted meat product and raman noodles squatting in the dark in our growing suburban slums.
Assuming we can afford another multi-billion dollar bailout and more trillion dollars lines of no interest credit, which is debatable. But hey, if this turns out to be another disaster and we run short this time, there’s always that big pile of treasuries in the Social Security trust fund built up by hard working Americans over the last fifty years …