The London Whale / Volcker : Sat May 12, 2012 9:19 am  

I'm not sure how much debate this will generate but it might be of interest to some. FT Alphaville have an excellent analysis of the trade it seems The London Whale put on (background reading also here) that has potentially caused a $2bn mtm loss at JP Morgan. Two interesting bits here for me: 1. the demonstration of how ineffective regulators still are: (from the FT article) "99 per cent of all CDS trades live in an information warehouse called DTCC, to which the regulators of the banks have access in however much detail they want!!! What kind of regulator doesn’t go and look at the that". It's highly unlikely that these trades were in the 1% of trades that are paper confirms (ie. outside DTCC) so you have to wonder how this wasn't spotted by a regulator? They're asking banks to build global trade repositaries and yet they don't even (know how to?) use them. 2. the demonstration of how easily a trader can go from putting on a perfectly legitimate hedge to breaching the Volcker rule. Blogger Economics of Contempt provides some excellent analysis of the Volcker that demonstrates just how messy the regulation is getting in banking for those who don't work in the industry. Particularly when the regulation is being drawn up by people who have little to no understanding of what actually happens within a bank.

I'm not sure how much debate this will generate but it might be of interest to some. FT Alphaville have an excellent analysis of the trade it seems The London Whale put on (background reading also here) that has potentially caused a $2bn mtm loss at JP Morgan. Two interesting bits here for me: 1. the demonstration of how ineffective regulators still are: (from the FT article) "99 per cent of all CDS trades live in an information warehouse called DTCC, to which the regulators of the banks have access in however much detail they want!!! What kind of regulator doesn’t go and look at the that". It's highly unlikely that these trades were in the 1% of trades that are paper confirms (ie. outside DTCC) so you have to wonder how this wasn't spotted by a regulator? They're asking banks to build global trade repositaries and yet they don't even (know how to?) use them. 2. the demonstration of how easily a trader can go from putting on a perfectly legitimate hedge to breaching the Volcker rule. Blogger Economics of Contempt provides some excellent analysis of the Volcker that demonstrates just how messy the regulation is getting in banking for those who don't work in the industry. Particularly when the regulation is being drawn up by people who have little to no understanding of what actually happens within a bank.

Re: The London Whale / Volcker : Sat May 12, 2012 9:40 am  

Only caught a bit of this on the news last night, but it did make me laugh.

Basically, he's a professional gambler with other people's money. When his bets come off, which it would seem, are quite regular, he's on a 6/7 figure annual bonus, which his bosses are delighted with. When they fail as spectacular as this, he's the fall-guy, and his bosses will quickly distance themselves from him. Seems to happen on a regular basis, Nick Leesom and the French trader last year spring to mind.

Re: The London Whale / Volcker : Sat May 12, 2012 11:22 am  

So because some useless c**t manages to lose the GDP of a sub-Saharan nation, it's the regulator's fault?

Nothing at all to do with the culture of gambling and greed that has been fostered by this guy's employers then?

Re: The London Whale / Volcker : Sat May 12, 2012 1:17 pm  

Yet another reason these shysters should be put out of business.

[DaveO]

Re: The London Whale / Volcker : Sat May 12, 2012 5:24 pm  

The fact this guy has a nickname of The London Whale says it all to me.

It says the culture on the trading floors of the banks and in the banks themselves has just not changed. They have just carried on since 2008 as before.

The nickname conjures up visions of a Harry Enfield "Loads a money" fat git from the 1980's wearing red braces

Re: The London Whale / Volcker : Sat May 12, 2012 5:36 pm  

DaveO wrote: The fact this guy has a nickname of The London Whale says it all to me. It says the culture on the trading floors of the banks and in the banks themselves has just not changed. They have just carried on since 2008 as before. The nickname conjures up visions of a Harry Enfield "Loads a money" fat git from the 1980's wearing red braces Apparently he is very different from what you describe - LINK This type of transaction shouldn't be regulated, it should be abolished. It offers absolutely no benefit to anyone other than the protagonists, it is not an investment, simply because there is buggerall to invest in. It is gambling, pure and simple, no different to the turn of a card or a roulette wheel. The fact it is generally used to mitigate potential losses in real investments is no excuse, all it does is offer a safety net to those making the investments. If they need that, perhaps they shouldn't be making the investment in the first place.

DaveO wrote: The fact this guy has a nickname of The London Whale says it all to me. It says the culture on the trading floors of the banks and in the banks themselves has just not changed. They have just carried on since 2008 as before. The nickname conjures up visions of a Harry Enfield "Loads a money" fat git from the 1980's wearing red braces Apparently he is very different from what you describe - LINK This type of transaction shouldn't be regulated, it should be abolished. It offers absolutely no benefit to anyone other than the protagonists, it is not an investment, simply because there is buggerall to invest in. It is gambling, pure and simple, no different to the turn of a card or a roulette wheel. The fact it is generally used to mitigate potential losses in real investments is no excuse, all it does is offer a safety net to those making the investments. If they need that, perhaps they shouldn't be making the investment in the first place.

Re: The London Whale / Volcker : Sat May 12, 2012 6:53 pm  

cod'ead wrote:

It is gambling, pure and simple, no different to the turn of a card or a roulette wheel.

This could be a good thread

[DaveO]

Re: The London Whale / Volcker : Sun May 13, 2012 12:43 am  

cod'ead wrote: Apparently he is very different from what you describe - LINK This type of transaction shouldn't be regulated, it should be abolished. It offers absolutely no benefit to anyone other than the protagonists, it is not an investment, simply because there is buggerall to invest in. It is gambling, pure and simple, no different to the turn of a card or a roulette wheel. The fact it is generally used to mitigate potential losses in real investments is no excuse, all it does is offer a safety net to those making the investments. If they need that, perhaps they shouldn't be making the investment in the first place. I should have resisted the temptation to describe his possible appearance. It is the fact he even had a nickname and what that says about the culture prevalent in investment banking post 2008 is what is important IMO. I agree the transactions should be abolished. It's all a bloody great ponzi scheme. They produce nothing but can generate income out of thin air. The income is so far removed from any form of real production it's untrue.

cod'ead wrote: Apparently he is very different from what you describe - LINK This type of transaction shouldn't be regulated, it should be abolished. It offers absolutely no benefit to anyone other than the protagonists, it is not an investment, simply because there is buggerall to invest in. It is gambling, pure and simple, no different to the turn of a card or a roulette wheel. The fact it is generally used to mitigate potential losses in real investments is no excuse, all it does is offer a safety net to those making the investments. If they need that, perhaps they shouldn't be making the investment in the first place. I should have resisted the temptation to describe his possible appearance. It is the fact he even had a nickname and what that says about the culture prevalent in investment banking post 2008 is what is important IMO. I agree the transactions should be abolished. It's all a bloody great ponzi scheme. They produce nothing but can generate income out of thin air. The income is so far removed from any form of real production it's untrue.

Re: The London Whale / Volcker : Sun May 13, 2012 9:13 am  

I read a good piece last year, extracts from a book a former female trader brought out. Basically, a trader has a shelf-life of 4 years, after that, they are burnt out. Working week starts sunday evening with the Asian markets and ends 10pm on a friday night. They are pressured into making money, money, money, with the dangled carrot as the big annual bonus. So much so, that even when not working, family holidays, Xmas etc, making money and watching potential markets, is still their life, nothing else matters. They are totally obsessed with money, and then 4 years later, burnout. Body and brain cannot take anymore. They know this, hence the need to make as much money for themselves in the 4 years.

Quite a sad, insular way of life imo.

Re: The London Whale / Volcker : Sun May 13, 2012 9:14 am  

On the other hand, someone lost £4 billion means that someone else made £4 billion. Swings and roundabouts.