Not only is The Morgue drowning in interest rate swap losses from its CIO unit, but the SEC has issued JP Morgan a Wells notice over Bear Stearns’ mortgage backed securities violations.
Why you might ask, is a Wells Notice over MBS fraud a monumental concern for JP Morgan when the SEC is likely to slap JPM’s wrist over the issue for a $50 million fine ? 

Well, Wells notices happen to be discoverable in civil litigation.  In JPM’s Mortgage-Backed Securities and Repurchase Litigation note on the 10-Q the bank filed on Thursday, JPM states: “There are currently pending and tolled investor and monoline claims involving approximately $120 billion of such securities.

MBS analyst Teri Buhl writes: ‘The face value amount of securities tied to the monoline suits against JPM are significant because there was a recent ruling in a Countrywide RMBS suit that ruled if plaintiffs can prove there were miss-representations in the bonds then the entire amount of the bond has to be bought back…not just the amount that defaulted or caused a loss.

Think the high power legal teams that are currently suing JPM over $120 billion in fraudulent MBS slicing and dicing will be interested in settling for a measly $2-$5 billion now that the SEC has essentially confirmed that fraudulent activity has occurred by issuing a Wells Notice?  We don’t think so either, and now JPM HAS to settle.  We are talking about massive settlements in the multi-billion dollar range if JPM wants to keep these suits out of court.

The SEC Wells Notices means that JP Morgan is staring at the distinct possibility of having to buy back $120  BILLION in now worthless mortgage backed securities if any of these suits ever made it to court, ensuring massive settlements WILL OCCUR.

Got Phyzz?

  1. Doc’s working late.  So here is some data that you may want to review.  On SGT Report, one of Doc’s any my favorite sites, for May 13 there are two articles worth reading.  Nadeem Walayat gives a very concise review of what people in the UK should do to protect themselves in the event of a banking collapse in Europe. This is on the Market site.  It is worth a read since this is what we should be doing.  The numbers are different since the amounts are in pounds and the bank names are different.  But given JPM’s situation both from the IR hedging and the Wells Notice  JPM may present a great risk to other banks since it is the largest clearing house we have in the US.  We may be ahead of the Euro Banks in facing some large troubles similar to Lehman and 2008.

    The other post was also made May 13 and references an article published in the Canada Post about a senior DHS official and that person’s statement of planned civil insurrection, race riots and other tumult in the US that could allow Obama to declare  martial law, delay or stop the election process.  It is worth a serious read but you may have to scroll back a couple of pages to find it. Very disturbing and explains alot as to why BHO seems very confident of his next term. 

  2. That Countrywide RMBS suit ruling is serious negative news for Bank of America as well, and B of A has over 10% of the retail customer banking accounts in the US. 

    Since 2008, we’ve seen quite a few small banks croak and get processed through FDIC, with customer accounts bought on the cheap by larger banks during restructuring.  We’ve even seen a few large banks get rendered through buyout restructurings, the largest being Washington Mutual.  But we have yet to see one of the monster banks hit the wall.  Odds are high we will be seeing one of those monsters fail at some point.  Dealing with the situation will require a totally different script because these monsters are moving from “too big to fail” status to “too big to bail.”  It will likely require a quasi-nationalization, where a bank is put into receivership, with some “good” assets sold off and the government (tax payer) eating the newly created “bad bank” holding company.

    By the way… What’s up with the Phyzz Stack Leaderboard?  Has 2oz been wolfing down that many mini-burgers to really have over 100 coins when it looks like we just had a reset today?  🙂   It almost looks like an algo glitch.

  3. Jamie Dimon is a director of the New York Fed. I could scarcely believe it when I read it on:

    Imagine the Insider info he gets before the Street. And how he influences and lobbies at the very heart of the US Financial system. Reduced position limits on silver, and ending the Morgue’s manipulation – no wonder we are getting nowhere on that.

    The rat’s nest that’s made up of Politicians, Regulators and the TBTF Banks festers before the nations eyes, and absolutely stuff all gets done about it.

    What a giant circus.

  4. More Currency Wars Ahead

    I’m sure some, or many of you have read or are aware of James Rickards’ Currency Wars.  A recent interview with him can be heard here.  I am pretty much in agreement that QE3 is on the way. It may be announced as soon as January or perhaps more likely February. Rickards says to key in on the euro-USD cross-rates, looking at below 1.30, perhaps with 1.27-1.28 as the trigger.  As I have stated, the spec short in the euro is already very large. He also thinks China is going back to a soft peg, and that will be a factor. With the arrival of doves on the Fed, Rickards predicts notional GDP targeting, in effect giving up on inflation targets. This is all close to my view.

    In considering silver as protection from this, let me start out by saying that silver is hardly a safe haven. A look at the chart demonstrates that. Still, I would favor silver over gold as it’s getting more washed out. That’s because it had a parabolic blow off. Secondly, silver has a distinct reaction to QE with a little lag. One can visualize it bottoming and moving slowly as QE3 gets underway, and then accelerating.I’m sure some, or many of you have read or are aware of James Rickards’ Currency Wars.  A recent interview with him can be heard here.  I am pretty much in agreement that QE3 is on the way. It may be announced as soon as January or perhaps more likely February. Rickards says to key in on the euro-USD cross-rates, looking at below 1.30, perhaps with 1.27-1.28 as the trigger.  As I have stated, the spec short in the euro is already very large. He also thinks China is going back to a soft peg, and that will be a factor. With the arrival of doves on the Fed, Rickards predicts notional GDP targeting, in effect giving up on inflation targets. This is all close to my view.

    Source: Wall Street Examiner (

    Ctrl+P+Submit to Fed Printer $n Trillion ( put your own number)

    We regret that China chose to have a soft peg to our mighty dollar from my understanding 6.3+- for about 5 months now, our patience has tolerances. We will, and i emphasize WE WILL PRINT till you de-peg your YUAN to our mighty dollar. We will show you who is boss. 
    Our Friends in Euro need some help $1.2875 once our friends hit 1.27-1.28 we will offer our assistance.
    We are not comfortable with DXY above 80.
    We are going to Export inflation to you emerging markets(you all are pegging your currency to the mighty dollar i don’t like it), destroy your economy so that you cannot steal our Gold. 
  5. Good posts AGX and Wombat. I asked the DOC to look into the coin thing in another post. Either way this works out it is bad for Dimon an Co. I do expect some kind of cover up. Elections coming.

  6. I might be a little early (as in weeks or days, not months), but I’m probably going to plow some money into the VIX index today.  It’s just too damn quiet in the US financial markets right now.  People don’t have a clue how fragile the entire system is and the reaction by most over this JPM mess is a perfect example.

    I bring up the lack of volatility because betting on rising volatility right now given the ridiculous level of complacency in the stock market is a high-probability-for-success hedge.  The retail investor can get into the game too with exchange traded products like this one.

    I’m not giving investment advice here.  I’m just pointing out a hedge that will likely work under a variety of short- and intermediate-term market perturbations.  Precious metals can see short-term pressure during liquidation phases of general equity markets but the VIX would almost certainly shoot higher during that phase so it can be seen as a useful tool for hedging.

  7. Flying Wombat please be very carefull with trading the VIX by the ETF VXX . I personal traded it last year thinking that the VIX has to go up at some time so I would be safe buying VXX and  waiting for the next crisis . All I did was lose money yes if you time it perfectly you can win but if you hold VXX for any period of time you will lose money please look at the two year chart and see that VXX was trading for $120 per share and is now trading for less than $20 the VIX hasn’t fallen buy that amount the ETF sucks ( Mabey  cause I lost a heap trying to just hold VXX waiting for the next crisis) any way good luck!

    Ps you guys should  be in bed as in Aussie it’s only 6.00pm but I see that it is 4.00am your time
    All the best

  8. aussie, thanks for the heads-up.  Indeed, VXX doesn’t track VIX perfectly and it’s not something to use for an intermediate-term holding or longer.  But it does a reasonable job.  Click here and you can see the relationship over the last year between the VIX and VXX.  Part of what made timing critical earlier is that we went from an epic period of volatility in 2008 down to the current period’s unusual, unjustified lows.

  9. Well….really wasn’t a call 2…doesn’t take a genius to smell smoke
    and then suspect there is fire. Have also been hoping silver would stay under
    $32 thru the summer too….looks like that’s not going to be a prob…..gonna
    make for great stacking!
  10. I need to clarify to be more accurate because we are not at rock bottom (just lowish) for the VIX, historically.  What I should have said was:

    “…current period’s unusual, unjustified lows” — given the realities of the current period’s poor fundamentals, which are masked by massive government manipulation lulling people to sleep.

  11. I hope we can stack through the summer. With all that’s happening around the globe, I think QE may come as soon as the June FOMC meeting and then these prices will be gone. Catch the conversations between Wombat and Aussie. Interesting to say the least. I know nothing about trading and just a little about how the VIX works. I’m in school on this subject.

  12. JPMorgan Shareholders: Brace Yourselves For More Potential Losses, Government Scrutiny

    May 14, 2012

    Worse yet, JPM’s troubles relating to this may jump the shark and extend
    from the mere monetary to the regulatory. Seeing it at a 10% discount
    to last week, investors looking to jump into JPM may want to wait for
    the next shoe or shoes to drop.

    These derivatives traders now know that JPM has essentially handicapped
    itself, telegraphing to the market that it must unwind at least a
    portion of its alleged poorly constructed recent hedging model, and they
    are likely to take every advantage of the situation.

    Derivatives traders have apparently identified that the 10-year Markit
    CDX North America Investment Grade Index Series 9 is one of the bank’s
    largest loss-creating positions.

    Given JPM’s significant derivative book to unwind and the desire of most
    traders to juice every pip from a trade, JPM’s loss appears primed to
    increase. Moreover, it appears likely that JPM will have to be
    forthcoming with greater detail regarding the totality of its bad bets
    and what, if anything, it will actually be doing with them.

    It now appears that the trades may have been made out of London, while
    the oversight came from New York. Greater detail into the oversight,
    intent and composition of these investments should be forthcoming. READ MORE

    FLASH: Matt Zames Replaces Ina Drew at JPM

    Zames has long been discussed as possible heir to Dimon. READ MORE


    +0.271  +4.51%

    US TEN-YEAR NOTE 1.77%!! -0.069  -3.75%

    JPM 36.21

    –Didn’t that Wynter-Benton Group identify that JPM at 36 was somehow related to a break-even profit/loss against their silver short positions?–I’ll have to check on that.

  13. I’ve been trying to find the actual index that these trades originated from and where JPM’s largest Losses Might Be, but this Index is Old and out-dated—I’m sure there’s no liquidity either.

    Here is a site where the indexes that JPM trades are listed.

    Markit CDX Index News

    Fixed Coupons for Markit CDX.HY Indices

    The “10-year Markit CDX North America Investment Grade Index Series 9” isn’t found probably because it’s an old index, but you can get an idea of the kind of indices JPM traded by going to the link.

    JPMorgan Losses Spark Frenzy in Swaps Indexes: Credit Markets READ MORE


    “We’re all trying to figure out what trade he had on,”
    Peter Tchir, founder of New York-based hedge fund TF Market
    Advisors, said in reference to Iksil. “It’s been nonstop.
    Everyone’s trying to get their hands around it.”

    Trading volumes rose at the end of last week on contracts
    that Iksil, known as the London Whale for the size of his
    positions, is believed to have taken, according to market
    participants who asked not to be identified because their
    trading strategies aren’t public.

    Narrowing Gap

    Credit swaps on Series 9 of the Markit CDX index that
    expire in December 2017 jumped 12.3 basis points to 139.3 basis
    points on May 11, the biggest increase since September 22,
    according to data provider CMA. The difference between the index
    and the weighted average of its members, a gap that was said to
    have swelled from Iksil’s trades, shrank to 5 basis points from
    14 the previous day and 18 on May 1, according to prices from
    two market participants.


  14. Listened to your link Widget was pretty interesting. Folks you gotta get out of the Cities you gotta!!!. By the way folks, I’m a Real Estate Broker here in Maine, some great deals here. Lol

    Jake great posts enjoyed them. Thumbs Up.

  15. MORE…

    Text From The Video CNBS LINK

    “…the bank estimates the loss on the trade could increase by another $1 billion by year end. losses the bank the size of jpmorgan can easily absorb. it still expects to earn around $4 billion this quarter. the real loss to the bank, a reputational one. dimon and his firm recognized for risk management through the financial crisis, though took the money was widely known as the only big bank not needing a government loan. <—Only another billion?…Just a reputational loss?…So There’s No Problem?…Move along?—LOL!

  16. Those INO charts update after they are embedded, I was going to post another JPM chart, but see that it updates on every refresh above. I notice JPM closed near it’s low at 35.85.

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