JP Morgan has given the axe to 3 execs over its $2 billion (again, which our sources have informed us are closer to $100 billion) credit default swap losses.

The 3 scape-goats include Achilles Macris, head of the Chief Investment Office  (rather ironic is it not that the man who is responsible for the department that may have brought down JPMChase is named Achilles?), Ina Drew, head of risk-management (sounds like a tough job with a firm that holds over $90 Trillion in derivatives positions), and Javier Martin-Artajo, a managing director on Achilles’ team.

The Great Whale himself, Bruno Iksil has reportedly not been given the axe yet, but is expected to be given a pink slip in the coming days. From the WSJ:

Three high-ranking officers are expected to leave J.P. Morgan Chase & Co. this week, said people familiar with the situation, in the latest fallout from a trading blunder that has cost the bank at least $2 billion.

 

Those leaving are Ina Drew, who since 2005 has run the risk-management unit that is responsible for the losses; Achilles Macris, who is in charge of the London-based desk that placed the trades; and trader Javier Martin-Artajo, a managing director on Mr. Macris’ team, the people said.

 

Ms. Drew has offered to resign multiple times and that request will likely be accepted this week, these people said. She is expected to leave as soon as Monday, the people said.

 

Trader Bruno Michel Iksil, nicknamed the “London Whale” for the big positions he took in credit markets on behalf of the risk-management unit called the chief investment office, is likely to depart as well, but it isn’t yet clear when that will happen, said people familiar with the situation. Mr. Macris, Mr. Martin-Artajo and Mr. Iksil have all been stripped of trading responsibilities, added one of these people. All four executives declined comment through the company.

 

Ms. Drew initially tried to downplay the issues when the positions came to light in April, said people familiar with the situation, but once the scope of the losses became apparent she offered to resign, said people familiar with the situation.

Our sources have confirmed The Doc’s suspicions that the CIO unit’s massive losses are a result of IR swaps tied to the US 10-year, which have suddenly tightened from 2.3% to 1.8% over the past 2 months.
Our sources have also informed us that The Morgue has already SUSTAINED LOSSES OF OVER $100 BILLION on these positions.

We’ve always known JPM’s nearly $100 Trillion position in derivatives, and specifically its $70 Trillion in IR swaps would eventually take down The Morgue, but it is only too ironic that the leader of the office responsible for the losses is named Achilles.

  1. Ok to the JPM web surfing trolls run home to daddy. Tell him he needs to clean house some more. I think the wisselblowers will be all over the hall ways at JPM trying to save there a$$.

  2. –*The Washington Post actually printed this about Obama….*–

    Obama: The
    Affirmative Action President
    by Matt Patterson (columnist – Washington Post,
    New York Post, San
    Francisco Examiner)

    Years from now, historians may
    regard the 2008 election of Barack Obama as
    an inscrutable and disturbing
    phenomenon, a baffling breed of mass hysteria
    akin perhaps to the witch craze
    of the Middle Ages. How, they will wonder,
    did a man so devoid of
    professional accomplishment beguile so many into
    thinking he could manage the
    world’s largest economy, direct the world’s
    most powerful military, execute
    the world’s most consequential job?

    Imagine a future historian examining
    Obama’s pre-presidential life: ushered
    into and through the Ivy League
    despite unremarkable grades and test scores
    along the way; a cushy non-job as
    a “community organizer”; a brief career
    as a state legislator devoid of
    legislative achievement (and in fact nearly
    devoid of his attention, so often
    did he vote “present”) ; and finally an
    unaccomplished single term in the
    United States Senate, the entirety of
    which was devoted to his presidential
    ambitions. He left no academic legacy
    in academia, authored no signature
    legislation as a legislator.

    And then there is the matter of his
    troubling associations: the
    white-hating, America-loathing preacher who for
    decades served as Obama’s
    “spiritual mentor”; a real-life, actual terrorist
    who served as Obama’s
    colleague and political sponsor. It is easy to imagine
    a future historian
    looking at it all and asking: how on Earth was such a man
    elected president?

    Not content to wait for history, the incomparable
    Norman Podhoretz
    addressed the question recently in the Wall Street
    Journal:

    To be sure, no white candidate who had close associations with
    an outspoken
    hater of America like Jeremiah Wright and an unrepentant
    terrorist like
    Bill Ayers, would have lasted a single day. But because Mr.
    Obama was
    black, and therefore entitled in the eyes of liberaldom to have
    hung out
    with protesters against various American injustices, even if they
    were a
    bit extreme, he was given a pass.

    Let that sink in: Obama was
    given a pass — held to a lower standard –
    because of the color of his skin.
    Podhoretz continues:

    And in any case, what did such ancient history
    matter when he was also so
    articulate and elegant and (as he himself had
    said) “non-threatening,” all
    of which gave him a fighting chance to become
    the first black president and
    thereby to lay the curse of racism to
    rest?

    Podhoretz puts his finger, I think, on the animating pulse of the
    Obama
    phenomenon — affirmative action. Not in the legal sense, of course.
    But
    certainly in the motivating sentiment behind all affirmative action
    laws
    and regulations, which are designed primarily to make white people,
    and
    especially white liberals, feel good about
    themselves.

    Unfortunately, minorities often suffer so that whites can pat
    themselves on
    the back. Liberals routinely admit minorities to schools for
    which they are
    not qualified, yet take no responsibility for the inevitable
    poor
    performance and high drop-out rates which follow. Liberals don’t care
    if
    these minority students fail; liberals aren’t around to witness
    the
    emotional devastation and deflated self esteem resulting from the
    racist
    policy that is affirmative action. Yes, racist.

    Holding someone
    to a separate standard merely because of the color of his
    skin — that’s
    affirmative action in a nutshell, and if that isn’t racism,
    then nothing is.
    And that is what America did to Obama.

    True, Obama himself was never
    troubled by his lack of achievements, but why
    would he be? As many have
    noted, Obama was told he was good enough for
    Columbia despite undistinguished
    grades at Occidental; he was told he was
    good enough for the US Senate
    despite a mediocre record in Illinois ; he
    was told he was good enough to be
    president despite no record at all in the
    Senate. All his life, every step of
    the way, Obama was told he was good
    enough for the next step, in spite of
    ample evidence to the contrary. What
    could this breed if not the sort of
    empty narcissism on display every time
    Obama speaks?

    In 2008, many who
    agreed that he lacked executive qualifications
    nonetheless raved about
    Obama’s oratory skills, intellect, and cool
    character. Those people —
    conservatives included — ought now to be deeply
    embarrassed. The man thinks
    and speaks in the hoariest of clichés, and
    that’s when he has his
    teleprompter in front of him; when the prompter is
    absent he can barely think
    or speak at all.***Not one original idea has
    ever issued from his mouth —
    it’s all warmed-over Marxism of the kind that
    has failed over and over again
    for 100 years.*

    And what about his character? Obama is constantly blaming
    anything and
    everything else for his troubles. Bush did it; it was bad luck;
    I inherited
    this mess. It is embarrassing to see a president so willing to
    advertise
    his own powerlessness, so comfortable with his own incompetence.
    But
    really, what were we to expect? The man has never been responsible
    for
    anything, so how do we expect him to act responsibly?

    In short:
    our president is a small and small-minded man, with neither the
    temperament
    nor the intellect to handle his job. *When you understand that,
    and only when
    you understand that, will the current erosion of liberty and
    prosperity make
    sense. It could not have gone otherwise with such a man in
    the Oval Office.

  3. “Until the loss was disclosed on Thursday night, Drew was considered
    in the industry to be one of the best managers of balance-sheet risks.
    She earned more $15 million in each of the last two years.

    “Ina is
    an amazing investor,” said a money manager who knows Drew, but who
    declined to be quoted by name. “She’s done a really good job over a lot
    of years. But they only remember your last trade.” READ MORE

    This is like Firing the Evil Oil Speculator because you didn’t like high gas prices and expecting to fix the problem. Unfortunately, the very people that got JPM into this mess may be the only ones who might know how to get them out. What most people don’t understand about high oil prices is that it’s the speculators who can drive prices down just as fast.

    Imagine that you have a credit card company that suffered a breach of security from a hacker. Putting the hacker in jail without forcing him to devulge how he hacked you just transfers the problem onto someone who has insufficient background to pull you out of the mess.

    At some point you actually need the guy that started it all to get you out. He is unfortunately sometimes the one most knowledgeable about how to fix the problem.  

    I’m surprised Jamie didn’t keep these people around to get them out of the complex problem THEY created–especially if he didn’t have a handle on how complicated these trades are. He could have told them to focus on unwinding the trades–who knows, maybe their losses would be more contained. Instead, some new set of people now must attack this with less hands on experience specific to these positions.

    I think this only makes things worse even though the decision was designed to make things appear that Jamie is “doing something” about it.

  4. The morgue probably fired these three scapegoats to make it appear it was a one time deal.  It will look better when they ask for more money.  The three firings also gives more credibility to Doc’s sources.  I don’t see them firing three of their own crony capitalists over a couple billion but a hundred billion ya.  With as many idiotic moves the morgues made, they’ll be no one left to fire.

  5. Hey 2oz – I’m far from an expert on these matters, I’m sure others will elaborate and/or correct me, but from what I know unwinding a trade essentially means reducing your risk in a certain position to zero.  The easiest way to think about it is this; if you hold say a long position in stocks, the simplest way to reduce to risk exposure to zero would be to sell the entire position, or for a short trade you would buy back the entire position.  For certain stocks you can buy/sell puts/calls as well, but this is more of a hedge and to me wouldn’t fit the definition of an unwind.

    For more complicated financial instruments I can only guess and assume that unwinding involved completely selling long positions or buying back short positions.  Take a look at Zerohedge, they have some great but complicated analysis on this trade, but keep your financial dictionary handy.

    Bottom line is that if this trade hasn’t been completely unwound yet, I’m not sure how liquid the market is for these derivatives is, anyone else involved in the market or sensing opportunity and able to trade this market will be frontrunning the JPM trade.

  6. Thanks Mrgneiss. So, If they have to unwind, or sell their entire portfolio on this, and no one wants to take enough risk to purchase these positions, does this leave JP in a default scenario? And what of their stock holders?

  7. 2oz. My take on the “default scenario” is that not only is it possible, it probable. The market has moved away from real trading with the advent of all these crazy algorithms. As a result, because of the lack of liquidity, these HFT’s try to capture extremely tiny changes in security prices.

    In order to get any decent profits from trades, they must trade huge volumes. In some cases, as with Bruno Iksil’s trades, they need to exceed the total of their trading accounts(with leverage) so they can profit on little moves.

    The first rule of trading is to not let each trade exceed a small percentage of your total trading account. One day when the trade goes against you where you apply human reactions to loses, you’ll allow the trade to get away from you so that losses become unmanageable. This is what happened to the JPM trades. After all the technical analysis is exhausted, traders are still just people with human emotions.

    The unfortunate situation is that when incurring 100′s of billions of dollars on single trades, where the whole net worth of the company is on the line, to capture small spreads and tiny profits, your trade turns into a nightmare when things go wrong.

    Usually,lying about these losses multiply the madness by several times.  I’m sure we’ll hear soon about some cover-up investigation at JPM.

  8. Also, it is important to keep in mind that the HFTs all though a computer algorithm, are not completely separated from human biases. They are computer programs that are created by human actors. Therefore these programs can not capture profits in an irrationally behaving market, even if designed to do so b/c there are literally trillions of variables as soon as you have many traders with HFTs from different companies acting in their best interests. 

    It has not surprised me that this crack has occurred in the pot. We might not see too much more on this derivative loss b/c I believe the meeting Dimon had with Fed Bank of NY and BAC behind closed doors was precisely about this and precisely about extending a line of credit to JPM overnight. 
    Many scenarios could play out over the next few months but I believe this is the most important month for metals I have so far predicted that their attacks would occur in the beginning of May. It will either last till the end of May and HSBC et al will pick up the slack lasting until Operation Twist ends in June.

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