JP Morgan Losses Expose Shadow Bank Mechanics, Taxpayer Peril

Written By: The WealthCycles Staff

JP Morgan Chase’s $5.6 billion and counting trading loss was one of the biggest finance stories of 2012. Although on its surface the story was simply that the world’s alpha player bet badly and lost big, the greater significance is what the resulting investigation revealed about the banking system and the global economy as a whole. A look beyond the headlines reveals a shadowy underbelly of byzantine deals that position big banks to escape scot free while setting up the taxpaying public to pay should something go wrong.

The saga began with this report from The New York Times:

Buoyed by improving credit conditions among consumers and continued demand for new loans from businesses and home buyers, JPMorgan Chase reported better-than-expected revenue growth on Friday.

JPM’s better-than-expected results were reported by NYT on Friday, April 13, 2012. Some 30 or so days later, JPM CEO Jamie Dimon was facing down the media horde with admissions of massive losses in JPM’s London-based chief investment office (CIO)—the investigation of which pulled back dense layers of legal accounting subterfuge to reveal, a larger, banking system-wide epidemic of using deposits to fund risky investment strategies (OCC corroborated in Senate report

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testiomials Because the funds underlying this convoluted trail of pledged and repledged assets are federally insured deposits, U.S. taxpayers would be compelled to cover JPM’s bad bet.”

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