the amount of leverage really is shocking, but not surprising. I'm surprised more firms aren't doing it. With the fed behind them what's to stop them? The article does fail to mention what percentage of the global market JPM has. All those numbers cannot be taken at face value unless we really know how much European and Asian banks play a part in this market. The leverage can be understood, but as for counter-party risk and exposure, we need more info before arriving to solid conclusions.
just my 2 cents but this guy, in addition to having a less than clear writing style (confusing market flows, etc), doesn't have a clue...the lion's share of exposure is in the more esoteric derivatives...not exchange traded products. the outstanding notional value of otc derivatives swamps the combined volumes of all outstanding exchange traded contracts...at least by a factor of 10,000 to 1... this is a function of the sheer size of otc traded instruments, the lack any but the loosest oversight (and much of that is done by the bank's risk management) the incredible sums of money that are poured into marketing corporations and governments to partake in the "protection" offered by otc vehicles. this results in banks largely on the side of selling protection....basically leaving them short premium in a rising volatility environment....add to this the lack of a "natural hedge" for these instruments, the lack of consensus on "correct pricing" of these derivatives and the fact there is little liquidity on outstanding instruments leads me to believe that the fed and other central banks have no choice in manipulating the markets to protect the i-banks...... of course when pricing otc derivatives, the banks leave themselves an extremely wide margin for error which is likely still providing a cushion..... maybe 3 cents this time..
are those your words or are you quoting? I think that sums it up well (speaking as a laymen viz a viz exotic derivatives).
my words...and just my opinion (re central bank's role in providing safety net)...have a good bit of experience in otc derivs and with i-banks.
I do believe, absent corporate fraud (which can't be ASSUMED), that Moody's has a handle on JPM's exposure. To wit, from an 8/22 Reuters story: "..the credit, market, and liquidity risks associated with its [JPM's] profitable derivatives franchise are well controlled..."
Even Jim Jubak is starting to talk about it in a very cautious way. http://moneycentral.msn.com/content/P30039.asp?special=msn
its a little off topic but related.....I watched the movie called "rollover" last night. Its from 1981, but still a very realistic movie and has some thematic tie ins with our current problems in the banking system. Its also entertaining and has some big stars.