Page 59 - Monocle Quarterly Journal Vol 1 Issue 1 Q4

view that the market will remain stable – was blown up by the news of the Kobe earthquake and its ripple e ect across the entirety of the Japanese markets.
In Iksil’s case as well, the markets reacted as they had never done before, owing to externalities he could not have predicted. e global markets in April and May of 2012 had become increasingly concerned that the European economic crisis had taken on a new face; that it was possible now to conceive of a Greek default, and possibly worse – a ripple e ect of economic failure throughout Europe. Investors – with the dexterity that has become the bane of nancial markets – took money out of the corporate bond market in a ight to safety. is decreased demand for US bonds pushed US corporate bond prices down, increasing their yields, and widening the aggregate yield spread against LIBOR. is led to an increase in the CDX IG 9 index price, and this – coupled with several large hedge funds deliberately taking the opposite position to JP Morgan’s insanely large short positions on this trade – led to previously unheard of trading losses in JP Morgan’s CIO unit.
To make matters even worse, the CIO unit, it turned out during Congressional hearings, reported directly to Jamie Dimon himself, the CEO at the time and the CEO to this day. In testimony it was revealed – depending on one’s perspective – that Dimon had insisted on this direct report of the CIO unit so that he could choose and manage the information being revealed publicly and that information may have been deliberately withheld from investigators. Dimon at the time, along with Lloyd Blankfein, CEO of Goldman Sachs, and Vikram Pandit, CEO of Citigroup, had been the most vocal of critics of the anti-Wall Street and anti-banking agenda.
JP Morgan had fared pretty well through the Financial Crisis, and Dimon was a signi cant voice of opposition against excessive intervention into the banking industry. at argument – between the laissez-faire capitalist agenda and the angered public who believed banks were entirely at fault for the crisis – was in some form of balance before the London Whale trade. e position Dimon held as ag-bearer for the independence of banking was eliminated completely after a series of Congressional hearings that revealed that the CIO unit’s “judgement and execution... were poor”, that the bank “did not ensure that the controls and oversight of CIO evolved commensurately with the increased complexity and risks of certain CIO activities”, and that “CIO risk management was ine ective in dealing with synthetic credit portfolio”.
“In Iksil’s case as well, the markets reacted as they had never done before, owing to externalities he could not have predicted.”
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