JPMorgan Hedge Update

This weekend the Wall St. Journal had more details about the large gamble/hedge that JPMorgan (JPM) has taken in a derivative index called IG9 that tracks the overall health of corporate bonds. The full value of JPM’s position is about $100 billion or about 78% of the firm’s entire market cap.  Other hedge funds are waiting for JPM to start unwinding their position, aiming to profit at JPM’s expense.  Some estimates are that JPM’s losses could run as high as $6 – $7 billion.

In my blog yesterday, I stated that JPM had about 150 regulators working on site, supposedly supervising JPM’s operations to ensure the public safety.  The Office of the Comptroller of the Currency (OCC) revealed that they had 60 regulators who did nothing but monitor JPM’s trades and were aware of these highly aggressive trades.  As of late April, those regulators evidently saw nothing unsafe in JPM’s trading positions.  Do those regulators still have their jobs?  Probably.

The Federal Reserve and the FDIC also have onsite regulators who monitor JPM’s activities.  So many regulators and no cause for alarm before this blew up?  The Senate Banking Committee has started an investigation into this debacle.  In the political merry-go-round, we can expect more hearings, more regulations, more regulators, more cost to the taxpayer and less safety, less effectiveness from our government.

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