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Andrew Carnegie

Friday, July 6, 2012

How JP Morgan's 'Whale' Loss Got Bigger

English: Category:JPMorgan Chase
English: Category:JPMorgan Chase (Photo credit: Wikipedia)
Back in May, the big news was that  J.P. Morgan Chase (JPM) had lost $2 billion on a derivatives hedge gone wrong. I wrote an article then entitled, "The Moral of J.P. Morgan's Derivative Debacle," which explained what was going on from a derivatives perspective--at least as much as was possible from the information available at the time. Recently, media outlets are reporting the $2 billion losses have swollen to anywhere from $5 billion (according to theFinancial Times) to as much as $9 billion (according to a New York Times quote of J.P. Morgan's internal worst-case estimate). Many people read this news and think "Wow! Derivatives are so dangerous and complex that J.P. Morgan doesn't know if it's lost $2 billion or $9 billion!"
In fact, the ballooning of the loss estimates has less to do with derivatives than it does with a micro-cap rubber plantation in Indonesia. Allow me to explain... Continue to read.
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