77% of JP Morgan’s Net Income Comes from Government Subsidies for past four quaters

[Serious]

77% of JP Morgan (saw this on my feed had to click and went looking for the other reports)

Dear Mr. Dimon, Is Your Bank Getting Corporate Welfare? - Bloomberg (the original report)

http://www.imf.org/external/pubs/ft/wp/2012/wp12128.pdf (IMF working report)





Not really that new to me or I'm sure to you brehs who stay informed but I haven't seen an exact dollar amount in a minute on the impact of the subsidies and the amount it increases their net income though.

Someone posted an old article in that first link in the comments on the skimming they were doing on the ebt cards too. That was an old story though. It is interesting when someone isn't consistent with their preference of state socialism though (how one group can have it while another can't for w.e their reasons they may believe). That was kind of what that post and article they linked was getting at.

See this is a problem when too many people are educated

 

[newworldafro]

Brehs..............................derivatives...................I know homeboy wrote a long ass rebuttal in a thread when I was discussing derivatives. An d although, he clearly has some scholarly understanding of financial markets, his overall POV was that the derivatives market that are owned by many of these "to big to fail" finanical institutions is NOT A BIG DEAL........

I said I would have a rebuttal for him, but I never did.

Nonetheless, do you know that some of these banks owe several trillion in derivative payouts.........TRILLIONS.......and take a wild guess, who they expect to pay for their losses....??


Keywords: "banks derivatives FDIC"

Google

http://seekingalpha.com/article/503...tives-to-which-american-taxpayers-are-exposed

Details Of The $291 Trillion In Derivatives To Which American Taxpayers Are Exposed

April 17, 2012

The entire US GDP is less than $15 trillion each year. The gross notional amount of derivatives issued in the USA is more than $291 trillion. Does that sound like a lot? Apologists for derivatives dealers don't like it when we talk about derivatives in terms of the notional totals. Large numbers, like these, discussed publicly, frighten too many people. According to the apologists, gross "notional" is misleading, because it does not include "hedges," offsets and the limits on interest rate risk.

In fact, the total amount of derivatives cannot be accurately presented in any other form but gross notional obligations. The risk to society cannot be judged in any other way. That's why the FDIC, US Comptroller of the Currency and the Bank for International Settlement (BIS) all use gross notional.

Final net obligations can only be determined when and if derivatives are triggered. The net can be significantly lower, but neither we, nor the banks themselves actually know exactly what that is. It depends upon the balance sheets of every counter-party, and the extent to which interest rates will change in the future. Not even the banks have full information about either topic..

There is another number called the "net current credit exposure" (NCCE) that some erroneously claim represents the risk imposed by derivatives. According to the Office of the Comptroller of the Currency (OCC), the NCCE for American bank derivatives amounts to about $370 billion. That's a huge amount of money, but it's not $291 trillion.

Unfortunately, NCCE provides no information about ultimate exposure to loss. It merely measures the net cost of unwinding the contracts, before the occurrence of any trigger event. NCCE is the current market value of the contracts, and nothing more.

There are also a number of "value at risk" calculations that the banks provide. These are not standardized, and are based upon vastly different models and assumptions, from bank to bank. Unfortunately, a very high level of inconsistency and lack of any standards for measurement causes such models to be highly unreliable. For example, during the 2008 credit crisis, similar proprietary models used to determine subprime credit risk failed, in the infinitely smaller subprime mortgage market.

In reality, it is impossible to know the true risk of $291 trillion in New York issued derivatives (ignoring the additional $417 trillion issued out of London). A sudden very large increase in interest rates, alone, could trigger trillions of dollars in payments. One could argue that the Federal Reserve could force interest rates down at any time, but that is not entirely true.

If the US dollar came under heavy selling pressure, for an extended period of time, as has happened to the British pound, Chinese yuan, Japanese yen, German mark, Austrian shilling, Argentine peso, and a host of other currencies in the course of history, the Fed would be able to defend the dollar only at the risk of inducing widespread systemic failure.

That is why interest rates cannot rise for many years, regardless of whether that destroys its status as the world's reserve currency, and/or creates extreme levels of inflation or hyperinflation. It is also one more reason for the government to lie about the true inflation rate, to avoid pressure to raise interest rates (see shadowstats.com.)

All the too-big-to-fail (TBTF) banks, with the exception of Morgan Stanley (which uses its SIPC-insured division) are using FDIC-insured depository divisions to house derivatives. That provides them with lower collateral requirements because FDIC depositary units usually have higher credit ratings than investment banks and/or bank holding companies. It also means that, ultimately, the American people will pay for losses.

While no one can determine the exact exposure, it is safe to say is that the risk is astronomical, and imposes a grave risk upon American taxpayers. It is not surprising that FDIC staff is not thrilled with US bank derivative exposures. In fact, Sheila Bair, who until recently ran the FDIC, is as disgusted with the Federal Reserve slush fund and the banking cartel as you and I. A few days ago, she penned a satirical article heavily critical of Fed policy and published it in the Washington Post.

The FDIC staff doesn't like the fact that the Federal Reserve keeps allowing banks to put their derivatives inside insured depositary institutions. This is mostly for the same reason the banks want to put them there. Insolvency laws provides priority to derivatives counter-parties over the FDIC. If and when a bank is liquidated, the FDIC will be on the hook to repay depositors, but the failing bank will be stripped of all assets.

The US government's full faith and credit guaranty means massive amounts of new US Treasuries will need to be sold, massive numbers of new counterfeit dollars will need to be printed under color of law, and significant tax hikes will need to be levied to pay the bill.

FDIC opposition, however, has had little to no effect on keeping derivatives out of insured units. The Federal Reserve, and not the FDIC, has the authority to approve the practice and it keeps doing so. The FDIC staff can complain privately, and issue regulations forcing disclosures, but little more. But, because of the disclosure requirements, more detailed information than ever is now available concerning derivatives.

In fact, FDIC has made far more information about derivatives public, over the last 3 years, than the Fed and OCC ever disclosed over decades. The numbers reveal a frightening concentration of risk. Five large "TBTF" US banks hold 96% of derivatives issued in the United States.

But the Bank for International Settlements in Switzerland reports that about $707.6 trillion worth of derivative obligations have been issued worldwide as of the end of 2011. That leaves about $417 trillion worth of derivatives that are not accounted for, in the FDIC records.

The surplus derivatives have been written mostly in London. Part of the exposure is held on the balance sheets of foreign, mostly European banks, including Deutsche Bank, PNB Paribas, Credit Suisse, UBS et. al. But, a large number of seemingly foreign derivatives is also hidden inside bank divisions, owned by American institutions, who do business in London. Such derivatives are not reported to the Fed, the OCC or the FDIC. Lenient British banking laws insure that these opaque obligations are not subject to public scrutiny.

Ultimately, if London-issued derivatives eventually cause massive losses to a UK bank division, the US based bank that owns it would end up being closed or bailed out. Ultimately, just like the derivatives issued in New York, the American taxpayer and dollar-denominated saver will pay the bill. Unfortunately, in spite of this, details about London-issued derivatives are not publicly disclosed or I cannot find them. If such data exists, a British lawyer or someone knowledgeable enough about UK regulations and bureaucracy would be needed to ferret it out.

Even in the absence of London data, however, investors should find this incomplete article enlightening. It is useful to obtain a general picture of the risk of investing in shares of the five big derivatives dealers. Here's how the dollar amounts break down, as of December 31, 2011 in thousands of dollars.

 

[714562]

They’ve also provided more direct support: Dimon noted in a recent conference call that the Home Affordable Refinancing Program, which allows banks to generate income by modifying government-guaranteed mortgages, made a significant contribution to JPMorgan’s earnings in the first three months of 2012. And I guess the bailouts before those from the TARP program wasn't a direct subsidy before either right? Yes, the other is an implicit subsidy, as is quoted in the report. I read the report and know all about the FDIC and what you are talking about, that isn't part of the topic though. Stop acting like you know all things finance and economic. . and like I or others need something like that explained. JP Morgan gets direct and indirect subsidies and it impacts its balance sheet positively. When the government can it's supposed to eliminate and/or decrease direct/implicit subsidies to a firm so that firm can obtain an profit on its on function.

The implicit (indirect) AND explicit (direct) subsidies to a firm like JP Morgan that gains extra monetary value is a form of an economic rent. Those types are rents are not desired. No need to act arrogant with the facepalm like what you just stated isn't comprehended. This firm gets direct subsidies as well and has in the past.

...but the direct support isn't where the 77% figure -- the WHOLE POINT OF THIS THREAD -- comes from.

So what are you arguing? Don't switch points just because you posted a paper you don't understand. The research is attempting to quantify an abstraction -- the easier lending environment that banks operated in on the mere EXPECTATION that the government would not let them fail. This has nothing to do with TARP. This has nothing to do with home refinancing.

This has to do with you posting an article that you don't comprehend and then misinterpreting the consequences.

 

[714562]

Brehs..............................derivatives...................I know homeboy wrote a long ass rebuttal in a thread when I was discussing derivatives. An d although, he clearly has some scholarly understanding of financial markets, his overall POV was that the derivatives market that are owned by many of these "to big to fail" finanical institutions is NOT A BIG DEAL........

I said I would have a rebuttal for him, but I never did.

Nonetheless, do you know that some of these banks owe several trillion in derivative payouts.........TRILLIONS.......and take a wild guess, who they expect to pay for their losses....??

Dude...what? This is everything in that thread I said about derivatives (it may be out of order):

Mmm. Glass-Steagal repeal in and of itself didn't so much help "fuel" it as it helped expose the average uneducated joe to it. Also, it's not really a "derivatives" bubble. Derivatives is an extremely general term which may refer to any and all forwards, futures, options, etc. You may as well say "the stock bubble." It's that general. Not all derivatives were affected. Derivatives that were OTC and secured by mortgages were...as were people who had exposed themselves to such derivatives.

Interlude: These videos have nothing to do with "derivatives." Newworldafro, you don't know what derivatives are. No offense. You just don't.

Umm. What? Derivatives doesn't mean "money you don't actually owe." I've said this before in the first post, but you don't seem to know what a derivative is. Let me give you a basic example:

Suppose you are interested in buying 100 shares of a company. Instead of just buying the shares from the market , you contact your friend Josh and tell him " I want to buy 100 shares of The-Coli from you for $52. But I want to decide whether to actually buy it or not at the end of this month."

If the stock price rises above $52, then you will buy the shares from Josh at $52 in which case you will gain by simply buying from John at $52 and selling it in the market at the price which is above $52.

If the stock price remains below $52 then you won't buy the shares from him.

In order to make the above deal 'fair' you agree to pay Josh $2 per share, i.e. $200 in total. This is the risk premium or the money you are paying John for the risk he is willing to take - risk of being at a loss if the price rises above $52. Josh will keep this money irrespective of whether you exercise your option of going ahead with the deal or not

That's a derivative. Basically just a contract about whether or not to buy or sell something under various different market conditions. The underlying collateral of a derivative is REAL. People often use them to reduce risk in their portfolios. For example...if you buy a very volatile stock, you could also buy some call and put options -- options to buy it for cheap if it goes above a certain price, and options to sell it high if it goes below. Mortgage derivatves became popular because people thought they were PREDICTABLE and used them to hedge other things. Hence my point about exposing the average joe early on.

Anyway...

Greece had nothing to do with "derivatives." Greece had to do with getting cheap rates from their government bonds because they joined the euro, and using the money from those cheap bonds on stupid things...then LYING about it and keeping rates artificially low so that they could keep getting money from those bonds.

I didn't say they "weren't important" or that banks didn't hold them on their balance sheets.

I merely argued that you had no clue what they actually were (I maintain that you didn't) and that a presumed "quadrillion" figure did not exist. I also argued that the Greek crisis, at its core, was not caused by exotic derivatives but by much more fundamental forces.

In fact, that article you posted? It proves that the quadrillion doesn't exist. Add up all of those total derivatives values at the top of each bank column and you'll get in the low hundreds of billions. Not even remotely close to a trillion and certainly not a quadrillion. So by posting that article, you disproved what you were arguing.

So...what do you want me to explain or clarify? That banks still hold a robust amount of crap in their mouths that ought to be deleveraged? Perhaps. But their current liquidity positions are strong (not by choice). We the people are not, strictly speaking on the hook for ALL of that money because there's no way that a margin call will come in on all of it. No reason not to have faith. And the total values in those columns seem to represent the net value of ALL derivatives outstanding -- so all derivatives that the banks bought for themselves AND sold to other people. Not exactly a clear picture.

 

[Economics]

...but the direct support isn't where the 77% figure -- the WHOLE POINT OF THIS THREAD -- comes from.

So what are you arguing? Don't switch points just because you posted a paper you don't understand. The research is attempting to quantify an abstraction -- the easier lending environment that banks operated in on the mere EXPECTATION that the government would not let them fail. This has nothing to do with TARP. This has nothing to do with home refinancing.

This has to do with you posting an article that you don't comprehend and then misinterpreting the consequences.

I'm only going to respond to this child one more time brehs and will use our quotes so forgive the length, so here. No breh. YOU like to argue. I seen you do it many times. My statement in my original post on the report on what they found (I haven't seen an exact dollar amount in a minute on the impact of the subsidies and the amount it increases their net income though.) There is nothing off about that relating to the report and I said in my second comment, the comment of what another poster had linked from the first article from zerohedge within the comment section and I was explaining their statement because it reminded me of the discussions I had in my old econ department. (Someone posted an old article in that first link in the comments on the skimming they were doing on the ebt cards too. That was an old story though. It is interesting when someone isn't consistent with their preference of state socialism though (how one group can have it while another can't for w.e their reasons they may believe). That was kind of what that post and article they linked was getting at. ). Then you obviously skimmed the thread header and my post and went your rant.

Your issue is with the report not me, that commenter, and maybe society . I understand the paper and you also quoted me and did a red herring in the your 1st post to which I was responding to now you're complaining about the red herring you started and if I continue with you you'll do it again. You said and I quote, "Read the report, please. It's not a LITERAL subsidy." Any one can read the quote posted in my fist post from the bloomberg article that states in the very at beginning at the top, Implicit Subsidy. So what are YOU arguing about? YOU are the one who got off track from the start. I didn't leave that out or anything and I and others here already knew that, so why say it? And you saying "LITERAL subsidy" shows you don't understand your economics as well as you think you do. Because it's either an indirect (implicit) or direct (explicit) subsidy, that's how its referred to in the economics field. Not literal as in "cash transfer" to which you were getting at.

I did the bolded because the loan guarantee (from the government) from that program is on par with a direct subsidy. And I was responding to your distracting post because you were stating that somehow JP Morgan don't or doesn't get both. Also, you don't understand the economic rents that article or the IMF working paper was referring, too. The guarantees and implicit backing distorts the capital markets and provides JP Morgan with an bigger advantage to other banks, as the own working paper itself you keep saying I haven't read or understand says, "Therefore, before crisis, the expected value of state guarantees is the difference in funding costs between a privileged bank and a non-privileged bank." This is about how the implicit (the expected guarantees from the government - to which have become explicit before, because of the bailout) and explicit subsidies (the guarantee home refinancing) distorts the market and favors the bigger banks to the smaller (but I don't want to get too far off track because that plays into your hands). And your part where you said, ".but the direct support isn't where the 77% figure -- the WHOLE POINT OF THIS THREAD -- comes from." Shows you don't read breh but skim through shyt. The bolded I did that says. "They’ve also provided more direct support: Dimon noted in a recent conference call that the Home Affordable Refinancing Program, which allows banks to generate income by modifying government-guaranteed mortgages, made a significant contribution to JPMorgan’s earnings in the first three months of 2012" Was in response to your statement, "Taxpayers are not, strictly speaking, subsidizing this" because if was coming off in your first post that this firm hasn't received direct (a govt guarantee is on par to a cash transfer) and indirect subsidies. BTW: that wasn't in the working paper as I recall, but the Bloomberg article which the author was substantiating the paper with Dimon's own words on how the more direct subsidies (govt guarantees) from said program contributed to the firms income in the beginning of this year, which is an economic rent. They have before and did through those various programs. Once again the direct cash transfer you keep getting confused about doesn't mean the implicit guarantee the article and working paper was talking about doesn't cause an economic distortion to the capital markets and causes anti-competitiveness, it does. You seem to be struggling with regulatory economics, here's a book for you, The Economics of Industrial Organization by William G. Shepherd & Joanna Mehlhop Shepherd. That'll help you understand the working document and other economics you seem to be attacking me for.

Save your arguments for Law School bro. And stick to the copying and pasting from google and wikipedia of economic facts to other posters. Also, slow down on your monetarist beliefs, there are several schools to economics and you'll end up doing what we just did, debating fruitlessly instead of learning. You pass off you opinion as fact too much and think you're slick but you're not. Kids like you (no offense seriously) can be slightly irritating because you're so quick to argue with someone from you're biased position and not consider if you're off or not.

Don't bother quoting again me to respond because I'm not go back and forth with you, read some more econ textbooks first.

 

[VerbalIntercourse]

Yawn....

The idea of regulatory capture has an obvious economic basis, in that vested interests in an industry have the greatest financial stake in regulatory activity and are more likely to be motivated to influence the regulatory body than dispersed individual consumers,[1] each of whom have little particular incentive to try to influence regulators. When regulators form expert bodies to examine policy, this invariably features current or former industry members, or at the very least, individuals with contacts in the industry.

Some economists, such as Jon Hanson and his co-authors, argue that the phenomenon extends beyond just political agencies and organizations. Businesses have an incentive to control anything that has power over them, including institutions from the media, academia and popular culture, thus they will try to capture them as well. This phenomenon is called "deep capture."[4]

It's fundamental economics. People,persons and entities respond incentives.

 

[ogc163]

So Jamie Dimon disagrees that he gets a government subsidy by way of lower borrowing cost (start at 1:30)...

 

[714562]

I'm only going to respond to this child one more time brehs and will use our quotes so forgive the length, so here.

Okay.

INo breh. YOU like to argue.

I seen you do it many times. My statement in my original post on the report on what they found (I haven't seen an exact dollar amount in a minute on the impact of the subsidies and the amount it increases their net income though.

...a statement that has nothing to do with anything except, "Hey I haven't seen this in a minute."

But I mean yeah, alright. Sure.

There is nothing off about that relating to the report and I said in my second comment, the comment of what another poster had linked from the first article from zerohedge within the comment section and I was explaining their statement because it reminded me of the discussions I had in my old econ department. (Someone posted an old article in that first link in the comments on the skimming they were doing on the ebt cards too. That was an old story though. It is interesting when someone isn't consistent with their preference of state socialism though (how one group can have it while another can't for w.e their reasons they may believe). That was kind of what that post and article they linked was getting at. ). Then you obviously skimmed the thread header and my post and went your rant.

...Yeah, okay.

Your issue is with the report not me, that commenter, and maybe society . I understand the paper and you also quoted me and did a red herring in the your 1st post to which I was responding to now you're complaining about the red herring you started and if I continue with you you'll do it again. You said and I quote, "Read the report, please. It's not a LITERAL subsidy." Any one can read the quote posted in my fist post from the bloomberg article that states in the very at beginning at the top, Implicit Subsidy. So what are YOU arguing about? YOU are the one who got off track from the start. I didn't leave that out or anything and I and others here already knew that, so why say it? And you saying "LITERAL subsidy" shows you don't understand your economics as well as you think you do. Because it's either an indirect (implicit) or direct (explicit) subsidy, that's how its referred to in the economics field. Not literal as in "cash transfer" to which you were getting at.

Yes. Clearly not using the term "implicit subsidy" for the sake of lay-understanding disqualifies everything I say from that point on. I'm rolling my eyes at you.

And no, my issue with posting intentionally obfuscatory headlines from ZeroHedge so that all these people who "already know" my "obvious" replies can scream ILLUMINATI. Typical of ZH and the Durden crew, really. Even if you yourself understand the difference, I didn't really have a choice but to question your motives in posting it here with that particular headline and some commentary below that doesn't have much to do with anything at all.

And I still don't really know why the hell you did it.

I did the bolded because the loan guarantee (from the government) from that program is on par with a direct subsidy. And I was responding to your distracting post because you were stating that somehow JP Morgan don't or doesn't get both. Also, you don't understand the economic rents that article or the IMF working paper was referring, too. The guarantees and implicit backing distorts the capital markets and provides JP Morgan with an bigger advantage to other banks, as the own working paper itself you keep saying I haven't read or understand says, "Therefore, before crisis, the expected value of state guarantees is the difference in funding costs between a privileged bank and a non-privileged bank." This is about how the implicit (the expected guarantees from the government - to which have become explicit before, because of the bailout) and explicit subsidies (the guarantee home refinancing) distorts the market and favors the bigger banks to the smaller (but I don't want to get too far off track because that plays into your hands). And your part where you said, ".but the direct support isn't where the 77% figure -- the WHOLE POINT OF THIS THREAD -- comes from."

Shows you don't read breh but skim through shyt. The bolded I did that says. "They’ve also provided more direct support: Dimon noted in a recent conference call that the Home Affordable Refinancing Program, which allows banks to generate income by modifying government-guaranteed mortgages, made a significant contribution to JPMorgan’s earnings in the first three months of 2012" Was in response to your statement, "Taxpayers are not, strictly speaking, subsidizing this" because if was coming off in your first post that this firm hasn't received direct (a govt guarantee is on par to a cash transfer) and indirect subsidies. BTW: that wasn't in the working paper as I recall, but the Bloomberg article which the author was substantiating the paper with Dimon's own words on how the more direct subsidies (govt guarantees) from said program contributed to the firms income in the beginning of this year, which is an economic rent. They have before and did through those various programs. Once again the direct cash transfer you keep getting confused about doesn't mean the implicit guarantee the article and working paper was talking about doesn't cause an economic distortion to the capital markets and causes anti-competitiveness, it does. You seem to be struggling with regulatory economics, here's a book for you, The Economics of Industrial Organization by William G. Shepherd & Joanna Mehlhop Shepherd. That'll help you understand the working document and other economics you seem to be attacking me for.

I'm not getting confused about a direct cash transfer, so let's just drop all the whole train of though. And I didn't skim. I just don't get why you'd start a thread with that ugly-ass ZH headline and then get huffy when I called you a tool for doing it.

The cap-market disparity discussed in the paper is...well...it's not new. I've never seen them use straight up ratings like that to rip out comparative bp advantages.

SIFI privilege, as compared to smaller banks, is one of those economic albatrosses that'll (maybe) never go away until the utopic days of German-style public utility banks...or maybe just like, honesty. I'm not one of those people who thinks there's no economy of scale that comes with having banks that big. There is. But given the continued uselessness of each successive Basel conference, it's really not even a topic I enjoy talking about.

Har. Now I'm vaguely reminded of a paper I read through the Cleveland Fed's that I read....wow. Last year. Damn: http://www.clevelandfed.org/research/Seminars/2011/heitz.pdf

Save your arguments for Law School bro. And stick to the copying and pasting from google and wikipedia of economic facts to other posters. Also, slow down on your monetarist beliefs, there are several schools to economics and you'll end up doing what we just did, debating fruitlessly instead of learning. You pass off you opinion as fact too much and think you're slick but you're not. Kids like you (no offense seriously) can be slightly irritating because you're so quick to argue with someone from you're biased position and not consider if you're off or not.

Don't bother quoting again me to respond because I'm not go back and forth with you, read some more econ textbooks first.

Since when am I a monetarist? At what point in my short Coli tenure did I say anything that could be remotely construed as "monetarist" strictly speaking? The fact that I hinted --admittedly in another thread -- that the explosive growth of the money supply since 2008 has not triggered inflation as we feared should be the primo giveaway that I'm NOT a hardcore monetarist. And don't give me that huffy response of, "Don't even bother trying to reply to this! Nope! Don't do it!"

Nope. You're not getting off that easy.

I need someone to talk to in the Higher Learning thread and now that you've outed yourself (to me, anyway), that someone is going to be you. I'll even be nicer to you now that you've outed yourself. I need you here. Congratulations. Your punishment for demonstrating any kind of knowledge is talking to me for all eternity. And yes, you will. Because...who else are you going to talk to on here?