Wednesday, June 13, 2012


Jaime killed them.  Shot every one of them dead.  Of course he had a couple of big guns--intelligence and knowledge--and the other guys had pillows.  Dimon's testimony before the Senate Banking Committee today was a toure de force under any circumstance but given the woefully inadaquate levels of intelligence and knowledge on the part of the inquisitors it was really a walk in the park.  Whether it will have any positive an entire rethink of the stupidity kown as Dodd/Frank remains to be seen but for those with a passing knowledge of what banking is about these days it highlighted one simple fact that I have been preaching about for years: if an average intelligent man can't understand the risk, you have too much risk.  And without quite saying it, Jaime admitted that no one in Morgan fully understood the risk and those in charge seemed to refuse to admit that fact.  At least that's what I got out of his testimony.

Another important thing came out of his testimony which five will get you ten will be ignored by the majority of the popular press and the talking heads, is the fact that under the risk model being used by Morgan, the "losses" in the positions were understated, BUT, that risk model had recently been changed: if the previous model had been in place,  the "losses" would have been highlighted.  And so it goes.  "Mark to model" has been highlighted over and over as a salient factor in damn near all of the great catastrophies of the past 20 years going back to Long Term Capital.  Garbage in, garbage out,  We now bank by theory, and as the great Yogi Berra once put it--or so it is believed--"In theory, theory and practice are the same, in practice, they're different."  Truer words were never spoken.  Do I have a theory to fix it?  No, but you had better beware of the practice in financial institutions today and understand that the risk is not so much a deliberate and conscious decision to engage in risky practice: it may be simply a case of using the wrong algorithm.


And so it came to pass that while I was burying my old friend, all the world figured out that the rescue of the Spanish banks simply was a sham and might well have made matters worse.  Dare I say, "Told you so?"  I swear,  I have never seen so many stupid people crowded into one small land mass as this of of Eurocrats.  The reaction to this latest act has been so overwhelmingly negative that they may well have destroyed the currency not to mention the Community itself.  Dumber yet, is the contention in the popular press that the reason for the negative reaction was the realization that this deal would have priority in regard to repayment over future financing of the Spanish Government.  Total crap.  The Spanish hadn't a prayer in hell of raising substantial funds from the capital markets.  NONE!  The real reason for the negativity is the growing realization that this mob has absolutely no clue as to what they are doing and appear not to care--although I doubt that.  They are simply too dumb and lacking in market knowledge, and too vain to relaize that they are that dumb.  A dangerous situation to be sure.  And to top it all off they are looking for, as we say in soccer, "a result" in the Greek elections to calm the troubled waters.  Maybe the Germans, happy as can be to be going thru to the quarter finals with  a result today against what can only be called the Clock-stopped Orange, will feel good enough about things to start bailing folks out but I doubt it.  God, what a disaster!

Unfortunately, all of this is beginning to spill backwasr into Italy so I'm going to try to get ahold of Massimo to find out what the mood is there.  It may take a while: Massimo is of the view that the summer months are not to be spent in worry or business dealings.  He could be anywhere.  Maybe evne in Poland or the Ukraine.  I Azzuri look good.

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