A month ago, JPM and four other large Wall Street banks met with the Fed Reserve in a secret meeting. Rumors were amiss that time that the banks were facing losses possibly from the derivative market on EU bonds. MF Global was the canary in the Wall Street mine. JPM is the first to release its initial losses to see public reaction. The other US Wall Street banks have similar losses which will be exposed in the future. Problem in a nutshell, JPM (and maybe other US banks) thought they had a well thought out computer program to leverage money in derivatives on EU sovereign debt. Problem is the EU crisis was more volatile then one predicted thus JPM (and maybe other US banks) now own the derivatives that are losing value each day, and worst there is no private buyer in the derivative exchange for it. Everyone is too scare to buy derivatives on EU debt no matter how low the prices go. In other words JPM (and the other US banks) maybe stuck with these devaluing derivatives and are facing severe losses. They may have gone to the Fed with the threat of financial meltdown. Problem is the Fed and US Treasury is out of options to bail them out in an election year. 2012 is going to be a mess. We will see how the markets react on Monday.
I am wondering what outrageous moves they make to avert the meltdown for another half a year or a year. Seems that kicking the can down the road is becoming harder to do.
The real problem here...if you think about this....is that the banks all have vast sums of money invested in Europe. If the Greece business really does go down the tubes, then there could be a huge significant loss coming for the banks. All JP Morgan was doing...was getting themselves into some “bets” and ensuring some marginal profits to balance their books. They guessed wrong, and they are still in line for the Greek failure.
If you note the currency exchange rate over the past month...it’s been showing a weaker Euro. Let’s say in six weeks that the Euro weakens another ten percent. That will really bring US investments down. It also makes European products cheaper to buy for the American public. American products will cost a heck of alot more.
All in all...I’d say by November that another economic recession will have been launched and it’s to have nothing to do with the American sector...just a reaction to the European sector.
Just print some more digits, enter them in the credit ledger and hand them over. What's the problem? Election year. What's the problem?