After the bailouts of 08′ and 09′, there has been a somewhat disorganized attempt by many to express their outrage at bankers. The Tea Party sort of said something, then the Occupy Wall St. movement kinda said something. But make no mistake, when it comes to bold messages Wall St. doesn’t mix messages. Their message, “we know, and we don’t care”. Whether it’s sipping champagne on balconies during the ‘Occupy’ protests, or Goldman Sacs coincidently selling off of half their B.P. stocks before the oil spill disaster, too many on Wall St. are experiencing the after effects that is moral hazard.
During the housing collapse in 08′, American taxpayers were given a convoluted explanation of how Wall Street handled risk in the market. They were given confusing explanations of ‘credit default swaps,’ and ‘collateral debt obligations,’ and when no one could effectively explain it, then it was passed off as “too complicated to explain”, and “not even the CEO’s of these large banks really knew what they were.” All of these complicated financial instruments were packaged under the umbrella of how the banks got ‘too big to fail’ and why they need to be bailed out.
Then came the political grandstanding from Congress, all the heads of the biggest banks had to appear in Washington to answers questions about what they knew, what they didn’t know and how they wouldn’t let whatever they got caught knowing ever happen again. What followed after an emphatic scolding by Congress was huge CEO bonuses, bought off elections, and a market rebound back over 14 thousand points.
Since then there have been a slew of related scandals, some bigger blimps on the radar screen than others, but for the most part all have been blips. Everything from ‘robo signing’ of foreclosure gate, illegal transfer of client funds for a cover up at MF Global, and who could forget the massively under reported LIBOR scandal.
Enter JP Morgan Chase, Jamie Dimon, and an East London trader named Bruno Iksil, who goes by the moniker “The Whale” a name reserved for big bettors in casinos who are known to enjoy throwing money around for a good time. (maybe Dimon didn’t know the reference when he signed off on a strategy to ‘understate’ the risk involved, but I doubt it) Since the story first got reported of the 6 billion dollar loss, the once untouchable C.E.O. Jamie Dimon, had become increasingly implicated in this case. As reported here by New Yorker’s Paul Ryan…
“The escalation in the scandal started with Thursday’s publication of a three-hundred page report by a Senate subcommittee, which said Dimon not only signed off on a strategy that understated the risks being taken by the bank’s traders, including Bruno Iksil, a derivatives trader known as the Whale, who worked out of the bank’s tower at Canary Wharf in east London. After Iksil’s losses were revealed, last April, the report said, Dimon misled investors and the public about their nature.”
So now, with the big banks showing that they have not learned their lesson, and with every subsequent banking scandal, the question becomes; not if the markets will collapse again, but when will the markets collapse. After all, it is apparent to anyone who has tried to deconstruct an explanation of ‘credit default swap’, that even most on Wall Street don’t know what is going on.