J.P. Morgan's $2 Billion Loss and CDS Trading

JP Morgan’s $2 Billion Loss Reaffirms the Need to End CDS Trading

J.P. Morgan Chase has lost 2 billion dollars trading in the last six weeks, and could face an additional 1 billion dollars in second quarter losses. This is no surprise as J.P. Morgan Chase’s massive derivatives portfolio (Credit Default Swaps) can cause immense losses to the bank with even small percentage changes in the underlying securities. How long does the U.S. government wait before it tells the biggest U.S. banks that it is unlawful to gamble depositors money in markets that are at risk of systemic shock? Do we need to wait any longer?

“The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There were many errors, sloppiness and bad judgment. These were grievous mistakes, they were self-inflicted.” – Jamie Dimon

Knowyourbank.com is not against big banks per se but we are wholly against the use of CDS by banks in any large size. Banks in the U.S. are not financial insurance companies and should not be insuring securities. Banks should be lending and driving the engine of the American economy. J.P. Morgan Chase has great products and services, so it begs the question why put it all at risk. Everyone in a position of power needs to hear the alarm bells from an announcement like this, and be serious about the risks inherent in the current derivatives portfolio of the largest banks in the U.S.