Banks Shared Clients' Profits, But Not Losses In Securities Lending During Meltdown

New York Times:

JPMorgan Chase & Company has a proposition for the mutual funds and pension funds that oversee many Americans' savings: Heads, we win together. Tails, you lose -- alone.

Here is the deal: Funds lend some of their stocks and bonds to Wall Street, in return for cash that banks like JPMorgan then invest. If the trades do well, the bank takes a cut of the profits. If the trades do poorly, the funds absorb all of the losses.

The strategy is called securities lending, a practice that is thriving even though some investments linked to it were virtually wiped out during the financial panic of 2008. These trades were supposed to be safe enough to make a little extra money at little risk.

Read the whole story: New York Times

Comments

[hamsteronwheel]

10:16 AM on 10/21/2010

we are all hamsters on neocon "financially engineered" wheels...

geithner and goldman need to be INVESTIGATED, PROSECUTED, and CLAWED BACK for financial terrorism along with blankfein, fuld, rubin, summers, bernanke, greenspam, dimon, speyer, stephen friedman, prince, weill, immelt, chais, merkin, picower... They all KNEW the public would forget their crimes due to the sunami of cascading information that no common person can process...

after all they finance the major media outlets.

most are NY Fed alumni.

their unmitigated GREED destroyed middle class mortgages, 401Ks, health care, schools, and the middle class.

This was the greatest REDISTRIBUTION of wealth in history; UPWARD to the wealthiest few.

by appointing geither, summers, having rubin in a key advisory role, minions of goldman sachs throughout his administration, and reconfirming bernanke, Obama is complicit and has facilitated this pillaging of America.

if he is to be remembered as anything other than a wall street facilitator, if he is to live up to his campaign rhetoric, he has to make Major, Bold, Progressive changes that CLAMP DOWN on wall street, private equity, hedge funds, and invest in the middle class!

[Sundialsvc4]

08:06 AM on 10/20/2010

In other words: "swindling." Securities fraud. Mr. Ponzi shared only the "profit," too.

[Dosadi]

09:02 PM on 10/19/2010

Derivatives:
Basically, derivatives are financial instruments whose value depends upon or is derived from the price of something else. A derivative has no underlying value of its own. It is essentially a side bet. Originally, derivatives were mostly used to hedge risk and to offset the possibility of taking losses. But today it has gone way, way beyond that. Today the world financial system has become a gigantic casino where insanely large bets are made on anything and everything that you can possibly imagine.
The derivatives market is almost entirely unregulated and in recent years it has ballooned to such enormous proportions that it is almost hard to believe. Today, the worldwide derivatives market is approximately 20 times the size of the entire global economy.
Because derivatives are so unregulated, nobody knows for certain exactly what the total value of all the derivatives worldwide is, but low estimates put it around 600 trillion dollars and high estimates put it at around 1.5 quadrillion dollars.

Counting at one dollar per second, it would take 32 million years to count to one quadrillion.

To put that in perspective, the gross domestic product of the United States is only about 14 trillion dollars.
In fact, the total market cap of all major global stock markets is only about 30 trillion dollars.
So when you are talking about 1.5 quadrillion dollars, you are talking about an amount of money that is almost inconceivable.

[Sundialsvc4]

08:12 AM on 10/20/2010

Dosadi... it --is-- "unbelievable." As in, "not to be believed."

Take the number "1 quadrillion," and cover up the "1" with your fingertip, and tell me what is left.

"Derivatives" are a con game. Ponzi "sold derivatives" too, only he did it on a vastly smaller scale. He could not flim-flam his game quite so thoroughly, and he did not know to pay out millions of his flim-flam dollars every day to gullible public officials. But, the game is otherwise precisely the same.

And let's use the "C" word here. "C-R-I-M-E."

When we talk about "paying off public officials," let's use the same noun-phrase we can read on a handwritten document in our National Archives: "H-I-G-H C-R-I-M-E."

Let's take a position of "Zero Tolerance" to this thing. We are "the people," and there are 310 million of us. (Less than one thousand senior Civil Officers, in all of DC.) Let's take a lesson from a dog and "take a bite out of it."

[Dosadi]

04:41 PM on 10/20/2010

I'm with you. This crime has run for long enough. All of Europe is in trouble because they to had to bail out the banks. Why? I think it is time to call the bank's bluff. It is time for everyone to default on all debts. Call it a strike or a correction but the people are afraid of the banks and we need to reverse that and make them afraid of us. They need us to continue to play their game or else they all go belly up so let's put a little stress on them to see how much nerve they really have. I'll bet greed takes over and the banks will settle for anything the people force on them just so they can play their game a little longer.

[banker67]

06:10 PM on 10/18/2010

I caught Chase charging me for more than a year for a service I never signed up for. They just tucked the extra charge into a credit card bill, obviously hoping I wouldn't notice. And I didn't for quite a while because I was raised to think your bank is at least neutral -- certainly not actively skimming your deposits with some electronic scam.
When I called them on it and threatened to file a complaint with my state's attorney general, they refunded a nice fat sum no questions asked. How many banks refund your money right away without asking any further questions?
How many older people are paying big banks phony charges like the one's Chase ripped me off for, but have neither the energy or the confidence to confront a huge corporation?
If it's just one single million customers, that's an extra $50 million a month in the Chase executives' Swiss bank accounts. Nice work if you can pay the SEC to look to the other way.

[UtahSlim]

05:21 PM on 10/18/2010

Relax - it's even worse than the article says. The bank lends your pension securities to short sellers - allowing them to take much larger positions that can drive down the value of the stock that your pension fund owns. Bad luck if you are in retirement and need to sell some of those mutual funds for retirement income. For the life of me, I cannot understand how this is legal, nor can I see how this is in the best interest of the investor.

[Rick Eriksen]

02:08 PM on 10/18/2010

So this is where they want to put Social Security...If I were the Dems, I would take this little video and email it every voter they can find and tell them when the Rat’s get elected and privatize Social Security, that this is their plan…along with some analysts as to well that plan as worked out in the last few years…

[PhilipTaylor]

02:01 PM on 10/18/2010

They WON so many ways - BUT THIS WAS #1:

MASSIVE Hidden FEES in Derivatives equal to Super-Hyper-Inflation projected out for DECADES.

Those Hidden FEES were then siphoned OFF into Bankster Incomes and Bonuses in the $TRILLIONS over the last many Years!

[PhilipTaylor]

02:03 PM on 10/18/2010

Then they SOLD the "Sure-Fail" HIDDEN FEE EMPTIED Junk to their Clients as Safe "AAA" Faked Investments that were SURE to FAIL!

[BlairCase]

01:10 PM on 10/18/2010

Pension funds permit Wall Street firms to invest their money in high-risk strategies because they need high rates of return to meet their obligations to pensioners. Pension funds could invest their money in low-risk strategies and accept lower rates of return, but then they would have to increase employee contributions or pay lower pensions. When Wall Street firms were private partnerships, they took far fewer risks because they were gambling their own money. Now that they have gone public, they are playing with stockholders' money. As a result, they are much less risk averse. People should keep this in mind when they buy stock or turn over their money for Wall Street to invest for them.

[judiNJ]

01:09 PM on 10/18/2010

BTW, I am NOT a Teabagger OR a Republican. Just a furious liberal Democrat that will vote for my Democratic rep on Nov. 2.

[dollbaby]

01:07 PM on 10/18/2010

Mr. Evangelist
____________________________
Now there's a name that screams TRUST ME.

[Kris Bui]

12:59 PM on 10/18/2010

If we had had no one voting for us (which I'm ALL for); and we voted for ourselves, we'd of had NO BAILOUT. What's the definition of insanity? Doing the same thing over and over and expecting different results. WE VOTE PEOPLE INTO OFFICE AND EXPECT DIFFERENT RESULTS. We DON'T NEED CONGRESS.

[dollbaby]

01:10 PM on 10/18/2010

right.........we can just stand in the streets and duke it out! I don't think so.

[wonmean]

01:58 PM on 10/18/2010

Once again, no real solutions.

Thanks for the reiteration.

[judiNJ]

12:59 PM on 10/18/2010

And ANYBODY wonders why we should not privatize Social Security? Pleaaaasssseeeee... these are pensions they are gamboling with. So, WE, the people would have to pay back these thugs for what the banks would lose on OUR Social Security?

[1110Awaits]

12:47 PM on 10/18/2010

Yet another reason why we [TEA Party] said NOT TO BAIL THEM OUT!

Imbeciles.

[northstar11]

01:04 PM on 10/18/2010

so here is what i dont get -----how does that turn into support for republicans ------

[dollbaby]

01:12 PM on 10/18/2010

exactly......the bail out was the brain child of President Bush. wow ..........I thought I would never use President Bush and brain in the same sentence.

[Dosadi]

09:04 PM on 10/19/2010

so here is what i dont get -----how does that turn into support for republicans ------

The answer is simple; the tea party is comprised of idiots and simpletons. 1110Awaits just proved it.

[Dosadi]

09:04 PM on 10/19/2010

Yeah must have said in the same tone that you thanked Obama for the tax cuts he gave you. Nobody heard either.

[Dr Scott]

12:24 PM on 10/18/2010

Ha ha! It's a good thing the "little people" know nothing about how the economy works or how we rich folks make money!
I love this country! The average voter doesn't even realize that the reason the government doesn't work (from their perspective anyway) is that THEY are clueless! Lol!
I can even tell them that I have more money now than I had before the "economic crisis" and that I didn't work one single solitary second to "earn" it, and that I pay NO federal taxes on it, and they will all still vote to extend the Bush taxcuts, hopefully permanently.
I have to laugh (all the way to the bank) every single time I think about it!
Poor dumb bastards!

[Zinfendale]

12:21 PM on 10/18/2010

HP headline reads "Pension Funds Wound Up OWNING JPMorgan More Than $500 MILLION To Cover Bank's Bad Bets" should be OWING JP MORGAN...