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.