JP Morgan Lost

Posted: May 24, 2012 12:01 AM

I recently read the headlines in the local newspaper about the J.P. Morgan debacle: “Few grasp J.P. Morgan’s strategies.” 

I’ve also been listening intently to the mainstream media as they continue to rationalize J.P. Morgan’s $2 billion loss because of the “intricacies” of the derivatives market. 

In addition, the word “rogue” is being resurrected as the excuse for the predicament that Jamie Dimon and the folks at Morgan find themselves in. 

I started pondering this line of thinking and became bewildered. 

Let me explain. 

For many years, I’ve enjoyed the game of blackjack.  In fact, I’ve played in a multitude of casinos around the world, from Monte Carlo and Macau to London and Las Vegas. 

I understand the game, the nuances, and the odds. 

Yet, when it comes to craps, I only like to watch the action.  I find it exciting, but I don’t completely understand the game. 

To me, it’s too complex.  Many people say the same thing about blackjack. 

I find those comments amusing because I think blackjack is very simple to understand.  However, I’m sure the craps players would think the same about me. 

And that is the point. 

Those who gamble at high levels totally understand what they’re dealing with.  They know the nuances, the strategy, the risks, and the rewards. 

Good players don’t sit down at a blackjack table or stand at the craps table in order to lose money. 

They treat the game with respect, because if they don’t, it could be very, very, painful.  The “London Whale” was no rogue trader. 

He or she was a professional who had experience working with the derivatives market, a market that was originally developed by J.P. Morgan.

The trader had been very well compensated for past success, highly regarded by peers, and lauded by superiors including Jamie Dimon.  This professional broker was well aware of the potential outcome, winning or losing on a very large scale. 

However, the trader apparently didn’t anticipate the lack of a counterparty to allow for the final series of bets. 

Imagine, if you will, a blackjack player or a craps players who had a string of bad luck but knew their fate was about to change for the better. 

Yet, just at that very moment the casino makes an announcement “sorry, no more bets, the tables are closed.” 

The impact would be devastating. 

The incurred losses would then become very real since the players’ attitude is usually “it ain’t over ‘til it’s over.” 

When the counterparty says they’re turning out the lights and it’s time to go home, that’s when the grave reality finally sets in, whether your game is blackjack, craps, or derivatives. 

The game may be complicated, but the reality of the situation is very simple.  J.P. Morgan lost!