JPMorgan (JPM): A Monster That’s Out Of Control

Like the horror movie where the little monster created in a test tube in the lab grows and grows only to wind up threatening the whole village, the JPMorgan (JPM) “London Whale” trader’s exotic credit derivative bet is now a potential $100 billion liability, according to the Wall Street Journal of last Friday. And the loss has ballooned from $2 billion to possibly $5 billion in one week!While Jamie Dimon may have beached his Whale, the credit derivatives which Warren Buffet aptly called “weapons of mass destruction” continue to grow. Indeed, Dimon and JPMorgan continue to argue that this was a proper “hedge” which was “poorly monitored” and have fired the underlings supposedly responsible for the mess.

The rest of us, however, know better. We know how this horror movie will end, because we saw it over and over again in 2008 and beyond. It was called “Too Big To Fail,” and it always ended the same way. The murderous banks, splattered with gore, scurried away, bailed out by the Fed and ready to spawn more bad trades for a sequel.

The reality is that JPMorgan is “too big to manage” and Dimon, the leading critic of the “Volcker Rule,” needs to admit that fact and change course to save his bank and avoid the harm which could affect the rest of us should this monster not be contained.

Since May 10, on the evening of which Mr. Dimon finally fessed up to his Whale’s monstrous trades, JPMorgan’s stock through last Friday dropped 17.6%. And the broader stock indexes have also suffered, with the S&P 500 losing 4.4% and the Dow Jones Industrial Average down 3.6% over the same period of time.

With fear and uncertainty rampant in the markets before the revelation of JPMorgan’s horror show, the bank can’t take all the blame for the broad market’s downward swing. Still, the JPMorgan debacle has turned into a bloody disaster for all mom and pop investors due to losses in retirement and college savings plans.

Stay tuned for the climactic ending when Dimon testifies before the Senate Banking Committee next month. No doubt, Dimon will explain what he hath wrought and why he believes regulation of “too big” banks is not the antidote for his monster of a bank.

Disclosure: Zamansky & Associates are securities attorneys representing investors in federal and state litigation and arbitration against financial institutions, including JPMorgan.

About Jacob H. Zamansky 58 Articles

Jacob (”Jake”) H. Zamansky is one of the country’s foremost authorities on securities arbitration law, the legal recourse for investors claiming broker wrongdoing, or for brokers claiming wrongful termination or other misconduct by their employer. Zamansky & Associates, the New York-based law firm he founded, represents both individuals and institutions in complex securities, hedge fund, and employment arbitrations.

Mr. Zamansky was at the forefront of recent efforts to “clean up” Wall Street. In 2001, he successfully sued former Merrill Lynch analyst Henry Blodget on behalf of a New York pediatrician misled by Blodget’s stock research. The case’s successful resolution was the catalyst for New York Attorney General Elliot Spitzer to investigate the conflicts of interest on Wall Street and resulted in the well-reported $1.4 billion Global Settlement, which included many of the biggest names on Wall Street.

More recently, Mr. Zamansky is one of the leading litigators and opinion leaders of the subprime mortgage crisis and the related hedge fund collapses, representing both investors and mortgage borrowers who were defrauded by Wall Street firms and mortgage lenders. Among Mr. Zamansky’s early actions is filing the first arbitration case on behalf of institutional and high net worth investors against Bear Stearns Asset Management with regard to the two hedge funds which collapsed as a result of exposure to subprime mortgage backed securities. He also has filed claims on behalf of individual investors victimized by brokers that steered their portfolios into unsuitable subprime stocks and mortgage borrowers who were fraudulently coerced into inappropriate mortgage and investment transactions.

Earlier in his career, Mr. Zamansky worked for more than 30 years as a litigator, including positions at Skadden Arps, Slate, Meagher and Flom LLP. His tenure also included serving as a federal prosecutor with the Federal Trade Commission.

A native of Philadelphia, Mr. Zamansky has been a frequent expert commentator on CNBC, CNN, and FOX News and has published opinion pieces in The Wall Street Journal, Financial Times and USA Today. He is regularly quoted and his cases have been chronicled in major financial and news publications including The New York Times, USA Today, The Washington Post, BusinessWeek, Fortune and Forbes. He is a frequent lecturer for industry and legal groups around the country. He also writes a blog that can be viewed here.

Visit: Zamansky & Associates

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